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
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.
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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.
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.
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.
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.
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.
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.
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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.
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!
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