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Personal injury compensation could be taxable income

Those who are hurt in Georgia or any other state who receive a settlement could be taxed on those proceeds. In fact, an individual could pay taxes on money that is eventually paid to his or her attorney. However, not everyone will have to give a portion of their injury settlement to the government. For instance, if the award is related to a physical injury, a plaintiff will generally get to keep all of it.

If emotional stress causes a physical injury, any award related to those injuries could be taxed. In some cases, the parties in a given matter can choose how to treat a settlement for tax purposes. While the IRS does not have to agree with how a settlement is broken down, it will generally defer to the terms of the agreement whenever possible.

Anyone who receives punitive damages as part of a financial award will have to pay taxes on that amount. The same is true of any interest that accrues either before or after a case goes to trial. Therefore, it may be a good idea to settle a case instead of taking it to court. Settling a case can also keep legal fees to a minimum. This is important as changes to the tax law mean that these fees cannot be deducted on a return.

Prior to taking legal action in a personal injury case, it may be a good idea to consult with a tax professional. This may make it easier to anticipate the tax consequences of a settlement or obtaining a favorable jury verdict. Those who fail to pay taxes on a financial award in an injury case might have assets seized or wages garnished. An attorney may work with the IRS to help resolve a tax dispute.

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