Whether or not your settlement is deductible depends on why you are receiving a settlement in the first place. If you are receiving a settlement to compensate for injury or illness, chances are you are in the clear. However, if you are receiving funds to cover lost wages or other benefits, you will be required to include your settlement in your gross income for the tax year. You should still be able to deduct your legal fees under IRC Sec. 62(a)(20) though.
We can help you navigate these tax laws. Call our office. We would be happy to help you make sense of your tax obligations!