If you’ve recently received a legal settlement or award, it’s critical to understand the tax implications. Generally, compensation for physical injuries or sickness is tax-free. But awards for lost wages, emotional distress and punitive damages typically are taxable. Attorneys’ fees are another area that can trip up recipients. Even if your lawyer is paid directly out of your settlement, you’re generally taxed on the full amount before fees are deducted. This means you may owe tax on money you never actually receive. The bottom line is that the way a settlement is structured can significantly affect your tax liability, making professional guidance essential. Contact us today for assistance.
