What Parts Of My Settlement Could Be Taxed?
There are certain damages that will always be taxed. Those include:
● Lost Wages Reimbursement: Wages whether earned through standard means or as part of a settlement are always taxable. These will be taxed at your standard income rate. So they can easily be calculated by your attorney.
● Interest Payments: Interest, like wages or the interest accrued from an investment, is a form of income. Therefore, any interest will be taxed at a standard, accountable rate.
● Emotional Suffering: Emotional suffering is a form of compensation for the emotional turmoil you have experienced as a result of your income. This is not a tangible damage like medical bills and therefore is subjected to a taxes. Your attorney can also help advise you on what to expect to pay in taxes on any emotional suffering damages.
● Punitive Damages: Punitive damages are a way for the courts to punish perpetrators of gross negligence. Punitive damages are rare, but they are not a repayment for what the accident has cost you. Therefore, they are considered essentially a form of income and will also be taxed. As with all taxes, your attorney can help you understand what this will cost.
All of these forms of compensation are essentially a form of income and therefore will be taxed.
What Parts Of My Settlement Will Not Be Taxed?
Damages paid for anything that cost you money out of pocket is not taxed, as that was income already taxed previously. Things like transportation to and from medical facilities, added household expenses as a result of the accident, and property damage are not taxed. You will however, need to include an itemized deduction for all the expenses related to your accident injury as part of your taxes. Also, the payments for medical bills are tax exempt.
How Can I Reduce The Tax Burden On My Car Accident Settlement?
We know that after an accident, most injury victims are financially burdened and their budgets are stretched thin. So the last thing they need is a large tax bill to hit come April. However, there are two major things our attorneys can help you do to reduce the taxes on your settlement:
• We can work to make sure that all your compensation is correctly classified. That means that compensation for your current and future medical bills is classified, so that the IRS has proof it is not a type of income.
• We can structure your settlement and determine a payment schedule for your compensation. This is very valuable for any part of your settlement that is taxable, because instead of being hit by a large tax bill all at once, you can pay those taxes over time.
It is also a good idea to speak with a financial planner. They can help you in retirement accounts and other investments to help reduce the burden.
Although, for the most part, your accident settlement will not be considered taxable income, there is still a chance you may have to pay taxes. That is one of the many reasons why working with a knowledgeable and experienced attorney, like the personal injury lawyers at All Injuries Law Firm is so important. Not only will we help you get the largest settlement possible for your claim, but we will help you navigate the intricacies of things like taxation. Call us today at 941-625-HURT to learn more!