If you have recently got a car accident settlement, you might be wondering if you’ll have to pay taxes on it. Victims often find tax laws to be confusing after a personal injury case. However, consulting an experienced car accident attorney near Geneva may be rewarding for your finances. Here’s how to figure out if the money you get from a car accident settlement is taxable.
Are Insurance Settlements Taxed?
Income is subject to taxation, as it makes a person more prosperous than before, and insurance settlements don’t get taxed since insurance aims to make an individual whole. The victim, for example, is exempt from paying taxes on compensation for medical costs and damaged property in Geneva or anywhere in the United States. It’s not the same when reimbursing lost income, and an injured person must pay taxes on lost income irrespective of the accident damage. Unlike medical costs and physical harm, your tax returns must include punitive damages. Punitive damages don’t compensate you for your losses; thus, it is reasonable to expect you to pay taxes on these sums.
The following are examples of non-taxable compensatory damages:
- Operation Costs
- Medications on prescription
- Hospitalization and doctor’s appointments
- Fees of your counselor.
- Wheelchairs and other assistive equipment
- Damage to property, such as automobile repair expenses
How To Reduce Taxes on Car Accident Settlements?
Sadly, one cannot negotiate the settlement taxes with the IRS because they cover personal costs like the attorney fee. However, if the insurance compensation is a significant amount of money, you can discuss a structured settlement with your car accident counsel.
A structured settlement is wherein you are reimbursed over several years rather than in a single payment. You’ll be able to save on your current taxes this way. Your attorney will deal with the insurance provider to set up annuities which might save you up to 25% in settlement tax.
In most cases, no taxes will be payable on your car accident insurance settlement. There still are exceptions to the general norm, as is typically the case with tax policy. It will be determined by the sorts of losses you received compensation for in your settlement. Settlements from injuries and illnesses are usually non-taxable (assuming you did not claim an itemized deduction for the particular accident in the past). This will save you a lot of money and allow you to put the rest of your settlement towards getting life back on track.