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Is a civil settlement taxable?
12-14-2016, 12:26 PM
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#1
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Full time employment: Posting here.
Join Date: Jan 2014
Location: Austin
Posts: 661
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Is a civil settlement taxable?
Earlier this year I had an attorney prepare and send a demand letter to a particular auto manufacturer for "Breach of Warranty". Long story short I had given them five opportunities to repair a defect under warranty and they couldn't.
After a couple of months of furnishing facts and negotiations, I accepted a total cash settlement of $8.5K for loss of value ($3K in attorney fees and net $5.5K to me). The amount is a fuzzy calculation of the difference between what I paid for the vehicle and what I would have paid for it had I known of the defect. In effect, returning a portion of the purchase price to me.
Do you think the auto manufacturer will send me a 1099 and I will have to pay federal income taxes on all or part of this settlement?
__________________
ER'd 6/1/2014 @ age 53. Wow, is it already 2022?
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12-14-2016, 12:55 PM
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#2
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Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: May 2005
Posts: 17,242
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From what you say.... no, it is not taxable...
It is payment for 'damages' you sustained...
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12-14-2016, 01:39 PM
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#3
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Recycles dryer sheets
Join Date: Jun 2010
Location: Southwest Florida
Posts: 470
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No, it is not taxable. A judgment is taxable only when the payment is in lieu of income that would be taxable. Best example is for lost wages.
Bruce
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12-14-2016, 02:55 PM
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#4
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Give me a museum and I'll fill it. (Picasso)
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Join Date: May 2005
Posts: 17,242
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 Quote:
Originally Posted by MBMiner
No, it is not taxable. A judgment is taxable only when the payment is in lieu of income that would be taxable. Best example is for lost wages.
Bruce
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I think there are other things that are taxable.... like punitive damages... which are not related to lost wages...
A good lawyer would structure the settlement so that as little as possible is taxable...
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12-14-2016, 06:46 PM
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#5
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Full time employment: Posting here.
Join Date: Jan 2014
Location: Austin
Posts: 661
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Thanks!
__________________
ER'd 6/1/2014 @ age 53. Wow, is it already 2022?
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12-14-2016, 06:54 PM
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#6
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Moderator
Join Date: Nov 2014
Posts: 9,179
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I don't know what your state tax situation is, but I'd look into a refund if you paid sales tax based on the original sales price. I have no idea if this would work, but I'd spend a few minutes trying to determine if it was. In Michigan, the sales tax is 6% so that would be $510.
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12-15-2016, 07:38 AM
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#7
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Full time employment: Posting here.
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Location: Austin
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Quote:
Originally Posted by Jerry1
I don't know what your state tax situation is, but I'd look into a refund if you paid sales tax based on the original sales price. I have no idea if this would work, but I'd spend a few minutes trying to determine if it was. In Michigan, the sales tax is 6% so that would be $510.
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That did occur to me - auto sales tax is 6.25% here in TX so that would amount to $531 but they'd probably laugh me out of the county tax office if I were to pop in and ask for a refund, arguing that they have no way of knowing the total amount didn't already include a portion of the taxes paid.
__________________
ER'd 6/1/2014 @ age 53. Wow, is it already 2022?
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12-15-2016, 09:20 AM
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#8
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Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: May 2005
Posts: 17,242
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Quote:
Originally Posted by Jerry1
I don't know what your state tax situation is, but I'd look into a refund if you paid sales tax based on the original sales price. I have no idea if this would work, but I'd spend a few minutes trying to determine if it was. In Michigan, the sales tax is 6% so that would be $510.
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Quote:
Originally Posted by Looking4Ward
That did occur to me - auto sales tax is 6.25% here in TX so that would amount to $531 but they'd probably laugh me out of the county tax office if I were to pop in and ask for a refund, arguing that they have no way of knowing the total amount didn't already include a portion of the taxes paid.
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I would also think they would laugh you out... why  Because your settlement should have taken that into account and you should have gotten it from whom you sued...
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12-15-2016, 10:34 AM
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#9
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Full time employment: Posting here.
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Quote:
Originally Posted by Texas Proud
I would also think they would laugh you out... why Because your settlement should have taken that into account and you should have gotten it from whom you sued... |
Exactly.
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ER'd 6/1/2014 @ age 53. Wow, is it already 2022?
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12-15-2016, 10:49 AM
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#10
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
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Do they give you a 1099? Can you take the check to the bank and cash it without depositing it?
That is always a great test.
__________________
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12-15-2016, 12:26 PM
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#11
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Full time employment: Posting here.
Join Date: Jan 2014
Location: Austin
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Quote:
Originally Posted by Senator
Do they give you a 1099? Can you take the check to the bank and cash it without depositing it?
That is always a great test.
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Don't know. Gave my attorney POA, he received the check made out to me from the auto manufacturer, subtracted his fees from the total and wrote me a check on his business account for the remainder.
__________________
ER'd 6/1/2014 @ age 53. Wow, is it already 2022?
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12-15-2016, 02:00 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
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Quote:
Originally Posted by Looking4Ward
Don't know. Gave my attorney POA, he received the check made out to me from the auto manufacturer, subtracted his fees from the total and wrote me a check on his business account for the remainder.
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I would ask the attorney's if they are going to issue a 1099. If not, $6K of income is really a small pittance in the eyes of the IRS.
Although I do not think any civil suit income money is taxable. It is generally money to right a wrong.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
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