Are punitive or physical damages taxable?

March 5, 2003

Subject:  Physical damages taxable?
From:  Herb
Date:  Sun, 09 Feb 2003

Michael,

Hello, my name is Herb and I have a lawsuit that is currently going through discovery. I have a really quick question on damages. Obviously, I am trying to pay as little in taxes as legally possible.

Are punitive damages taxable? Are physical damages taxable (even if I didn't go to the hospital)? If so, what can be done to best avoid this?

Herb

Answer

Date:  28 Feb 2003

Hello Herb,

Punitive damages are generally taxable. Damages for physical injuries generally aren't taxable. Consider getting help from an attorney who is familiar with these issues in drafting your settlement or lawsuit. This is a complex area of the tax law that requires more than a short answer.

Good luck!
Mike Gray

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