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Will I Pay Taxes On My Car Accident Settlement or Judgment?
by Kristen White BloggerDo I need to Pay Taxes on My Auto Accident Settlement?
The question of whether one will pay taxes on their car settlement stresses many people. Imagine you have spent a lot of money to cater for your medical expenses. You want depend on the funds recovered to make up for your lost income. Then it dooms on you. Taxes! Usually, people don’t pay taxes on every car accident settlement. Any car accident personal injury lawyer in Wasilla will tell you that there exists an exception to the general rule. This depends on the types of losses you were compensated for in the car settlement case. To get the information about whether you need to pay taxes, you can contact Alaska accident attorney and be informed. Most of the compensations are non-taxable. On the other hand, some of those settlements proceeding from a personal injury claim can be subjected to tax. The law excludes damages recovered from physical injuries. Some of these damages that are not subjected to federal tax include:
Medical expenses
Lost wages
Los of consortium
Pain and suffering
Mental distress
Lawyer’s fees
Remember that the above must have resulted from a physical sickness or personal physical injury. But if you receive compensation that hasn’t originated from physical injury, you must include them in your taxable income. According to the Internal Revenue Service, physical injuries must be visible. A car accident personal injury lawyer in Wasilla will advise on how the tax will be computed. He /she can help you understand the difference between punitive damages that should be taxed and compensatory damages that shouldn’t be taxed. The question of tax does not matter whether the money is from verdict following a trial or through a settlement. Your settlement will get taxed if it falls under Punitive damages. These are damages relating to a breach of contract. These are not awarded to compensate for a loss, but instead, they are awarded because the defendant’s behavior was most egregious. You should go through the amount of your damages and determine whether to include or not include them in your income tax return. If this is a challenge to you, look for an experienced car accident lawyer who can take you through the process.
Analyzing your Settlement or Judgment
It doesn’t matter on the kind of compensatory damages you receive. The reason for them being awarded will define your tax status. If you contact Alaska accident attorney, he/she can guide on what to state in the settlement agreement explicitly. This amount relates to non-personal injury claim and personal injury claim. Any experienced lawyer will tell you that the IRS excludes money received from compensatory damages due to sickness or personal injury. He can classify your damages correctly. If the right amount of tax is not paid, your life can be made harder by the Internal Revenue Service.
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About Kristen White 
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285 connections, 0 recommendations, 1,021 honor points.Joined APSense since, August 19th, 2016, From Chicago, United States.
Created on Mar 24th 2020 04:03. Viewed 294 times.
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