Do You Have To Pay Taxes For Your Car Accident Settlement in Nevada?
Let’s say you were injured in a car accident caused by a third party in Las Vegas, and you win a settlement against them. You probably are wondering if you need to pay taxes on that money. The easy answer is it depends. Read on to learn about the basics of paying taxes for car accident settlements and how Cogburn Law can help you in Las Vegas with your auto injury case.
Taxes For Car Accident Settlements
Normally, there is no need to pay any taxes for an auto accident insurance settlement. However, there are exceptions. It all depends on what type of compensation you got in your settlement. Generally, you don’t need to pay taxes for physical injuries and sickness. This is actually very helpful, that way the victim saves a considerable amount of money and can use the entirety of the settlement to get back on their feet.
Most Common Types Of Damages Awarded In Settlements
The main reason why so many people seek a settlement from the at-fault driver is physical injuries. These types of injuries can cause a victim to spend thousands and thousands of dollars on medical care. When the physical injuries are serious, the victims may be in need of medical care for the rest of their lives. In a personal injury settlement, you can get compensation for any out-of-pocket medical expenses, including:
- Hospital stays
- Doctor’s visits
- Prescription drugs
- Over-the-counter medication
- Assistive devices
The compensation you get has to be based on the medical bills and any future medical treatment you will be paying out-of-pocket. According to the IRS, the amount of money you receive for medical treatment is not included as income. Therefore, you don’t need to pay income tax for it.
Pain And Suffering
Physical injuries can cause pain and suffering as well. To make up for this pain you can also receive compensation. We understand that no amount of money can ever make your body back to normal. However, the best the legal system can do is money. So, if you have suffered serious pain and suffering you need to get compensation.
The compensation you will get depends on how severe your injuries are. If you have been feeling discomfort for a couple of months only, you may receive less money than if you are permanently paralyzed.
Pain and suffering damages are caused by physical injuries, therefore the IRS doesn’t require you to pay taxes on this compensation. Pain and suffering damages are exempt just like medical bills.
It is possible that you will receive compensation for the damages done to your vehicle or other damages to property. The good news is you don’t need to pay taxes for this amount of money either. Whether the amount of money was spent to repair the car or to reimburse you for renting a car after the crash. These out-of-pocket expenses are being reimbursed to you, so it would not be fair to tax them as income.
After being involved in a car accident many of our clients are left in considerable pain and can’t show up to work for a few months. During this period they need to stay at home or at a hospital, they lose income. A victim can receive compensation in a settlement to make up for their lost income. If the injuries are severe, the victim can also receive future lost income too.
In this case, you will have to report to the IRS the compensation you received for lost wages on your tax return. This is not surprising. If you had earned that income you would have been taxed on it. It is fair to have that compensation taxed.
A car accident can cause severe emotional distress in our clients. Emotional distress can result in:
In Nevada, a car accident victim can receive compensation for emotional distress to make up for it. The IRS does not exclude emotional distress damages from income as a general rule. But, the amounts awarded will be excluded if this distress is caused by physical injuries. This is a very tricky area, so make sure to contact a Cogburn Law car accident lawyer in Las Vegas for assistance.
Punitive damages are only awarded if in a car accident the defendant crashed on purpose or intentionally disregarded any safety measures. Regarding taxes, you have to report any punitive damages on your tax return. This kind of damage does not compensate for out-of-pocket expenses. Therefore, you have to include punitive damages on your 1040 tax form.
Keeping Your Taxes Low
It is important to work with a car accident attorney to make sure your taxes stay as low as possible for any received settlements. You need to keep in mind that you might need to pay estimated taxes on your settlement.
Another way to minimize your tax liabilities is to work with your lawyer to create a settlement that specifies what the recoveries are for exactly. This can really change the way the IRS will tax your money.
You can also structure the settlement over the course of several years to reduce liability overall. You can work with your lawyer to structure the settlement or even invest the recovery in order to reduce liability. At Cogburn Law, we take the big picture into account. We will sit down and work out with you the best method for receiving your settlement so you have the maximum dollar amount available to you, to be used so you can recover and get on with your life.
Nevada Taxes For Car Accident Settlements
There is no state income tax in Nevada. But it is still a good idea to consult with a tax professional or your lawyer to see if your car accident settlement requires you to do anything regarding state taxes.
Car Accident Attorney in Las Vegas
These settlement and tax scenarios are complicated. This is why you need to consult with an experienced personal injury attorney to help you figure it out correctly. Nevada has no income tax, but there may be other tax implications on the federal level.
Do you want to learn more about the auto accident claim process? Add your email below and we will send you our guide free of charge. It includes useful tips on things to avoid when going through a personal injury claim and how you can give yourself the best chance of winning it.
I wanted to wait until my case ended before writing this review. I can’t speak highly enough of the people at Cogburn Law. I unfortunately was in an accident involving another car last September while on vacation. I didn’t really know what to do but I found their listing online. Jamie and Alex talked me through the entire process and looked after all of my medical worries while they fought the insurance company. Never for one moment was I worried that they wouldn’t be successful with my case. I had access to them whenever I had questions and I never felt like I was being a nuisance. It took a few months but I finally got a settlement that has allowed me to move on with my life. Thanks guys, I’m thrilled that you were the ones that looked after me!