Legal fees for disability income

[mhcpa1964]

Client has paid about $60k in legal fees associated with her private disability income. The iclient believes the income is on a W2. She has many 1099s and W2s from her insurance business.

I'm clear that TCJA eliminated legal fees as a misc deduction. If the income is tied to one of her 1099s can the legal fees be deducted on her sched C?

Any comments and advice is appreciated.

[New York Enrolled Agent]

Client has paid about $60k in legal fees associated with her private disability income. The iclient believes the income is on a W2. She has many 1099s and W2s from her insurance business.

I'm clear that TCJA eliminated legal fees as a misc deduction. If the income is tied to one of her 1099s can the legal fees be deducted on her sched C?

Any comments and advice is appreciated.

What exactly does that mean?

[Anarchrist]

Does she not know what all her W2s and 1099s are from? Not all 1099s are reported on Sch C. Is she operating a business? If yes, were the legal fees related to the business?

[TAXNJ]

Have you looked at The TaxBook? If business related for Schedule C

The TaxBookSee 5-11

Line 17. Legal and professional services. Fees charged by accountants and attorneys, that are ordinary and necessary expenses directly related to operating the business, and fees for tax advice and for preparation of tax forms related to the business, are deductible.

[mhcpa1964]

Between W2s and 1099s she and her husband have 20 slips. Client is researching which slip relates to the legal fees. I believe it's a W2 and so the legal fees wouldn't be deductible. But if she can tie the fees to one of the 1099s then we'll move forward with the deduction.
Thanks all.

[New York Enrolled Agent]

Between W2s and 1099s she and her husband have 20 slips. Client is researching which slip relates to the legal fees. I believe it's a W2 and so the legal fees wouldn't be deductible. But if she can tie the fees to one of the 1099s then we'll move forward with the deduction.
Thanks all.

Maybe other participants on this Board are more clairvoyant than I am, but I really don’t understand this post. It’s hard to give good answers when the post is poorly constructed.

[TAXNJ]

.....If the income is tied to one of her 1099s can the legal fees be deducted on her schedule C?......

Maybe that was a question on the CPA exam? Surely your answers to exam essay questions were properly constructed to pass the exam. Tough CPA exam whereas other type of exams only require True or False and multiple choice answers.

Again, see the other reply posts.

[Burke]

Between W2s and 1099s she and her husband have 20 slips. Client is researching which slip relates to the legal fees. I believe it's a W2 and so the legal fees wouldn't be deductible. But if she can tie the fees to one of the 1099s then we'll move forward with the deduction.
Thanks all.

You said she was in the insurance business. Are her W-2's marked "statutory employee?" That moves them to a Sche C and allows certain business deductions. However, legal fees for disability income would NOT be deductible on a Sche C, since it is not considered an ordinary and necessary business expense. (They would have been deductible under the old law on Sche A, -- misc expenses -- since they were incurred to provide taxable income.) And they are not listed as certain expenses eligible for Line 16 on Sche A in 2020 either. More importantly, you also said she received benefits from "private insurance." If she paid the premiums (which are not deductible) for a policy, the benefits are not taxable. If one of her employers paid for the policy, she will get a W-2 and it is reported as wages. If premiums were paid partially by both her and her employer, then she must pro-rate the income by the proper percentage.

[Rapid Robert]

Client has paid about $60k in legal fees associated with her private disability income. The iclient believes the income is on a W2.

If the income is tied to one of her 1099s can the legal fees be deducted on her sched C?

But if she can tie the fees to one of the 1099s then we'll move forward with the deduction..

I'm with NYEA. These terms are being used in a vague way without enough information. FIrst, what exactly is the nature of the "private disablility income"? Is this from an insurance policy that the taxpayer paid for (and potentially took deductions for?) Was it through an employer? If you got the policy through your employer, your Form W-2 may show the amount you paid in box 12 with code J. Can we assume it is NOT any of the following types of disability income?

• Social Security Disability Insurance
• Supplemental Security Income (SSI)
• Military disability pensions
• Disability Retirement Benefits

Second, mhcp keeps on talking about tying income and/or legal fees (it switches back and forth) to 1099 income. If we assume 1099-NEC (because we aren't told by the OP), then the question is incomprehensible because no one would be receiving 1099-NEC for disabiliity payments, in other words you can't be in the business of receiving disability income. 1099-NEC is only used by a trade or business to report payments made for Services performed by someone who is not your employee (including parts and materials) (box 1). Receiving disability is not a service performed by someone. Post #4 doesnt' seem to have any bearing at all because paying an attorney to help procure disability income (which we do not know the nature of) is clearly not "ordinary and necessary expenses directly related to operating the business".

[Rapid Robert]

I was composing my reply while Burke was making his, but I think we are saying very similar things (correct me if I'm wrong).

[mhcpa1964]

You guys are a hoot. Client confirmed the disability income was reported on her W2. She wasn't a statutory employee and the policy was an employee benefit. Thanks for chiming in all, even the smart alecs. It's all helpful.