Question

Describe how damages received for the following are GENERALLY taxed (assume NOT for PHYSICAL personal injury).

a. Loss of income
b. Expenses incurred
c. Property destroyed
d. Pain and suffering
e. Punitive damages

Answer 1

Damages received for loss of income and punitive damages are generally taxable, while damages received for expenses incurred, property destroyed, and pain and suffering are generally not taxable.

Step-by-step explanation:

In general, damages received for the following are taxed as follows:

1. Loss of income: Damages received for loss of income are generally considered taxable income by the IRS. This includes compensation for lost wages, salary, bonuses, or any other form of income that would have been earned.
2. Expenses incurred: Damages received to reimburse expenses incurred are generally not taxable. This includes reimbursement for medical expenses, legal fees, or other costs directly related to the incident.
3. Property destroyed: Damages received for property destroyed are generally not taxable. This includes compensation for the value of the property lost.
4. Pain and suffering: Damages received for pain and suffering are generally taxable. This includes compensation for emotional distress, physical pain, and mental anguish.
5. Punitive damages: Punitive damages are generally taxable. These damages are awarded to punish the defendant for their actions and are not considered compensatory in nature.