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    JudyKayTee's Avatar
    JudyKayTee Posts: 46,503, Reputation: 4600
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    #1

    Apr 14, 2013, 10:32 AM
    Report 1099 Misc Income
    I won a Small Claims case against a Corporation in 2012. I am in the middle of preparing my taxes and realize the Corporation sent me a 1099 listing the Small Claims award as "Misc Income/Other Income" to me.

    I am obviously surprised that this is taxable to me.

    Is this correct?
    joypulv's Avatar
    joypulv Posts: 21,593, Reputation: 2941
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    #2

    Apr 14, 2013, 10:45 AM
    I just looked in my paper copy of IRS 17 and it's under Other Income, Court Awards and Damages. It has a short list of types of ordinary income that must be declared, including punitive damages, lost wages/profit, interference in business, and breach of contract.
    JudyKayTee's Avatar
    JudyKayTee Posts: 46,503, Reputation: 4600
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    #3

    Apr 14, 2013, 11:15 AM
    Wow - so depending on your tax bracket you pay a % of any award.

    In my case this is for financial advisor fees paid in advance and then the financial advisor did nothing so the fees were returned to me.

    So I won but I lost!

    Thanks, Joy.
    The Junoo's Avatar
    The Junoo Posts: 44, Reputation: 1
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    #4

    Apr 17, 2013, 05:05 PM
    The $600 requirement is for the corp who paid you being required to send you a 1099 and for them to report it to the IRS. It is crucial that you report this income because the IRS also receives a copy of Form 1099-MISC and 1096 from the payer. Failure to report Form 1099-MISC income can lead to an audit and underreporting of income. If you made no out of pocket expenses you would report the income on Line 21 of Form 1040 as one time deal. If you did not render services, then SE tax should not be due on this amount. On the contrary if you made pocket expenses for the income, you'll have to show the amount, and any allowable associated expenses, on a sch C (or you can probably use a C-EZ), and fill out a sch SE to calculate your self-employment tax.
    JudyKayTee's Avatar
    JudyKayTee Posts: 46,503, Reputation: 4600
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    #5

    Apr 17, 2013, 05:30 PM
    Thanks, Junoo, but I didn't say I wasn't going to report it. I asked if anyone ever heard of this before.

    I work in the legal field, and I've never seen a Court-ordered refund of fees listed as income to anyone.

    And, yes, I understand 1099 income and how it's reported.
    The Junoo's Avatar
    The Junoo Posts: 44, Reputation: 1
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    #6

    Apr 17, 2013, 07:21 PM
    A damages award can cover a variety of different types of damages, and the types of damages included in the payment affects whether the damages are taxable; the type of damages awarded generally determines whether you must pay taxes on the money you receive. Damage awards often include an amount designed to reimburse the winning party for his out-of-pocket expenses resulting from the losing party's conduct.. Damages to reimburse for out-of-pocket costs are generally not taxable. Damage awards also generally include an amount for lost income or loss business opportunities. This portion of damages is designed to compensate the victim for any money that she otherwise would have been able to earn had she not been damaged by the other party. A business, for example, may claim lost profits over a period, or an injured person may claim wages and income lost during a period of physical recovery from injury. Damages for lost income, lost profits or lost business opportunities are generally taxable because they are considered replacement income to the winning party.
    The Junoo's Avatar
    The Junoo Posts: 44, Reputation: 1
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    #7

    Apr 17, 2013, 07:31 PM
    NOTE: Whether you have to pay tax on the court award or legal settlement depends on what it is for. After Aug 20, 1996 a legal settlement or court award received is only tax free if on account of physical injury or physical sickness. Include the following as ordinary taxable income on your tax return: Breach of contract; Compensation for lost wages or lost profits in most cases; Punitive damages; Damages for:Patent or copyright infringement;Breach of contract; Interference with business operations; Any legal settlement or court award under the Age Discrimination in Employment Act. Do not include in your taxable income on your tax return a legal settlement or court award for compensatory damages for personal physical injury or physical sickness.

    Emotional distress is not considered a physical injury or sickness; therefore, a legal settlement or court award for emotional distress is includable in taxable income on your tax return. However, a legal settlement or court award up to the amount paid for medical care expenses attributable to emotional distress are tax free and do not need to be included on your tax return. I guess you may attach an explanation statement to your tax return along with a copy of the 1099 explaining what the Form 1099 is for, and claiming exemption from taxable income. Please visit the IRS Website; or you may contact a CPA/EA in your local area for more accurate info in detail.

    http://www.irs.gov/pub/irs-pdf/p17.pdf
    JudyKayTee's Avatar
    JudyKayTee Posts: 46,503, Reputation: 4600
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    #8

    Apr 18, 2013, 07:45 AM
    Junoo, I have no idea why you're not understanding this. I work in the legal field; I know all about taxable and non-taxable "settlements;" I am an independent contractor and know all about 1099's. My very specific question was that I have never seen this type of Court award - a refund of professinal fees - listed on a 1099 form.

    There is no question that this was reported to the IRS. Remember, I got a 1099? The question is why. There is no question that it's reportable income to me. The question is why.

    I have no idea why you are explaining how watches are made when I simply asked for the time.

    My other problem is that you are plagerizing, which is very specifically not allowed.
    The Junoo's Avatar
    The Junoo Posts: 44, Reputation: 1
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    #9

    Apr 18, 2013, 08:51 AM
    [QUOTE=JudyKayTee;3445278] My very specific question was that I have never seen this type of Court award - a refund of professinal fees - listed on a 1099 form.




    I see; sorry for my misunderstanding. My bad. Thanks a lot for your feedback.

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