Once you receive a settlement at the end of a successful personal injury claim, it will feel like a breath of relief to know that money is coming your way. The total settlement amount you receive after paying your attorney’s contingency fees might be a little less than you expected due to taxes. Or, it could be jeopardized later due to taxes. For these reasons and more, it is crucial you understand how taxes and third parties can affect your settlement, how to protect what you receive, and what steps to take to make certain you get as large of a settlement as possible.
The reputation of the Internal Revenue Service (IRS) doing whatever it can to take as much from the average American is known across the nation. Should you be worried that this governmental organization is going to dip into your personal injury settlement?
As long as you are compensated in related to physical injuries — like broken bones and debilitations caused in an auto accident — the amount received should not be taxable by the IRS. Emotional distress injuries are also exempt from the IRS taxation, as long as you received some sort of treatment in relation to that emotional trauma.
However, even with those two protections from IRS taxes, there are still many types of damages that can be taxed. To name only a few examples of taxable settlements, the IRS can eventually take a piece of most types of punitive damages, money received to compensate you for lost wages, damages in civil cases not involving physical or mental injury, and interest earned on awards.
Personal injury settlement amounts given to a plaintiff or claimant are supposed to be purely exempt from creditors in a bankruptcy filing. That is to say, you should not be required to risk your settlement to repay debts when you file for bankruptcy. Although, mishandling the money you received or mixing it too thoroughly into your other financial accounts could create complications. Basically, a bankruptcy court may order you to repay creditors using a certain amount of what is available in your bank accounts. If your settlement is in that account and is indistinguishable from the remainder, then you could stand to lose some of it.
When you receive a settlement amount, it is recommended that you speak to an associate from your bank about creating a new account just for the settlement. This extra step is especially important if you receive a considerable large amount, such as one with six or more figures. By establishing a separate bank account just for your settlement, it will be clear in case of bankruptcy what money is “untouchable.”
In acknowledgement that there may be a chance that taxes or creditors could reduce your settlement amount, it becomes clearer that getting a maximized settlement is crucial. To make certain you have the ability to secure a large, fair compensation amount from the liable party after your accident, you need to work with a highly experienced personal injury attorney like Wes Pittman of The Pittman Firm, P.A. Located in Panama City, the law firm represents the wrongfully injured throughout Florida and the southeast. Attorney Pittman and his team can help you seek compensation and better understand how to protect it.
Call (850) 764-0383 now, or use an online contact form to begin your case, if you prefer.