As you begin working with a personal injury lawyer on your recent car accident case, your lawyer may tell you that you will likely receive a large settlement for your case. This is not uncommon when a case is cut and dry and results in major injuries, but you should talk to your lawyer about paying taxes on the money you receive. This is a question some people forget to discuss with their lawyers, yet it is important to understand how your settlement amount may affect your taxes.
Most settlements are not taxable
The good news is that when you receive your settlement, it will primarily be designed to cover two main things. The first is to cover the medical bills from your injuries, and the second is to cover damages to your car. If you receive any compensation for these things, you will not have to include the money as income on your tax return. These types of things are excluded from being considered income, and that is why you will not have to claim them.
Some of your settlement might be taxable
The downside is that not all of the money you receive from your case will be designated to cover the actual damages to your car and injuries you encounter. There will likely be money designated to cover other things, and if so, you might have to pay some taxes on the part of your settlement that is designed to cover other things. Compensation you receive for certain damages will be taxed, and this includes money you receive to cover lost wages and future income. This also includes any type of compensation you receive for punitive damages or emotional trauma and suffering. If any of your settlement amount is for these types of things, you will have to include the amounts as income on your taxes next time you file.
How your lawyer can help
Talking to a lawyer and letting him or her settle your case on your behalf could be helpful for tax purposes. Your lawyer might be able to get the compensation increased for medical bills and decreased for emotional trauma, and if so, this would reduce your tax liability from your settlement check.
If you would like to maximize your settlement amount and minimize the amount you must pay taxes on, talk to an experienced personal injury attorney to learn more about your settlement options.
