This Web site contains a compilation of more than a thousand consumer finance
columns written by Tony Novak from the 1980s through 2006, updated and reformatted for
maximum usefulness today. New material was added after
2010.
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Legal damages are taxable income
originally posted: 11/22/2006
reposted: 2/18/2011 This post has not
been recently reviewed or revised by the author and may be out of date.
If you notice an error or are in doubt, please send a new question by
email or ask for an update. Email asktony@tonynovak.com.
Q: Do damages awarded in court
have to be reported as income?
A: Yes. Court-ordered damages are
taxable income. The only exception is that personal injury awards are
not taxable. Personal injury awards sometimes include nontaxable
punitive amounts. In many cases there will be off-setting deductions
that reduce the net effect of a taxable court settlement. If you are
expecting a legal settlement, then the important thing is to work with
a tax adviser before your attorney gets to the settlement stage of the
legal process. If you wait until after the case is settled to ask tax
questions, then there is little ht can be done to reduce the tax.
Summary
More resources:
www.wealthmanangement.us.com
