I meant to type LTD above. Therefore the amount does in fact become taxable unless you could prove that the amount of this insurance was included in you compensation or if you could prove that you paid for part of the insurance, which appears did not happen.
Please see the following:
IRS Code Section 104. Compensation for injuries or sickness
Except in the case of amounts attributable to (and not in excess of) deductions
allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include:
(1)amounts received under workmen's compensation acts as
compensation for personal injuries or sickness;
(2)the amount of any damages (other than punitive damages)
received (whether by suit or agreement and whether as lump sums or as periodic
payments) on account of personal physical injuries or physical sickness;
(3)amounts received through accident or
health insurance (or through an arrangement having the effect of accident or
health insurance) for personal injuries or sickness (other than amounts
received by an employee, to the extent such amounts
(A) are attributable to
contributions by the employer which were not includible in the gross income of
the employee, or
(B) are paid by the employer)
The following is directly from the IRS
You must report as income any amount you receive for your disability through
an accident or health insurance plan paid for by your employer:
- If both you and your employer have paid the premiums for the plan, only the amount you receive for your disability that is due to your employer's payments is reported as income.
- If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive for your disability as income on your tax return.
- If you pay the premiums of a health or accident insurance plan through a cafeteria plan, and the amount of the premium was not included as taxable income to you, the premiums are considered paid by your employer, and the disability benefits are fully taxable.
- If the amounts are taxable, you can submit a Form W-4S (PDF), Request for
Federal Income Tax Withholding, to the insurance company, or
- Make estimated tax payments by filing Form 1040-ES (PDF), Estimated Tax
Amounts you receive from your employer while you are sick or injured are
part of your salary or wages.
If an employee pays taxes on the employer's premium payments, the benefit
payments will not be taxable.
If the employee does not pay taxes on the employer's premium payments, the
benefit payments will be taxable. Check to see how the employer reported the payments. If it is part of your compensation you still have a shot at excluding the income.
If you paid legal fees for a lawyer in relation to making money then he is part of the expenses of making that money and should be deductible against the income under IRS code section 162.The below link is to a site that
The below website gives some insite also. It comes from the attorney's perspective on how to manage the case. However, it gives very appropriate explanations as how to treat taxable/non-taxable income, attorneys fees and costs and how to possibly approach reporting taxable income.
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Pursuant to U.S. Treasury Department Regulations, we are now required to advise
you that any federal tax advice contained in this communication, including
attachments and enclosures, is not intended by the Sender to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.