# Sue Me, Sue You **URL:** \ **Category:** Factual Questions\ **Created:** [January 13, 2000, 5:21pm UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176 "2000-01-13T17:21:00Z")\ **Posts on this page:** 13\ **Page:** 1
**Author:** ![Yossarian](https://avatars.discourse-cdn.com/v4/letter/y/9de0a6/32.png) [@Yossarian](https://boards.straightdope.com/u/Yossarian)\ **Post date:** [January 13, 2000, 5:21pm UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/1 "2000-01-13T17:21:00Z")
Let’s consider the simplest of circumstances: I sue you for $X. I win. You lose. You pay me $X. Questions: 1. It seems to me that the $X I’ve just won (minus Lawyer fees, sure) is “unearned income”… how does the tax schedule work on winnings from lawsuits? Looking at this year’s 1040A, I don’t see where somebody would claim this (or even a note refering to a schedule where it would be claimed as income). 2. Is there any sort of deduction in it for you? Can you claim a lawsuit loss (plus Lawyer fees) as some sort of capital depreciation? Not that I’m planning on suing you. Just something I thought about during this morning’s mandatory EEOC training. ---
**Author:** ![system](https://global.discourse-cdn.com/straightdope/original/2X/e/e489c3b7d8fce19c4b355dd4fc3f88cc39c34b87.png) [@system](https://boards.straightdope.com/u/system)\ **Post date:** [January 13, 2000, 5:36pm UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/2 "2000-01-13T17:36:00Z")
Might it not be taxed as game show winnings are? Surely that’s not earned. I know that if a credit card writes off your debt, it is taxable. My guess is any money you get…the IRS sees as “earned”. * * * If you can’t convince them, confuse them. Harry S. Truman ---
**Author:** ![Random](https://avatars.discourse-cdn.com/v4/letter/r/57b2e6/32.png) [@Random](https://boards.straightdope.com/u/Random)\ **Post date:** [January 14, 2000, 3:59am UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/3 "2000-01-14T03:59:00Z")
Depends on the nature of the lawsuit. If you contract to sell me 500 widgets, which you deliver and I fail to pay for, the part of your recovery (after you successfully sue me) that would represent your profit is taxable. Personal injury or property damage recoveries are generally not taxable, as you are not gaining anything. You are being compensated for the loss of your arm, damage to your car, or whatever. ---
**Author:** ![system](https://global.discourse-cdn.com/straightdope/original/2X/e/e489c3b7d8fce19c4b355dd4fc3f88cc39c34b87.png) [@system](https://boards.straightdope.com/u/system)\ **Post date:** [January 14, 2000, 6:17am UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/4 "2000-01-14T06:17:00Z")
What Random said. Additionally, punitive damages are taxable, and the portion of any judgment or settlement that is specifically allocated to lost income is taxable. -Melin ---
**Author:** ![Mullinator](https://avatars.discourse-cdn.com/v4/letter/m/c2a13f/32.png) [@Mullinator](https://boards.straightdope.com/u/Mullinator)\ **Post date:** [January 14, 2000, 1:48pm UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/5 "2000-01-14T13:48:00Z")
Hot dog, my college degree in accounting finally pays dividends. The IRS makes it vaguely difficult to find their true answer to your questions, but it is pretty much inline with the above posters. I went to [the IRS website](http://www.irs.gov) and downloaded Publication 17. ON pages 88 and 89 it deals with lawsuits. > [@](#): > > Legal Expenses > You can usually deduct legal expenses that > you incur in attempting to produce or collect > taxable income or that you pay in connection > with the determination, collection, > or refund of any tax. > You can also deduct legal expenses that > are: >  Related to either doing or keeping your > job, such as those you paid to defend > yourself against criminal charges arising > out of your trade or business, >  For tax advice related to a divorce if the > bill specifies how much is for tax advice > and it is determined in a reasonable > way, or >  To collect taxable alimony. > You deduct expenses of resolving tax > issues relating to profit or loss from business(Schedule C or C–EZ), rentals or royalties(Schedule E), or farm income and > expenses (Schedule F), on the appropriate > schedule. You deduct the expenses of re-solvingnonbusiness tax issues on Schedule > A (Form 1040). and > [@](#): > > Personal Legal Expenses > You cannot deduct personal legal expenses > such as those for the following. > > 1. Custody of children. > 2. Breach of promise (to marry) suit. > 3. Civil or criminal charges resulting from > a personal relationship. > 4. Damages for personal injury. > 5. Preparation of a title (or defense or > perfection of a title). > 6. Preparation of a will. > 7. Property claims or property settlement > in a divorce. > You cannot deduct these expenses even > if a result of the legal proceeding is the loss of income-producing property. Finally, for various court awards > [@](#): > > Court awards and damages. To determine > if settlement amounts you receive by > compromise or judgment must be included > in your income, you must consider the item > that the settlement replaces. Include the > following as ordinary income. > > 1. Interest on any award. > 2. Compensation for lost wages or lost > profits in most cases. > 3. Punitive damages. See Punitive damages, > later. > 4. Amounts received in settlement