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Discussion Starter #1
if you are offered a settlement in cash for a law suit how do you avoid the tax on the settlement? Would annual annuity work instead of cash? Also lets say your settlement package is $300,0000 and the attorney takes 40% out before you get your money but the gross settlement package is awarded you. who pays the taxes on the gross amount. is compensatory damages taxed? how about punitive damages? thanks
 

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DO NOT SIGN OR ACCEPT ANY CHECKS UNTIL YOU TALK TO A TAX ACCOUNTANT.

Got it?

DO NOT SIGN OR ACCEPT ANY CHECKS UNTIL YOU TALK TO A TAX ACCOUNTANT.

Though I have my CPA license, I am NOT a tax accountant - that's a special breed of cat. I'm an auditor / general accountant. I'll keep your books, or make sure they're right for you.

But, in general, you're not going to avoid the tax on your settlement. Pretty hard to get cash in your pocket without paying taxes on that cash. I do not believe that compensatory damages are taxable - that's just making you whole for what you lost that resulted in you suing someone. PUNATIVE damages ARE taxable (See IRS code 104(a)(2)). If you took an annuity, you MIGHT delay paying the taxes - but annuities are generally only good ideas for the person selling the annuity to you.

Go spend a couple hundred bucks with a competent professional in your area. It'll be money well spent, better than any advice (including this advice) you'll get here on this site, and you'll be better off for it.

Really. I've just laid out the barest of bare bones here. No one can do much better without all the facts and a knowledge of your personal situation.

jeff
 

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Discussion Starter #3
thanks, i will not sign or accept any checks. is gross amount life insurance awwards taxable if included in award even though the cash value is far less?
 

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Life insurance is income tax free if paid for with after tax dollars. It may however, be included in the estate tax, depending on ownership. Depending on what type of settlement will usually determine taxable status.

As other have mentioned, TALK TO A TAX ACCOUNTANT/LAWYER. H&R Block may not be your best advisors in this situation. Best of luck, Jim
 

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smsnyder,

Let me preface this by saying I am neither a tax accountant nor an attorney and I agree you should speak to one.

That said, I am 99.999% certain that if you receive a "settlement from a lawsuit" that it is not taxable. It does not matter if you receive it via annuity or lump sum.

birdshooter-
 

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SMSnyder - The general rule is this: The award amount attributed to injury is not taxable, the amount awarded for lost income (wages) is taxable. Don
 
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