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Potential Tax Consequences of Personal Injury Settlements

The goal of a personal injury lawsuit is not to make the injured person rich. Rather, it is to ensure that the injured person doesn’t have to bear the cost of injuries caused by someone else’s negligence or misdeeds. Most lawsuits settle out of court, often with the result that the defendant enters into an agreement to make one or more payments. The payments may be made directly to health care providers who are owed for services already rendered, or they may go directly to the plaintiff to help offset the cost of future care or other damages. A key question is the extent to which settlement payments are taxable for federal tax purposes. Predictably, the answer to the question of whether settlement payments are taxable income is: it depends. Specifically, the answer depends on the nature of the payments (i.e., what they are compensating the plaintiff for) and, sometimes, how the expenses they are covering were reported on prior tax returns. The IRS provides some insights in Publication 4345 with respect to certain specific types of compensation:
  • Medical expenses. The portion of a settlement that can be attributed to medical expenses related to the injury is not taxable unless expenses were included as an itemized deduction on a prior year’s tax return. If a deduction was taken that portion of the settlement may be taxable. Essentially, once a deduction is claimed a taxpayer can’t double up on recovery by also receiving a settlement payment for the deducted amount. For settlements covering multiple years of care, the taxpayer will need to follow a process to allocate the settlement across each year of expenses and make a report of income accordingly.
  • Emotional distress and mental anguish. As with medical expenses, noneconomic damages for emotional stress or mental anguish are not ordinarily taxable provided they originated from a physical injury or illness. This proviso is can create interesting questions if psychological harms covered by the settlement aren’t related to an injury itself but might be traced to another cause. Note, however, that such awards are subject to adjustments for related medical expenses (i.e., such expenses may still be deducted as usual).
  • Lost wages and lost profits. A settlement that includes a payment for lost wages or lost profits will be taxable in the same way as though those amounts were earned in the ordinary course of work. Lost wages are also subject to employment (social security and Medicare) taxes.
  • Interest. Many settlements are structured in such a way that the defendant pays a certain regular sum over a period of time. In a structured settlement the defendant often pays a certain interest rate on top of the principal. In such cases, the interest component of the payments is taxable income.
  • Property damage. If a settlement also includes compensation for property damage, it will be taxable only if the payments are greater than the taxpayer’s basis in the property. Basis is a tax term that in simple terms means the value that the taxpayer originally paid for the property, plus any costs paid into it. For example, a person who buys a valuable work of art for $5,000 has that amount of basis in the piece. If the art has appreciated to be worth $50,000 when it is destroyed, receiving compensation for the full value may trigger income tax for the $45,000 difference.
These rules only scratch the surface of the important tax considerations that can come up during a settlement negotiation. Making sure that a settlement is structured to minimize tax consequences is an important part of a personal injury attorney’s job. For more than 45 years the law firm of Greenman Goldberg Raby Martinez has represented Las Vegas clients in personal injury cases. For a free attorney consultation about your case call us at 702-388-4476 or contact us through our site.

What Happens During a “Free Consultation” with an Attorney?

