searched and think I know - settlement not taxable but medical?

[WITAXLADY]

so accident happened and client got $$ and part of it was for medical bills per the settlement - $30,000 - I do not think any of it is taxable - but then the part he used to pay medical bills should not be deductible on Sch A? Of course thru other issues he owes $$$, is a neighbor - who has never darkened my door before..

so whatever thinking you can shed some light on - I surely would appreciate!

thank you

D

[jklcpa]

In general, you are correct that it is probably all nontaxable. That is true as long as none of the medical expenses were included in medical expenses on Schedule A in prior years that provided some tax benefit. 

If any of those medical expenses were on Sch A in prior years did provide a tax benefit, then the portion of the settlement for those expenses that were previously deducted would be taxable as "other income" because it's a recovery.

You are also correct about not deducting medical expenses paid with the settlement because that would be double dipping.  In effect, those medical bills were paid by someone else.

[WITAXLADY]

hhmm - didn't think in those terms - this is the same guy that is trying to get out of the penalty for 2x taking ira's - can I just send him elsewhere!?

Although if someone gives you money - can you not do with it what you want?  Use it for business and it makes it business deductible buying equipment - wouldn't that argument work?