Lady reported some dishonest activity at her place of employment. Her boss fired her. She took it to court and won a small settlement. Attorney took half and she got half. There was no 1099 or w-2 issued. Taxable?
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Taxable Yes
Yes, this is taxable to the extent of the award, with no deduction for the lawyer fees (except as described below). If the award is itemized, it is possible that not all the award is taxable, such as punitive damages.
Lawyer fees are deductible, except they are a "miscellaneous" itemized deduction subject to the 2%. Also, in the same
category, she may deduct other real costs of pursuing the settlement in addition to the lawyer fees. "Real" costs are those
that actually cost money and doesn't include intangible things like concomitant grief, anxiety, or loss of work.
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