of > pension rights (if you did not contribute > to the plan). > 5. Damages for: > a) Patent or copyright infringement, > b) Breach of contract, or > c) Interference with business operations. > 6. Back pay and damages for emotional > distress received to satisfy a claim under > Title VII of the Civil Rights Act of > > 1. > > Do not include in your income > compensatory damages for personal physical > injury or physical sickness (whether received > in a lump sum or installments). > Emotional distress. Damages you receive > for emotional distress due to a physical > injury or sickness are treated as received > for the physical injury or sickness. > Do not include them in your income. If the > emotional distress is due to a personal in-jury that is unrelated to a physical injury or sickness (for example, employment discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress. Emotional distress includes physical symptoms > that result from emotional distress, such as > headaches, insomnia, and stomach disorders. > Punitive damages. Punitive damages > generally are taxable. It does not matter if > they relate to a physical injury or physical > sickness. > For more information on punitive dam-ages, > get Publication 525. I know, pretty long and pretty dry, but this should help (along with Pub 525 mentioned above.) * * * Well, shut my mouth. It’s also illegal to put squirrels down your pants for the purposes of gambling. ---
**Author:** ![Yossarian](https://avatars.discourse-cdn.com/v4/letter/y/9de0a6/32.png) [@Yossarian](https://boards.straightdope.com/u/Yossarian)\ **Post date:** [January 14, 2000, 2:33pm UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/6 "2000-01-14T14:33:00Z")
Excellent! Thanks to all, and especially Mullinator. That answers the OP and then some. Game show winnings, though (as per Banks’ response)–THAT’S got to count as unearned income, I’d think. Or does the studio (or whoever) call you an employee (ie., performer) and send you a check (minus FICA, etc.) and a W-2 at year’s end? Contract labor? Is it too late to name this thread “burning tax questions”? ---
**Author:** ![Mullinator](https://avatars.discourse-cdn.com/v4/letter/m/c2a13f/32.png) [@Mullinator](https://boards.straightdope.com/u/Mullinator)\ **Post date:** [January 14, 2000, 2:37pm UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/7 "2000-01-14T14:37:00Z")
There is a section on that in Pub 17 also. I don’t know the page, but if you go to the IRS website you can download it (must have Adobe). The last few pages are the index and should point you to the correct place. * * * Well, shut my mouth. It’s also illegal to put squirrels down your pants for the purposes of gambling. ---
**Author:** ![Atrael](https://avatars.discourse-cdn.com/v4/letter/a/6a8cbe/32.png) [@Atrael](https://boards.straightdope.com/u/Atrael)\ **Post date:** [January 14, 2000, 3:13pm UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/8 "2000-01-14T15:13:00Z")
On a similar note, how do professional gamblers report their taxes?..Would their winnings be earned or un-earned income? ---
**Author:** ![Lord\_Jim](https://avatars.discourse-cdn.com/v4/letter/l/ecccb3/32.png) [@Lord\_Jim](https://boards.straightdope.com/u/Lord_Jim)\ **Post date:** [January 14, 2000, 3:18pm UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/9 "2000-01-14T15:18:00Z")
**Mullinator** , excellent reply, but if people are going to be looking for tax answer from the IRS, I think this it the link you meant. [http://www.irs.ustreas.gov](http://www.irs.ustreas.gov) ---
**Author:** ![Mullinator](https://avatars.discourse-cdn.com/v4/letter/m/c2a13f/32.png) [@Mullinator](https://boards.straightdope.com/u/Mullinator)\ **Post date:** [January 14, 2000, 3:48pm UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/10 "2000-01-14T15:48:00Z")
JimB, near as I can tell it took me to the exact same page. Regardless, they both work. ---
**Author:** ![Random](https://avatars.discourse-cdn.com/v4/letter/r/57b2e6/32.png) [@Random](https://boards.straightdope.com/u/Random)\ **Post date:** [January 15, 2000, 12:00am UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/11 "2000-01-15T00:00:00Z")
Game show winnings are taxable, as are gambling winnings. Gamblers can deduct gambling losses, however. ---
**Author:** ![Bricker](https://avatars.discourse-cdn.com/v4/letter/b/977dab/32.png) [@Bricker](https://boards.straightdope.com/u/Bricker)\ **Post date:** [January 15, 2000, 2:26am UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/12 "2000-01-15T02:26:00Z")
> [@](#): > > Originally posted by Random: > **Game show winnings are taxable, as are gambling winnings. Gamblers can deduct gambling losses, however.** Only to the extent of gambling winnings. That is, I can’t show a net gambling _loss_ in a given tax year… but if I win $5K some lucky night in Atlantic City, I can deduct other gambling losses during that year, if I had them, up to but not exceeding $5K. Learned this in 1996 when I won $2,250 in six hours at blackjack! - Rick ---
**Author:** ![handy](https://avatars.discourse-cdn.com/v4/letter/h/b5a626/32.png) [@handy](https://boards.straightdope.com/u/handy)\ **Post date:** [January 15, 2000, 4:03pm UTC](https://boards.straightdope.com/t/sue-me-sue-you/6176/13 "2000-01-15T16:03:00Z")
On the tax forms, they ask if you made any money from selling drugs. If you report it & tax it right do they still come after you?