Many individuals affected by the oil spill in the Gulf Coast are wondering how proceeds from British Petroleum claims will affect their taxes. While the details are still being worked out, long-standing tax codes dictate that - depending on how the funds are designated - some may be taxable while others may not.

For example, businesses and companies that receive funds to replace lost income or profits are generally taxable, as they would have paid taxes on their earnings had the disaster not occurred.

"If the ultimate plan of the payment is to replace what would have been income, it's generally taxable," certified public accountant Ralph Litolff told the Associated Press.

However, payments related to property damage are generally not taxed, as the proceeds are aimed toward "making the injured parties whole again," the AP reports.

Those affected by oil spills and natural disasters should always consult with a tax preparation service regarding the tax implications of any insurance or claims money awarded. Tax professionals can help consumers maximize their tax benefits and avoid costly preparation issues.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.