Tax season is just around the corner and many who have filed and won their personal injury claims will have to report the money they were awarded on their returns. But surprisingly every year more and more of those who have won settlements do not file their taxes properly and end up losing money unnecessarily.
So what should you look for when filing taxes and including your personal injury claim? Not so surprisingly there is a lot of money that can be filed as tax free if done properly.
Money Awarded for Pain and Suffering:
Currently the IRS states that any money paid to someone for pain and suffering due to physical injury is considered to be tax free. So technically it does not matter if the money came from winning a lawsuit or from a settlement from the opposing party.
Another fact is that compensation given for emotional distress should be considered as personal injury and therefore is also considered to be tax free.
Money Given for Medical Expenses:
Any money given to the injured is also considered to be tax free. However if the injured filed a tax deduction claim for accident related medical expenses and also won reimbursement as part of the lawsuit claim, the amount filed as a deduction will be taxable per law.
Money Given for Lost Wages:
While it may sound strange, but the money given as payment for any wages lost is also tax free. This is also true even if the wages would have been taxable if earned normally.
Money Used for Attorney Fees:
Unfortunately any money used for Attorney Fees cannot be filed as tax free no matter if the attorney is used for a physical injury or illness lawsuit. The fees that are being collected by the attorney can still be filed on your tax return as a deduction; however the government will tax the appropriate amount.
Every year knowing what is taxable and what is not during a Personal Injury Lawsuit becomes more and more difficult. If you or someone you know needs help with a Personal Injury Lawsuit settlement then the Law Offices of Edward Lai Law are willing to help.
For a consultation feel free to contact the Offices of Edward Lai Law at 510-397-8287.