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

Asked 8 months ago - 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

Additional information

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. Frederick Joseph Sette

    Contributor Level 12

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    Answered . 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. Richard Todd Rosenstein

    Contributor Level 19

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    Answered . 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.

  3. Larea Annette Griggs

    Pro

    Contributor Level 11

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    Answered . 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.... more
  4. Pamela Octavia Pitt

    Contributor Level 14

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    Answered . 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.

  5. Robert Bruce Kopelson

    Contributor Level 20

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    Answered . 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.

  6. Donald Curtis Kudler

    Contributor Level 15

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    Answered . 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... more
  7. Richard Jonathan Spencer

    Contributor Level 11

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

  8. Maryam Parman

    Pro

    Contributor Level 15

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    Answered . 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. Albert Lee Crosner

    Contributor Level 19

    1

    Lawyer agrees

    Answered . 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... more
  10. Robert Andrew Michael Burns

    Contributor Level 17

    1

    Lawyer agrees

    Answered . 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. Joshua Y. Lee

    Contributor Level 11

    1

    Lawyer agrees

    Answered . 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... more

Related Topics

Sole proprietorship small business

A sole proprietorship is a business owned and operated by one person in which there is no legal distinction between the business and owner.

Personal injury

If you suffer a personal injury as the result of the actions or negligence of another, you may seek financial compensation for physical or emotional damages.

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