FYI-- There are tax implications to suing JDBs

[futurehomeowner?]

WARNING: I AM NOT A TAX PROFESSIONAL AND THE BELOW IS COMPLETELY NEW TO ME SO IF I AM WRONG ON ANYTHING PLEASE POST IT SO I DON'T MISINFORM ANYONE. THANKS!!!!

 

This is something that I just learned today. I had completed my tax return as soon as I could in January. I even received my refund already. Well today I get an email from my lawyer, my first thought was OHH this can't be good. Mid last year I sued a JDB and we settled out of court. Since we settled and did not have a trial the lawyer worked on a contigency. If we would have won at trial I would have been awarded the normal 1k per violation and them having to pay for lawyers fees. Well I was happy because I got it off of my report plus about 3k in my pocket. The total settlement was near $8,000. Well today my first thought was correct. He said in his email, here is a 1099 that I received from the JDB. I wasn't thinking that this money was taxable for some reason. OK well it should be but no biggy I will pay taxes on the 3k. Nope wrong again. The 1099 that I received was for the entire amount. I talked to an accountant this morning and he said that lawyers fees are tax deductible so technically my tax burden will only be on the money that I received. However, I do not own a house or have any other write offs so I take the standard deduction which means I can not write off lawyers fees. Now it tooks like I will be paying taxes on the entire amount which might actually might leave me owing money this year on taxes.

Edited February 11, 2014 by futurehomeowner?

[CTSMOM01]

Don't have any input, but dang

[tiggidy08]

Could they even prove the debt was yours to 1099 you? Or that they purchased the debt?

[futurehomeowner?]

Could they even prove the debt was yours to 1099 you? Or that they purchased the debt?

I don't think that matters. A 1099 is a form that shows a payment. It doesn't say what the payment is for.

 

If they discharged the debt and sent me a 1099-C then I could get around with out paying it probably.

 

ETA: I just realized that I just wrote 1099 in the OP. I received a 1099-Misc and not a 1099-C

Edited February 11, 2014 by futurehomeowner?

[tiggidy08]

I misunderstood. I looked it up on the IRS website.

 

Sorry to hear about this but thanks for sharing the information.

[LindseyB]

It's been a few years since I was self employed but if I remember correctly a 1099 misc is also used for people who make self employment income. In turbo tax you report the income and then in the next section you report your expenses associated with making this income. Legal fees in an expense so even though you don't itemize you can still deduct the legal fees. Itemizing is different then exspenses associated with income

 

 

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[polarpop1]

amend your tax return, you should be fine...

 

worst case is to play around on turbo tax plug in all of your data and then the 1099 and see what the difference is, that should help you gauge the difference.

[ICANHASMUNY?]

you're not talking about the money received for from the settlement,

 

you're talking about the $$$ from the old debt they were reporting?

 

 

better read up on Stewart V. the Tax commissioner.

 

the JDB's 1099c is most likely invalid

 

http://creditboards.com/forums/index.php?showtopic=497511

 

how old is the debt, when was it first charged off ?

[futurehomeowner?]

you're not talking about the money received for from the settlement,

 

you're talking about the $$$ from the old debt they were reporting?

 

 

better read up on Stewart V. the Tax commissioner.

 

the JDB's 1099c is most likely invalid

 

http://creditboards.com/forums/index.php?showtopic=497511

 

how old is the debt, when was it first charged off ?

 

No ICAN I received a 1099 MISC for money received from the settlement.

 

I did not receive a 1099C. I should have been more clear in the OP. I have never received a 1099C so I didn't realize it was called a 1099 as well. I thought that had another name.

[CG in TX]

Yep, this will be income...proceeds from a lawsuit (IIRC, the only suit proceeds that are not taxable are personal injury and, possible, wrongful death). However, you DID get $3K in your pocket, so you are still ahead of the game. Also, you got the satisfaction of giving a JDB a nice little b**** slap. Priceless...

[futurehomeowner?]

Yep, this will be income...proceeds from a lawsuit (IIRC, the only suit proceeds that are not taxable are personal injury and, possible, wrongful death). However, you DID get $3K in your pocket, so you are still ahead of the game. Also, you got the satisfaction of giving a JDB a nice little b**** slap. Priceless...

haha yeah it was definitely worth it. I just wish I would have planned better, but that falls on me. :-(

[pbarnes]

Legal fees are only deductable under very specific circumstances. Best to check with a competent accountant.