Forbes has published an article, “IRS Taxes Most Lawsuit Settlements And Exact Wording Matters,” which discusses how changes to tax laws have affected tax treatments of legal fees. The article begins as follows:
If you collect a legal settlement is it taxable? Usually yes, but the tax treatment varies depending on how you were damaged, how the case was resolved, how checks and IRS Forms 1099 were issued and more. Whether you settle your case, win a judgment, or even if your dispute only reached the letter-writing phase, taxes apply in most cases. Taxes depend on what the case was about, how the settlement agreement is worded, the complaint, how checks and IRS Forms 1099 are prepared and more. You can influence how your recovery is taxed by how you deal with these issues. Fortunately, if you sue for personal physical injuries like a slip and fall or car accident, compensatory damages should be tax-free even if you were seeking lost wages because you couldn’t work after your injuries. Section 104 of the tax code shields compensatory damages for personal physical injuries and physical sickness.
Click here to see full article: “IRS Taxes Most Lawsuit Settlements And Exact Wording Matters.”
Posted by Elise Kim, Managing Associate Editor, Wealth Strategies Journal.