Knowing how the state and federal government will tax your personal injury settlement once you receive it is important. By assessing these guidelines ahead of time, you can factor these amounts into the claim value and adjust your lawsuit demands accordingly.
Although the state of California won’t tax a lot of your settlement, there are some portions that could get taxed, depending on what awards you’ve won in San Diego.
Complying with the law is essential if you want to keep your money and stay out of trouble. If you want to make sure you maximize your settlement and keep the most money possible after taxes, you should consider speaking with a San Diego personal injury lawyer from The Kindley Firm, APC.
Many people receive settlement money for lost income if they’re unable to work from an injury. If you win this award, you must pay federal income tax on this money. You’ll also have to pay state income tax, and your tax on this money will depend on the job you held before your accident.
You may receive settlement money if the accident resulted in damage to any of your property. If your property is valued at less than the award you won, then you don’t have to pay taxes on your award. However, if you received more money than what your property is worth, then the excess money will be taxed.
When you win a reimbursement for medical expenses in your legal settlement, your money will be tax free. However, there’s an exception to the rule. If you paid medical costs for over one year and took an itemized deduction on your medical expenses in previous years, then you must pay back taxes for your deductions.
In the rare chance that you win exemplary damages in your case, this piece of your settlement will be taxed federally but not in the state of California. Any interest you win on your settlement will also be taxed.
When you calculate taxes into your personal injury settlement, it may slightly reduce your award. If you want to maximize your claim, you should consider these taxes on the front end and adjust the amount you fight for. A San Diego personal injury lawyer can help you with the numbers and make the legal process easier.