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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 123527  
Subject: Re: How do I report this income? Date: 7/11/2011 9:45 PM
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We just got two checks as part of a securities litigation. The case was against Charles Schwab, one of our brokerages. One check was for our joint account and the other was for DW's IRA.

Since we never owned shares of Schwab, this can't be a capital gain. If it is to make up for overcharging or some other transgression that caused a loss of value to our accounts, would it be a nontaxable return of capital?

I don't think I kept the original stuff the lawyers sent because all these things turn out to be worth $50 or less and they're capital gains because they are about shares we owned. But these checks add up to around $1,000 -- so it matters this time. And next time I'll keep the paperwork.

The easy one is the check payable to DW's IRA. It should be deposited into the IRA. It does not count against her annual contribution limit.

As to the check payable to both of you, the easiest way is to report it as miscellaneous income on line 21 of your 1040. This may overstate your tax liability, as it may be that the payment is not, or only partially, taxable income.

You should be able to find information online that will give you more information as to what the lawsuit was about.

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