I had a lot of depression caused by the defamation of character law suit and cost me thousands to treat can these expenses be claimed and where on forms??
First question: Did you receive a Form 1099-MISC and typically with the award amount - you mentioned $60,000 - in Box 3 or possibly a different box [should be 3]?
IS IT INCOME?:
Generally, the IRS considers many court awards to be liable to income tax.
- In what line or box on the Form 1099-MISC is the award reported?
- Do you have an understanding of the reason for the court award of damages
The problem is that you must determine if the Box 3 [assuming this is where the amount is reported] amount is simply recovery for deductible expenses such as medical expenses. Alternatively is it an award in regard to personal injury?
Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).
However, is the award - in this case for Defamation actually an award for lost income? If so, it would be reportable as income - Go to PERSONAL / Income in the Interview - See Image and Select Other Common Income and select Form 1099-MISC as shown.
IRS Publication 525 describes the entire process.
Court awards and damages. To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. Include the following as ordinary income.
- Interest on any award.
- Compensation for lost wages or lost profits in most cases.
- Punitive damages, in most cases. It does not matter if they relate to a physical injury or physical sickness.
- Amounts received in settlement of pension rights (if you did not contribute to the plan).
- Damages for:
- Patent or copyright infringement,
- Breach of contract, or
- Interference with business operations.
- Back pay and damages for emotional distress received to satisfy a claim under Title VII of the Civil Rights Act of 1964.
- Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income.
If you have reimbursements [from any source] for medical expenses, you cannot also claim the medical expense itself [that is the reimbursed part of expenses]. On the other hand, settlements where the payment made to the claimant is for bodily harm and medical expense are the rare case where the settlement amount itself is not taxable. So, essentially, it means you cannot double count - get reimbursed and still claim a deduction.
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