Reporting Lawsuit Settlements
Whether you have to pay taxes on a settlements from a investor class-action lawsuit depends on why you got the money.

In the I'm-mad-as-hell-and-I-won't-take-it-anymore category, more and more investors burned by stock market losses are joining class-action lawsuits against the companies.
But what if you get a settlement from such a suit? Is this money taxable?
The answer depends on why you got the money. If, for example, it was because you were overcharged for a stock -- because the price was artificially high because of accounting shenanigans (or worse), for example -- the payment is seen as a refund of part of that price. So, if you still own the securities, you should reduce your basis to reflect the payment, and there's no tax consequence until you later sell the stock.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you've already sold the shares, however, you're supposed to report the payment as a capital gain on Schedule D for the year you get the check.
But, if any part of the settlement was for punitive damages, that money is taxable as ordinary income.
And, if part of the payment represented interest earned on the settlement before it was paid out, that's interest income.
The settlement agent should be able to help you sort out things.

-
Increasingly, Red States Embrace Marijuana: The Kiplinger Letter
The Kiplinger Letter Ohio becomes the 24th state to legalize marijuana for recreational use via a voter referendum.
By Sean Lengell Published
-
Charlie Munger of Berkshire Hathaway Has Died
Charlie Munger, vice chair of Berkshire Hathaway, died Tuesday, the company confirmed.
By Alexandra Svokos Published
-
Another Big IRS Tax Change for Online Sellers
Selling Online Just in time for the holidays, the IRS is delaying a significant tax 1099-K reporting requirement for 2023.
By Kelley R. Taylor Last updated
-
Tax-Deductible Black Friday Deals for the Self-Employed
Black Friday Deals Some Black Friday deals can help the self-employed save on business expenses and taxes.
By Katelyn Washington Published
-
Did You Overpay for Thanksgiving Dinner?
Thanksgiving 2023 marks the second most expensive Thanksgiving dinner in history. But how much it cost depended on what you bought, where you live — and whether your state taxes groceries.
By Katelyn Washington Last updated
-
Most Expensive States for Retired Military Service Members
Military Retirement Veterans can keep more of their military retirement pay by avoiding these high-taxed, most expensive states for retired service members.
By Katelyn Washington Last updated
-
2023 401(k) Contribution Deadline Coming Soon
401(k) Contributions Year-end is the deadline for making max 401(k) contributions that can increase your savings for retirement and help lower your tax bill.
By Kelley R. Taylor Last updated
-
10 Worst States To Retire in if You Hate Paying Taxes
State Taxes Relatively high tax burdens make these places the worst states to retire.
By Katelyn Washington Last updated
-
Charitable Donations: What To Know About Scams and Taxes Before You Give
Donations Giving to a charity can make you feel good and lower your tax bill, but the IRS says to beware of fake charities.
By Katelyn Washington Last updated
-
Are I Bonds Taxable? 10 Common Situations
taxes Series I bonds are a popular investment that can also help you save on taxes, but the federal income tax consequences can be complex.
By Joy Taylor Last updated