Although no amount of money will ever help you get over the death of a family member, obtaining just compensation for your losses can help you start rebuilding your life. Yet, wrongful death settlements can result in large sums of money, which can leave families wondering how this compensation will affect their taxes and whether it is actually considered income.
Thankfully, with an experienced accident lawyer on your side, you will not have to tackle these questions and concerns on your own. Instead, these skilled lawyers can help you not only fight for the money you need after this tragic death but they can also help you figure out whether your wrongful death settlement is taxable.
Types of Awards Following a Wrongful Death
In general, there are two types of monetary awards that can be awarded following a wrongful death — compensatory damages and punitive damages. Compensatory damages are usually awarded to compensate a plaintiff for the losses and injuries they endured after an accident. As a result, these awards are not taxed by the IRS as these damages are typically not considered income.
However, on the other hand, punitive damages are different from compensatory compensation, as they are awarded for the primary purpose of punishing the defendant for their egregious actions and deterring the defendant and others from committing these acts again in the future. Consequently, because these awards are not actually meant to compensate the victim for their harm and losses, the IRS can find punitive damages subject to taxation.
Yet, it is also important to note that state laws may come into play when determining which of these awards are subjected to taxes following a wrongful death case. That is why it is recommended you speak with an experienced wrongful death attorney about your claim as soon as possible. These lawyers can help you figure out not only which of these financial damages you can pursue following the death of a loved one but how these awards will affect your taxes.
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Are Any Parts of a Wrongful Death Case Tax-Free?
Typically, when it comes to a wrongful death case, there are some parts of the award that will not be subject to taxes. This includes:
- Money awarded for medical expenses
- Money awarded for physical injuries or illnesses
- Money awarded for emotional distress as a result of an illness or injury
- Money awarded for lost wages that resulted from an injury or illness
However, the IRS can tax compensation used to cover medical bills and related costs that were deducted from income in previous filings, as well as general damages awarded to you if you did not suffer an injury or illness yourself. Yet, if you have specific questions about your wrongful death claim or would like further information regarding these tax consequences, you should reach out to a wrongful death attorney as soon as you can. These skilled lawyers can help you figure out which potential damages will be tax-exempt and which ones you may end up paying taxes on.
Can the IRS Challenge Your Settlement Offer?
Unfortunately, when it comes to the IRS, you always need to be on guard, especially when you receive a settlement. This is because the IRS has the power to challenge the arrangement of your settlement.
For instance, if one part of your settlement is more significant than the others, the IRS can try to argue that this portion should be considered punitive damages, and it should be taxed. If the IRS is successful in this argument, then the IRS can end up taxing more of your settlement award than you expected them to.
Thankfully, when you work with a wrongful death attorney, these lawyers can take on this legal fight on your behalf and argue against the IRS’s restructuring of your settlement award so that they do not take away your financial benefits from you. Plus, these legal professionals can also make sure they stand by your side throughout this complex legal process, ensuring you understand all of these tax issues, how they affect your specific case, and what can be done about them.
How Can a Wrongful Death Attorney Help Ensure You do Not Pay More Taxes than Required
Retaining experienced legal representation to help with your wrongful death case can be critical in ensuring you get the money you need. These lawyers can:
- Determine if you have a viable legal claim and what legal options you should pursue.
- Investigate your loved one’s death and gather the evidence needed to prove fault and damages.
- Obtain experts to substantiate your claim, such as doctors, financial specialists, and accident reconstructionists.
- Handle all the negotiations with the other side and go after a just settlement offer.
- Head to trial if the other side is not willing to negotiate fairly and fight for the maximum damages you are entitled to.
Plus, these attorneys can also use techniques that can help you minimize your tax consequences after receiving a wrongful death settlement, such as making sure that the settlement clearly spells out which part of the settlement is for compensatory damages and how much is for punitive damages.
Reach Out to Morris Bart Today for Help
If you lost a loved one in an accident, working with a wrongful death attorney can not only help protect your legal rights but allow you to go after the monetary damages you deserve. That is why contact Morris Bart today for a free case consultation and let us show you how our lawyers can help you.
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