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I'm a new attorney operating under a sole proprietorship. I settled a personal injury car accident claim and received the 1099.

San Bruno, CA |

With taxes being due in a few weeks, how do I handle this? Send a late 1099-misc to the client? Not sure what to do and any insight is appreciated. I received the 1099 for the full amount and want to ensure the IRS is aware that I did not receive the full amount and the bulk went to the client. Thanks

None of the settlement proceeds was intended as wage replacement b/c the clients were retired. This was a pre-litigation settlement.

Attorney Answers 11

  1. Best answer

    the client's recovery is not earned income and as such, is not taxable so you don't need to send them a 1099. you report the income then have your CPA write off the portions you did not receive as income, i.e. the portion you sent the client, payments on liens

  2. Congratulations on setting your first PI claim! I would simply turn all of your tax issues over to a CPA and let them direct you. No need to worry about the 1099 at this time.

    All information provided is for informational and educational purposes only and is not intended as legal advice. No attorney client relationship has been formed nor should one be inferred. Our office only represents plaintiffs in personal injury matters such as wrongful death, liquor liability accidents, dram shop cases, traumatic brain injuries, spinal cord injuries and other catastrophic injuries.

  3. This is normal. The insurance company has to report "Gross Proceeds Paid to an Attorney" on Box 14. You should allow a professional accountant and/or tax preparer to advise you regarding how to itemize.

  4. I would note that some of the settlement may be taxable. As I understand it, anything recovered to replace a taxable income (i.e. lost wages) is taxable. The amounts paid to the client for pain and suffering and covering medical expenses are not.

    This answer does not create an attorney client relationship and does not constitute legal advice, but is solely the opinion of a Nevada Attorney.

  5. If the whole check was made out to you, then you deduct the portion paid to your client. But most likely the payer will send a 1099 to the client who will have to deduct your fees. As stated, let your CPA handle it. For now, you do not have to worry about sending out a 1099. Hope you have continued good luck.

  6. There are some wrong answers that were given you. If the settlement was for a physical injury, it is not taxable to client. No 1099 is needed from you to client. The only way the client could owe tax for physical injury settlement, is if they deducted medical expenses on their taxes and then got reimbursed.

    Just keep records about your disbursements to clients or liens etc from your trust account. List those on your schedule C.

  7. Welcome to the broth-sist-er hood! Turn your books over to your accountant and don't worry....

  8. Insurance carriers issue 1099's to the plaintiff/claimant's attorney. This is standard procedure. Let your CPA handle it. You will only pay taxes for the income/ fee that you earned.

  9. Remember also that when you report your income portion of the total 1099 you receive, you do not report the costs you have incurred (report only fees). Best of luck and congratulations.

    Mr. Crosner is licensed to practice law in California and has been practicing law in California since 1978. The response herein is general legal and business analysis.. It is not intended nor construed to be "legal advice" but rather it is analysis, and different lawyers may analyze this matter differently, especially if there are additional facts not reflected in the question. Oftentimes the question does not include significant and important facts and timelines that, if known, could significantly change the reply and make it unsuitable. I am not your attorney until retained by a written retainer agreement signed by both of us. See also terms and conditions item 9, incorporated as if it was reprinted here. In seeking an attorney on this site, beware of limiting your search to attorneys with a 10 rating, and carefully read the AVVO disclaimer regarding their rating system. There are certain factors that are given great weight which do not necessarily have any bearing on an attorney's experience, abilities, and results with certain types of cases. Accordingly, the rating numbers can be misleading. Also beware of basing your choice on the fee charged, as a low fee, depending on the skill, experience and determination of the specific attorney handling your case, could actually have an inverse relationship to the amount actually put in your pocket.

  10. Congratulations from me too! Life can be a lot worse! The issue is not client's taxes but your earnings from which you (with or without help) will determine your taxes. Usually payment is made to a client and his attorney, e.g, "John Victim and his attorney Victorious Law" but if paid entirely in your name other advice here explains how to address it. Make sure you keep track of your expenses in your cases so that your gross earnings are reduced by those operating expenses at tax time.

  11. There are too many chefs in this kitchen, most telling you to go to a CPA (which I whole heartedly agree), but more importantly at this point.... I HOPE TO GOD YOU HAVE AN IOLTA ACCOUNT. You need a client trust account NOW.

    Congrats on your win!

    Any advice, suggestions, answers to questions, directions, either implied or express, are not binding, do not create an Attorney-Client relationship, are not solicitations but merely a generalized response or comment. The facts of every case is unique and requires carefully thought out investigation and research exclusively available during a one-on-one true Attorney-Client consultation including a signed fee agreement.

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