When it comes to being awarded personal injury settlements, most people must be very wary about how they file their tax returns. Many people think that insurance settlements aren’t taxable, and that is a very wrong line of thought, because everything that passes through the IRS is almost always subject to taxation. In this article, we are going to give you some tax tips that you must know after receiving a personal injury settlement or award. This will make it easier for you to understand the next time that you’re filing your tax returns, so that you won’t fall into the trap that many people fall into.
Tax Tip 1: Money for Pain and Suffering
Pain and suffering money is the money paid for physical injury, and that is federal income tax free, according to the IRS. The same applies for money that is awarded for emotional distress, since this is also considered personal injury.
Tax Tip 2: Money for Medical Expenses
Money paid to cover medical expenses is also tax free, and when claiming a tax deduction, you must have records in order to be reimbursed.
Tax Tip 3: Interest Paid on an Award
Interest is not considered a part of a settlement, although it could be a part of an award that can then be appealed. Anything that is deemed to be interest is taxable.
Tax Tip 4: Reimbursement for Lost Wages
Any money that is paid for wages that were lost is tax free even though the wages would have been taxable had you received them earlier.
Tax Tip 5: What About Attorney’s Fees?
Attorney’s fees cannot be deducted when collecting a tax free award for physical injury or sickness. If a part of the settlement is tax free (physical injury, wage loss), and the other is taxable (interest), when filing your tax returns, you must report the full amount of the taxable part without deducting the attorney’s fees.
Being that we are talking about legal matters, I thought that it would be important for us to mention Shelby Lawyers. This is a firm that is located in North Carolina and the perfect one for you to turn to when making your personal injury claims. Some of the mistakes that people make every day include:
- Failing to maintain safe standards on their property
- Selling defective or dangerous products to the public
- Driving a car or another vehicle while under the influence of drugs, alcohol, or other distractions
In the event that you’re injured and it is another person’s fault, getting your compensation for personal injury could take months, or even years. Let the professionals do it for you because that is what personal injury attorneys, Shelby, are there for. As they handle your case for you, you can recover emotionally and physically from the accident.
At least now you have an idea of what is taxable and what is not when it comes to personal injury settlements. We also know that the best way to handle personal injury claims is by going to the professionals to do it for you. Above we reviewed Shelby Lawyers, and you can rest easy as they get the hard work done for you.…