Taxes and deductions...(it's coming sooner than you think) (1 Viewer)

[JimC_A]

I need some LEGAL advice for tax deductions this year. The main concern is a settlement I am receiving from a personal injury case involving a car accident. Anyone care to advise?

 

[nolesrule]

One thing I've learned about the IRS...when in doubt, consult an accountant or a tax attourney.

Of course, that's the exact reason I have my dad do my taxes.

 

[Scott Merryfield]

Joe's advice is the best you will get in this matter. Seek the help of a professional.

 

[StephenK]

I'm not a lawyer, I'm not a doctor, yadda yadda yadda..

It's my understanding that compensatory damages (lost wages) are taxable but Pain & suffering are not, which is why plaintiffs try to load it that way. Don't know about punitive damages.

and yes, consult a professional

 

[Michael Reuben]

It's my understanding that compensatory damages (lost wages) are taxable but Pain & suffering are not

Damages for pain and suffering are compensatory damages.
Jim, hire a professional. Legal advice over the internet isn't privileged, gives you no defense in an audit and no rights against the professional if the advice turns out to be bad. And since no reputable professional would offer advice in this fashion, anything you get wouldn't be reliable.
M.

 

[JimC_A]

Ok....Thanks

 

[Paul Jenkins]

I disagree about hiring a professional. In most cases I've seen, the tax code is easy enough to read to figure it out on your own. That is, if you are willing to invest the time to read it and understand it, and feel you are capable of doing so. I had an accountant do my taxes for a number of years, mainly from a time savings standpoint. However, when the bill topped $1000 I finally had enough and did my own taxes. It took me about 15 hours last year, and will take considerably less this year because I'm up on the IRS code now and feel confident that I don't need to read things 3 times like I did last year
YMMV, of course, and in many cases it is advisable to seek out professional help, but IMHO, it isn't a requirement in all cases..

 

[Christoph]

Have you posed the question to your lawyer in the personal injury case?
Granted, she may not be a tax pro, but one would assume a personal injury attorney has some familiarity with these type of settlements, and would work to structure the settlement to minimize the tax consequences to you.
At the very least she could refer you to a tax professional.
You may want to look at IRS Publication 525, Taxable and Nontaxable Income, particularly the section "Court Awards and Damages".

 

[StephenK]

Michael,
You're correct, my definition of compensatory damages was wrong. Lost wages are simply that, lost wages.
However, I'm still correct about it being taxable while "pain & suffering" isn't.
Jim, see chapter 13 of the IRS doc:
http://www.irs.gov/pub/irs-pdf/p17.pdf
Interestingly, it states that damages received for "emotional distress" unrelated to a physical injury, e.g. discrimination, is taxable, while distress related to a physical injury is not. Love that tax code.