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June 05, 2010

How Are Ohio Personal Injury Settlements Taxed?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

How Are Ohio Personal Injury Settlements Taxed?

Someone using the Bing Search engine has a question concerning the taxation of personal injury settlements  "I'm getting a settlement for a car accident what would the Capital Gains Tax in Ohio be?"

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Comments:

  1. The amounts you receive as compensation for damages related to a personal physical injury (such as what one might sustain in a car accident) are generally income tax free. There is a specific exclusion for such damages at Internal Revenue Code Section 104(a)(2).
  2. You will not be able to exclude the part of your recovery for past medical expenses, that you have already taken a tax deduction for.
  3. Capital gains are the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property.
  4. A capital gains tax is a levy on capital gains. A personal injury lawsuit settlement is not a capital gain.
  5. You may be able to deduct a capital loss to the extent that it exceeds $100 (new for 2010) with a limit of 10% of your Adjusted Gross Income (AGI)
  6. Casualty loss proof.   According to the IRS, for a casualty loss, your records should show all the following
    • The type of casualty (car accident, fire, storm, etc.) and when it occurred.
    • That the loss was a direct result of the casualty.
    • That you were the owner of the property or, if you leased the property from someone else, that you were contractually liable to the owner for the damage.
    • Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery.

    Payments from a structured settlement that is established in your Ohio personal injury case as damages for physical injury, physical sickness, wrongful death or workers compensation are excluded from gross income per IRC Sections 104(a)(2) and 130. Constructive or actual receipt of funds used to establish the structure, must not have occurred.

     

Posted at 03:46 PM in Capital Gains, Capital Loss, Car Accident Settlements, Cincinnati Structured Settlements, Cleveland Structured Settlements, Ohio Personal Injury, Ohio Settlements, Personal Injury Settlement, Tax on Settlement, Taxes and Settlements |

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Guide to Structured Settlements 2024

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    Structured attorney fees is a financial strategy that offers a unique way to defer taxes for lawyers and law firms. Lawyers CAN structure their legal fees even if the plaintiff doesn't structure their settlement. There are multiple ways to structure your attorney fees, such as capped or uncapped index linked structured settlement annuities where payments are adjusted based on upside changes in the S&P 500 or another index, Trial Lawyers may also use a special deferred pay/deferred compensation arrangement, if market based returns returns are desired with no cap. Plan NOW for year end! Put structured attorney fee expert John Darer® on your settlement planning team in 2024.
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Qualified Settlement Funds

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  • Firmwide Qualified Settlement Funds Debunked
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