I am suing someone for $200,000 in damages. I presume they are not taxable, as they are genuine damages. They have offered to settle for $100,000. Will any of that be imputed interest, as the damage was 4 years ago?
The issue isn't whether or not the damages are genuine. Rather it's what kind of damages they are. Damages for personal injury are generally not taxable, though damages for emotional distress (even if the distress leads to actual physical damages) are taxable.
If you lost money you already paid taxes and are suing to get that back, a recovery for that would not be taxable. But if you are suing for lost income of any kind that you have not paid taxes on, a recovery would be taxab.e
For example.
I have never heard of interest being imputed in a situation like this. Normally you are not entitled to interest on a lawsuit unless the court or a settlement agreement awards it. Additionally, if you are receiving less than your actual loss, I doubt it should be a problem.
Additionally remember that, to the extent your recovery is not taxed, your attorneys fees are not deductible. To the extnet your recovery is taxed, your attorneys fees may only be deductible on your Schedule A - depending on the specific situation.
If the damages are for reimbursement of damaged property (or services to repair damaged property) and you did not deduct the damaged property as a business loss or personal casualty loss, then it is not taxable. Punitive damages are taxable.
as they are genuine damages. They have offered to settle for $100,000.
It is reimbursement for a loss of after tax money. I am confident the reimbursement is not taxable.
The settlement is written as purely reimbursement; no interest. I am just concerned the IRS will insist that some of it is really interest. If it went to trial and I won, I would be entitled to interest on the damages. But of course it isn't going to trial.
If the damages are for reimbursement of damaged property (or services to repair damaged property) and you did not deduct the damaged property as a business loss or personal casualty loss, then it is not taxable. Punitive damages are taxable.
==============Furthermore, damages for "personal reasons" under law such as reputation, discrimination, (other) wrongful termination, etc., are also taxable. Damages for bodily injury are not -- if done CORRECTLY.
"Genuine damages" has no meaning to me. What do you mean?
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