Question

Acme published a story about Paul, and as a result Paul sued Acme for damage to his reputation, emotional distress, and punitive damages. Paul won an award of $40,000 for damages, $8,550 for emotional distress, and $62,500 for punitive damages. What amount must Paul include in his gross income

Answer 1

$40,000 for damages, $8,550 for emotional distress, and $62,500 for punitive damages will all be included in his gross income.

Step-by-step explanation:

The tax laws provides that only payments on an account of an injury or sickness are nontaxable. Thus, damages taxpayers receive for emotional distress that is not associated with a physical injury are taxable as are punitive damages and damages to reputation. Thus all of the above are included in the gross income. $40,000 for damages, $8,550 for emotional distress, and $62,500 for punitive damages will all be included in his gross income.