After your tax preparer completes your tax return, review it before you sign it. Ask questions if something is not clear. Taxpayers should feel comfortable with the accuracy of their return before they sign it. You should also make sure that your refund goes directly to you – review the routing and bank account numbers on the completed return.
● Recovery for lost wages or lost profits are taxable (because they are replacing taxable income).
● Breach of contract awards are taxable (because it's generally a loss of income)
● Personal injury awards are NOT taxable.
● Emotional distress awards are taxable (unless they arise from personal injuries).
● Medical expense awards are NOT taxable (as long as you did not take an itemized deduction for medical expenses related to the injury or sickness in a prior year)
● A payment for damaged or destroyed property is taxed as a capital gain if the money received exceeds the property’s cost (or "basis").
● The recovery of an expense is NOT income (unless the expense was deducted in a prior year, this is known as the "tax benefit rule").
● Punitive damages are taxable.
● Pre-judgment interest and post-judgment interest are taxable.
A tax year is the annual period used for keeping tax records and reporting income. For individual taxpayers, the tax year is the same as the calendar year (from January 1st to December 31st). Most businesses also use the calendar year.
However, a business can alternatively choose a fiscal year as its tax year. A fiscal year is any 12-month period that ends on the last day of any month other than December. There are some instances, such as seasonal businesses, where it may make sense for a business to choose a fiscal year instead of a calendar year.