Indemnity accounting?

[keith]

How you keep your books and what are the effects of the tax laws are two 
very separate things. The question of which damage awards are taxable 
and which are not is an amazingly complicated question in the US. If you 
are getting damages to replace lost income or profits, better count on 
paying taxes. But if you are getting compensated for the pain of a 
broken arm (and not punitive damages against the jerk who broke it) then 
you are probably in the clear.

Keith
Guelph ON

Cam Ellison wrote:
> David Bear wrote:
>   
>> This may be a question for an accountant. However, I would create an expense
>> account the represents the 'accident'. Expense accounts normally have a
>> debit balance but there's nothing to say that they cant have a credit
>> balance. Record the deposit as a debit to your cash account and a credit the
>> the expense account. Then, all future charges related to the accident will
>> be debited to the expense account. In the end, you will know whether you
>> came out ahead on the settlement.
>>
>> And it is my understanding that insurance settlement payments of this nature
>> are not considered income. (at least in the US)
>>     
>
> Also in Canada.
>
> In any case, as I understand such things, insurance settlements are to 
> compensate you for something you have lost (an object, or your mobility, 
> employability, health, life, etc.) or may lose (health, etc.) as a 
> result of the accident or whatever.  For personal injury settlements, 
> the idea is that you invest the money so that when your body gives out 
> on you prematurely because of long-term effects of the injury you can 
> afford the extra medical care, or whatever.  It's not earned in any 
> usual sense of the word, hence it is not income.
>
> Cheers
>
> Cam
>
>
>