Q: Tax treatment for lump sum settlement payment from lawsuit
Back in December 2018, heavy rain created a flood and my apartment unit got completely submerged in water. Due to this, I’ve lost everything inside my unit including a Toyota Prius.
I’ve been driving Uber as a job full time for the past 6 years.
I purchased (financed 100% @ 23K) 2018 Prius on June 2018 for Uber, and total loss on December 2018, but my insurance paid off my loan in full in January 2019.
I wasn’t able to drive for 10 days and couldn’t afford to buy a car until October 2019-using rental car.
When I filed the lawsuit, I also claimed;
* Income loss $2,250 (10 days)
* Rental vehicle $8,563 (10 months)
*Loss of Vehicle $23,000 (2018 Toyota Prius)
Would I be able to deduct above and possibly more?
Finally, I’m about to accept their settlement offer of 95K, should I have them itemize settlement amounts including the above for tax purposes?
A:
Unlikely they will itemize. You need to pay employment taxes on lost income, if any. You should allot a portion to lost income or IRS will come knocking. If you took tax deductions for casualty losses, and recover the $ for them that may also be taxable income. You should ask your attorney for a referral to a tax accountant for assistance.
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