I settled a personal injury claim and have just signed a release. My question is whether the settlement money will be taxed when I file income taxes?
It’s a sign of spring when I start getting tax questions; you can’t really tell by looking out the window. For the most part, there’s no income tax on an average car accident settlement or slip-and-fall case.
Federal tax code excludes damages received on account of personal physical injuries from taxation, whether by lawsuit or settlement. The exclusion also applies to workers compensation benefits and lump sum settlements. For details, check IRS publication 4345.
But nothing related to tax law can be simple, right? There are exceptions.
Emotional distress awards, distinguished from personal physical injury awards, are taxable. Punitive damages are also taxable. Interest on top of any judgment or award is also taxable.
Wrongful discharge, breach of employment contracts and discrimination claims resulting in awards making up for economic losses such as lost wages, business income and various benefits are also usually taxable, unless a personal physical injury caused the loss.
This is a general summary of a complex area of tax law, not tax advice. Always seek the expertise of a CPA before even considering filing anything other than a very simple tax return.
Why can’t I find an attorney to challenge the estate of a deceased family member on a contingency basis? The assets are extensive, including investment real estate, securities and antique vehicles. My share would be 20 percent. But the administration is bungling the estate and it is taking forever. No attorney wants to take this on contingency. What should I do?
There are several different approaches to achieving your goal, but the length of litigation and the costs involved present financial risks. You didn’t mention whether it is a trust or probate of a will, and this makes a difference.