Do You Need to Report Your Injury Settlement on Your Taxes?
Transcript:
Jared: Hi, I’m Jared Richards. I am one of the partners at Clear Counsel Law Group and one of our clients recently asked us whether or not they need to report their personal injury settlement on their taxes. The real true and clear answer is, you need to go talk to your accountant. If you received a settlement have a real accountant to have a real accountant to actually prepare your taxes for this year, and let them make the final decisions.
As a general principle you do not have to pay income tax on money that is related directly to the injury. If you have been hurt in an accident, car accident, and you have received settlement for emotional damages, for medical bills, for Pain and Suffering, or for your property damage, generally those are not taxable.
The IRS views that as you’ve lost something and now you are getting it back in monetary format, so it’s not really a gain. However, if you receive money for lost income, because that income would have been taxable anyway, you do need to report that to the IRS and you’re going to need to pay taxes on it.
Again, talk to your accountant. Before you settle talk to your attorney to talk about how settlement might a portion to help advantage you on taxes. Talk to your accountant he’s the one that’s ultimately going to make these decisions. Looks like Brian has a question.
Brian: To clarify, Pain and Suffering is included in something directly related to the law suit that wouldn’t be taxable.
Jared: It depends. To be quite honest it’s been a while since I’ve had to look this up so, again, talk to your accountant. I want to make sure that’s clear.
My general understand is that if the Pain and Suffering is related to an actual physical impact, that the IRS doesn’t count that as income.
If the Pain and Suffering is in relation to somebody harassing you, somebody calling you names, that’s something you actually might want to talk to your accountant about. That might actually be taxable. Again, you’ve heard me say it about twenty times in this little video, talk to your accountant about it.
As a general principal Pain and Suffering directly related to a physical injury is not going to be taxable. Thanks and if you have any questions give us a call.