Paid a legal settlement out of pocket - Can I deduct this from my income on 1040?

What if the settlement was for a car accident I caused? It wasn't while I was working, just driving to the store. My insurance didn't cover all of it so I had to pay like $15k out of pocket. Is that deductible?

For a car accident that occurred during personal driving and not for business purposes, unfortunately that settlement payment would not be tax-deductible. Personal car accidents fall under personal expenses, which aren't eligible for tax deductions. This is true even if your insurance didn't cover the full amount and you had to pay out of pocket. If the accident had happened while you were conducting business (like delivering products or driving between work sites), then it could potentially be deductible as a business expense. But for regular personal driving like going to the store, the IRS considers this a personal expense.

Does taxr.ai work with all tax software or just specific ones? I use TurboTax and am wondering if their guidance would help me input things correctly there.

I'm a bit skeptical about AI tax tools. How accurate is it really? Have you verified their advice with a human tax professional? Just wondering because I've heard horror stories about algorithm mistakes.

It works with any tax software since it just provides the analysis and guidance on how to handle specific tax situations - you'd still input the information yourself in TurboTax or whatever you use. It helped me understand which forms and which lines to use based on my specific settlement. The accuracy has been solid in my experience. I actually did show the results to my accountant (I was nervous about claiming the deduction) and she confirmed the analysis was correct. She explained that the AI is trained on tax code and regulations, so it's drawing from the same information that tax pros use. The difference is it can analyze specific documents and situations much faster.

How does this actually work though? Do you have to give them personal info? Seems sketchy to have a third party connecting me to the IRS.

Yeah right... like this actually works. The IRS is impossible to reach. I've tried for literal months. If this actually worked, everyone would be using it. Sounds like a scam to me.

They just need your phone number so they can call you back when an IRS agent is on the line. You don't have to provide any tax info or personal details to them - they're just handling the waiting part. When they get an agent, they bridge the call to you and then drop off. It's like having someone physically wait in line for you, but on the phone. It definitely works - I was super skeptical too. Apparently they use some tech that keeps redialing and navigating the phone tree until they get through. I tried for weeks on my own before using it, and was connected to an agent in about 17 minutes with their service. The time savings alone was worth it for me since I was getting nowhere trying to call myself.

Thanks for this - my settlement does break down different amounts. About $21k was compensatory for financial losses and about $7k was listed as "other damages." Is there a way to deduct at least the compensatory part?

Based on your breakdown, if the $21k compensatory damages were related to financial losses from a business activity or investment property, then yes, that portion would likely be deductible in the appropriate section (Schedule C for business, Schedule E for rental property, etc.). The $7k listed as "other damages" is more ambiguous and would depend on the specific nature of those damages. If they're punitive damages, those typically aren't deductible. If they're for emotional distress without physical injury, those generally aren't deductible either. But if they relate to a business loss in some way, they might be.

Do cancelled checks count as proof or do you need more than that? I paid my settlement in 3 installments and have the cancelled checks but wondering if I need more documentation.