Shreveport Auto Accident Claims: Is My Personal Injury Settlement Taxable?
The answer is no (although there can be some exceptions). Injury settlements are generally compensation and, as such, are not deemed income by the IRS and Louisiana taxing authorities. The rare exceptions involve recovery for emotional injuries (where the injuries do not flow from a physical injury) and where punitive damages are obtained (which can occur, for example, in a settlement involving a drunk driver). Trusted and experienced Louisiana car accident attorneys will understand that there might be tax consequences when a Louisiana auto accident claim is settled. Good personal injury lawyers know that there are methods of structuring a settlement that can minimize possible tax consequences. This is one reason it may be wise to schedule a consultation with an experienced Shreveport auto accident attorney like the one at the Law Offices of Philip B. Adams. Use our Contact Page. Below is some additional information on the taxability of Louisiana car accident settlements.
IRS rules and regulations
The question of taxability is determined by the federal Internal Revenue Code and various regulations issued by the Internal Revenue Service ("IRS"). In this respect, the IRS has long held that any sort of settlement (or judgment from a lawsuit) is only taxable if it is income. As noted above, most of the money received via a settlement is to compensate an injured victim. This includes compensation for medical bills, costs to repair a vehicle, etc. Since the monies are paid as compensation, they are not income and, therefore, are not taxable.
The IRS has also determined that almost every form of compensation that flows from a physical injury is non-taxable. Thus, recovery for lost wages and pain and suffering is deemed compensation and not income. See the IRS tax implications of settlements and judgements.
What are the exceptions?
As noted above, there are some exceptions to the general rule that Louisiana auto accident settlements are not taxable. If a part of your settlement includes punitive damages, that part can be taxed. This is the IRS rule and flows from the fact that punitive damages are NOT compensation. Rather, punitive damages are a punishment imposed on the at-fault party. Since the money is not compensation, it is deemed income for purposes of taxation.
The other main exception involves emotional and mental injuries. The IRS rules state that settlements related to physical injuries are non-taxable. Thus, emotional and mental injuries are non-taxable ONLY IF those injuries flow from -- are directly related to -- a physical injury.
Will I have to report the settlement on my tax returns?
In many cases, even though the settlement is not taxable, the settlement must still be reported on your tax returns. However, you should consult qualified tax professionals for a more precise answer, and you should rely on their advice with respect to your individual tax returns.
Contact A Louisiana Personal Injury Attorney Today
For more information, contact the Law Offices of Philip B. Adams; if you have been injured in a Louisiana accident, our Louisiana personal injury lawyers can help you recover the full compensation you are entitled to according to Louisiana law. To contact us, complete our "Contact Us" page here. You may significantly benefit by having an attorney with legal competence and experience assist you with your Louisiana personal injury case. We have offices in Shreveport and handle personal injury cases throughout all of Louisiana. Thank you for reading this blog and visiting our website.