Is the award taxable? What do we claim it as? The lawyer received 50 percent of the settlement. Can I claim the lawyer's fee? Thank you!!
2007-10-30 12:23:57 · 5 answers · asked by 2cute 2 in Business & Finance ➔ Taxes ➔ United States
yes
2007-10-30 12:52:21 · answer #1 · answered by Ovrtaxed 4 · 1⤊ 0⤋
Yes, punitive damages are FULLY taxable. "Mary B" has no idea what she's talking about. She's a mortgage broker according to her profile. Mortgage brokers know less about tax law than real estate agents.
An award for physical injury or illness is not taxable. However, if any portion is earmarked for interest, lost wages, or punitive damages those portions are fully taxable.
Lawyer's fees for the preparation of taxes or the production of taxable income are deductible if you itemize. In this case if any portion was for tax advice and is stated separately on the bill it would be deductible. Normally the courts award attorney's fees directly so that you only have to worry about the net settlement. However if it was paid to you and you had to pay it to the attorney it generally would not be deductible.
2007-10-30 13:14:11 · answer #2 · answered by Bostonian In MO 7 · 1⤊ 1⤋
See pub 525 p 29 court awards are not taxable to the extent that they make you whole. Punitive damages would be considered ordinary income, you would list it on line 21 as other income.
You can usually claim as a miscellaneous deduction on Schedule A the attorney fees to generate taxable income see pub 529 p 10
This year it would probably be in your best interest to consult an enrolled agent or CPA
2007-10-30 13:33:20 · answer #3 · answered by Charlie & Angie G 4 · 1⤊ 0⤋
Damages.Compensatory damages received on account of personal physical injuries or personal physical sickness are tax-free (but punitive damages generally are not excludable
Matt and Sally Greenblatt, tax preparers. This answer came from the IRS handbook 2006
2007-10-30 14:15:54 · answer #4 · answered by sallyy 1 · 0⤊ 0⤋
You need to check with a CPA, but generally it is NOT taxable b/c it's an award for punitive damages.
I don't believe you can deduct attorney fees off your taxes.
2007-10-30 12:31:14 · answer #5 · answered by Expert8675309 7 · 0⤊ 3⤋