Are lawsuit awards taxable?

"Ted" wrote

Yes, it is going to be taxable.

Taxable. But the amount may be partly a return of your investment, so maybe not all of it, depending on if you still hold stock, and if not, how you recorded the event.

Unless it's an "S" corporation, how they handle it isn't of concern to you.

If it is an "S" corp, and you still own stock, you would have several things happening, so consult the corporate attorney AND your own attorney or tax advisor (CPA or EA) on the topic.

The part that pays you back for your principal investment (funds you already paid taxes on) is not taxable. Anything in excess of that might be capital gain, or might be ordinary income, depending on the exact nature of your losses and the exact wording if the court's order. Stu

I can't tell if you are more interested in what you have to do or what they have to do? I still do not quite understand what your losses were that you had to sue to recover. But the general rule is unless the settlement is to compensate you for your personal physical injury or disease and you name is not Murphy, then the settlement is taxable.o However, if your automobile was damaged and you sue to recover actual provable losses, that would not be taxable either. If you bought stock in this compoany and later sold it for less than you could have due to actions for which you were awarded damages, you would report the income on Schedule D, short term or long term, depending on the original sale. If you still held the stock, this award would decrease your basis but not below zero. Income in excess of basis is short or long term gain. __ Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH

This may (or may not) be helpful:

The applicable tax statute is not so broad as to include all "illegality." If no criminal statute involved, it's a matter of whether the payments were ordinary and necessary business expenses. The facts which led to the court's conclusion and the corporation law cited may or may not be relevant to the deductibility. Fred F.

Both. Since I am still a significant stockholder, what they have to do is important.

They misappropriated money. My lawyer says I have to chose between them paying my loss to me directly, or having them pay the entire loss back to the company; since the Judge found for me on both, but I can only get one. I am trying to figure out which is better. Perhaps they are ultimately the same.

So, if the award was $100k, my basis $250k, and I later sold the stock a few years later for $500,000, I would have a capital gain of $350k. Is that right?

Seems right to me. But you have a lawyer who, if he doesn't understand the tax aspects, could ask someone who does.

__ Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH