PHOENIX, Jan. 18, 2017 /PRNewswire-USNewswire/ -- We are in a new year and tax season is just around the corner. Because of this, if you have received a personal injury settlement or award it is important that you understand all the tax ramifications before filing your tax returns. To listen to the podcast on this subject visit: http://zaneslaw.com/talkshow/tax-consequences/#Personal%20Injury%20
Tax Tip #1: Money for Pain and Suffering
The best way to look at the money that you are being paid for "pain and suffering" is that this is the actual money being paid to you for your physical injury. Currently, according to the IRS compensation that a person is paid for physical injury is federal-income-tax-free. Compensation for emotional distress is also tax-free because it is considered to be part of your physical/personal injury. For more information about personal injuries visit: http://zaneslaw.com/arizona-personal-injury-attorneys/arizona-injury-attorney/
Tax Tip #2: Money for Medical Expenses
Money paid to you in order to cover your medical expenses is tax-free too. However, if you claim a tax deduction for accident related medical expenses and you are later reimbursed for those same medical expenses as part of your case, you must "recapture" that amount and will have to pay tax on it because you previously benefited from the deduction that you took. If your settlement or award does not specifically allocate an amount for medical expenses and you previously took a tax deduction for your accident related medical expenses, the award or settlement is automatically considered to be a reimbursement for such expenses up to the amount of those expenses. So the key here is the tax deduction.
Tax Tip #3: Reimbursement for Lost Wages
Oddly enough, amounts paid for lost wages are federal-income-tax-free, even though the wages would have been taxable if you had received them.
Tax Tip #4: What About Attorney's Fees?
You cannot deduct attorney fees incurred to collect a tax-free award or settlement for physical injury or sickness. In other words, no deductions are allowed for fees in order to collect tax-free compensation.
For more information on Doug Zanes or Zanes Law visit: http://zaneslaw.com/
Disclaimer: always get the advice of an experienced accounting professional after an injury settlement or award. Do not simply rely on this article.
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/four-tax-tips-for-those-who-have-received-a-personal-injury-settlement-300392228.html
SOURCE Zanes Law