Car insurance settlements can be both overwhelming and exciting at the same time. Overwhelming because of the anticipation of bad news and the excitement from seeing a possibility of compensation coming your way. But for how long does the excitement last after being compensated copiously? In some cases, your personal injury settlement from a car accident can attract payable taxes. Unknown to the average individual, you may unknowingly accumulate taxes unless after being informed by your personal injury lawyer Los Angeles about what you are looking at.
Can your compensation from a car accident be taxed?
The answer to this question is simply, ‘yes.’ Your car accident compensation can be a subject of taxation. After settling what you owe your Los Angeles personal injury lawyer most likely on a contingency fee basis, the remaining money may qualify to be taxed depending on the situation according to the Internal Revenue Service.
What is and what isn’t taxable from your car accident settlement?
Generally, proceeds from your car insurance settlement are used to repair your car or pay for your medical bills and aren’t considered taxable income by the IRS. Our car accident lawyer Los Angeles will clearly explain that the IRS taxes any money classified as an income, but car insurance settlements don’t align under this category. So, why and when will your car accident compensation qualify to be taxed by the authorities?
When does your car insurance settlement become taxable?
Mainly, the nature of your settlement will determine taxation. Anything that is considered a financial gain after settlement will most likely fall under taxable income. Some insurance settlement cases include money accounted for lost wages, suffering, and pain, which automatically fall under financial gains. Arguments from any personal injury lawyer Los Angeles for lost wages being taxable are that the amount is viewed as income that you would have earned had you not been involved in the car accident.
According to the IRS publication 4345, proceeds received for mental anguish and emotional distress whose origin isn’t from the car accident injury or sickness must be included as income, making them taxable. However, the amount must reflect after deducting money used to settle the medical expenses. In general, if the car insurance settlement accounts for anything other than damages resulting from personal injury, they become subject to taxation.
Are there any exceptions
Your personal injury attorney Los Angeles will guide you on how to separate these terms and comprehend them to avoid making costly mistakes. For instance, punitive damages are set to punish the legally liable party for negligence. The amount set for these punitive damages is always taxable. Your lawyer should help you understand the term and inquire from the court to separate the compensatory and punitive damages. By doing this, you will safeguard your settlement for the compensatory damages and protect them from being taxed.
We understand that the law language can be difficult to comprehend for the standard individual. That is why at Gutierrez Law, we bring you the finest Los Angeles personal injury lawyer to guide you through this journey to satisfaction.