Question for CPA

I got a 1099-misc last year for a situation like that. (I'm not a CPA)

Hi, Stubby.

As I remind often, I am no longer licensed to practice as a CPA - and it's a good thing. Most of what I knew, I've forgotten. And a lot of what I remember is not true anymore. :^{

But the short answer to your question is to "ask your OWN CPA". This question only SEEMS to be a simple one. The answer is buried in all those legal documents that nobody reads except the lawyers who are getting the big bucks to write and read them - and maybe the judge who approves them. If you are lucky, there is a cover letter that tells you what you need to know about WHY you got the settlement and how it might impact your tax return.

There are SO MANY reasons why the $36 might have been paid. Depending on those reasons, your $36 might be completely taxable, or completely non-taxable, or somewhere in between. It might reduce your basis for assets (securities?) you hold. Or it might reduce your deduction you already claimed for expenses, possibly in some prior year. It might reduce a non-deductible expense, in which case you need not report it at all; it just makes your non-deductible grocery bill, for example, a little smaller. Or it might be for something entirely different. (Try researching "damages" in a good tax reference and you might be there all day trying to navigate those "twisty little passages".)

So there's no way that even an expert can tell you without seeing the documents on which the settlement was based.

The practical answer, if you can't get an official one, is to include it in your return as "other income"; the tax can't be much unless you are in such a high bracket that it doesn't matter anyhow.

RC

No. The practical answer is the money goes straight into my pocket.

Actually I believe this is the right answer in any case. I believe many shareholders were harmed by so action of the company in question. The law suit just made each of us whole again. There was no deduction taken for the harm and there is no tax for the money that sets it right.