Enduring a wrongful death lawsuit can be difficult, no matter the circumstances. While winning compensation cannot undo the action that took your loved one away, it can support any children or final expenses he or she left behind. If you won a large settlement due to a wrongful death but are unsure of which tax laws might apply to you, there are a few facts to keep in mind as you collect your damages.
- Compensatory Damages Are Tax Free
In most wrongful death cases, the damages you are awarded are not taxed by the Internal Revenue Service. However, it is important to understand that this rule typically applies to compensatory damages such as lost wages, pain and suffering and compensation for medical bills. You can ask your lawyer about the nature of your award and whether you must pay taxes on it.
- Punitive Damages Are Taxable
You may be awarded punitive damages in your case, especially if the defendant acted consciously and with purpose. While most wrongful death suits deal with instances of accidental death, some individuals act out of jealousy or anger. If a judge awards you punitive damages, you may want to hire an accountant to ensure any taxes due are handled properly and on time.
- Estate Taxes Can Vary
If a wrongful death suit resulted in any estate inheritance, you may want to check your state’s tax laws. Some cap tax-free up into the millions of dollars, so unless your legacy is considerable, you will likely not need to pay taxes on it. Your wrongful death attorney may be able to help you with tax restrictions in your home state.
Keep in mind that estate inheritances can vary from cash to real estate to jewelry, and each may have different tax laws attached. You may want to have certain items appraised so you do not overpay any taxes that are due on them. Consider insuring and appraising homes, vehicles and antiques before you make any tax inquiries.
- The IRS Can Modify Compensatory Damages
Most compensatory damages gained in a wrongful death suit are non-taxable by the IRS in most states; however, the IRS does maintain the right to modify your award depending on whether punitive damages outweigh the non-taxable compensatory type. Your attorney will likely keep you informed about such matters as your case progresses.
Pursuing a wrongful death lawsuit can be a daunting experience, especially when the tax laws for such litigation can vary from state to state. Contact a wrongful death lawyer in Indianapolis, IN today for more information and advice regarding how to fulfill your financial responsibilities.
Thanks to Ward & Ward Law Firm for their insight into personal injury claims and how taxes work with a wrongful death claim.