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67. Matt injured Buddy in an automobile accident. The court awarded Buddy $30,000 in damages, but...

67. Matt injured Buddy in an automobile accident. The court awarded Buddy $30,000 in damages, but Matt was only able to pay Buddy $12,000. They both then considered the matter closed. Under these terms, compute the amount of gross income to Buddy and Matt from this event.

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Answer #1

Generally Compensation to the physical Injuries is Non Taxable :-

Whether the settlement or judgement is taxed depends entirely on the claims origin..

These settlement to Personal injury i,e the automobile accident is generally not subject to the State or federal Income tax.

It is irrelevant whether the settlement is done before or after filing the lawsuit ,

IRS cant tax you on the Settlement for personal injury..

So , the compensation you received for Automobile Accidentally is not Taxable and is excluded from the Gross Income.

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