At GGRM we offer free initial consultations to potential clients who are looking for help with their cases. A question that many people have is what goes on in a “consultation.” Is it just a sales pitch for the firm? Is it a trick to draw people into paying fees? The truth is that a free consultation is a good way to ensure that the client’s best interests are served, while also giving the law firm an opportunity to examine whether it can offer the kind of help the client really needs. In an initial consultation there are several important things that will be discussed:
  • The facts of the case. Whether the client is looking for advice about a car accident, a dog attack, or a workers’ compensation claim, the attorneys will ask questions to develop a picture of the story behind the potential claim. Attorneys may ask questions that probe into areas that are surprising or unexpected, because the merits of a claim may rest on grounds that a non-lawyer wouldn’t know to expect.
  • The client’s goals. An essential feature of a good personal injury law firm is a commitment to the personal needs and goals of each client. In a “litigation shop” the emphasis can be on high volume, cookie-cutter approaches that leave clients out of the loop and feeling pressured to take steps they’d rather not take. At GGRM we take the time to get to know our clients so that we can incorporate the whole picture into our strategy.
  • Potential legal options. Filing a lawsuit isn’t always the right solution in every case. After listening to the client’s story an attorney may offer several avenues for addressing the client’s problem. That might mean suggesting a lawsuit, or it might involve other solutions, such as filing a complaint with a regulatory agency, making a claim with an insurer, or opening a negotiation. For each option, the attorney will describe the overall process and the attorney’s opinion about the likelihood of achieving the client’s goals. By discussing options the attorney gives the client an opportunity to understand what he or she will get by working with the firm.
  • An explanation of costs and the attorney-client relationship. If it appears that the client will want to engage the attorney to assist with the case the attorney should take the time to explain how the firm makes its money. Many personal injury cases are handled on contingency, which means that the firm gets paid from the compensation award after a successful outcome. If the facts of the client’s case dictate a different approach the attorney will discuss those issues.
For more than 45 years the law firm of Greenman Goldberg Raby Martinez has served clients in the Las Vegas area in cases involving personal injury, auto accidents, and workers’ compensation disputes. If you are searching for a lawyer to assist with your case, we are happy to provide you with a free attorney consultation. Call 702-388-4476 or contact us through our website.

Hit-and-Run Cases in Nevada

Hit-and-run accidents have been growing more common. Even a relatively simple incident, where someone causes minor property damage and flees the scene, can cause headaches for victims. But more serious consequences are unfortunately growing more common as well. Pedestrians and cyclists who are hit by a vehicle rarely have the presence of mind to remember details about the vehicle that struck them. Nevada is near the top of the nation for hit-and-run deaths, a sobering statistic that should make Nevadans especially wary when they hit the road.

What is a “hit and run” accident in Nevada?

A hit and run accident can implicate several distinct rules in Nevada law. A driver who is involved in an accident in Nevada has several legal obligations. First, drivers have an affirmative duty to provide reasonable assistance to others who have been injured in the accident. The type of care that’s “reasonable” will depend on the circumstances. Calling for emergency care, making an effort to stabilize an injury, or taking someone to a hospital may all be examples of reasonable assistance. A second obligation drivers have is to provide one-another with identifying information: their names, addresses, and registration information. A hit-and-run accident involves someone disregarding the obligation to give assistance and provide information. Doing so is a crime. If the accident only resulted in property damage, leaving the scene is a misdemeanor offense punishable by up to six months in jail, a fine of up to $1,000, and the addition of demerit points to the driver’s license. Fleeing the scene of an accident that involves personal injury or death is a more serious crime, punishable as a felony with a jail sentence of up to twenty years, a larger fine, and the possibility of having one’s license suspended or revoked.

How to catch a hit-and-run criminal

The victim of a hit-and-run accident should report the incident to the police. One hopes that witnesses or footage from a nearby surveillance camera might give the police clues to track down the offending driver. Police have a number of investigatory tools at their disposal. For example, garages are required to maintain records of repairs made to cars that appear to have been involved in crashes. These records can be used with other information to establish the liability of the driver who is attempting to evade responsibility. If police identify the perpetrator of a hit-and-run accident they may pursue criminal charges against him or her. The victim may also wish to separately file a civil lawsuit against the driver. This may be necessary to trigger coverage under the driver’s insurance policy, and in any event may be necessary to recover for the full cost of the injuries caused by the hit-and-run. In the civil lawsuit, the fact that the driver committed a hit-and-run offense will add powerful weight to the plaintiff’s case, especially if the defendant has been convicted in a criminal proceeding.

If you have been involved in a hit-and-run accident, talk to an attorney

For over 45 years the attorneys at Greenman Goldberg Raby Martinez have represented clients who have been involved in car accidents. In a hit-and-run case it can be especially important to have an experienced attorney helping to coordinate with police investigators and develop a comprehensive case for pursuing compensation. If you have been injured in a hit-and-run and you would like to discuss your legal options, call today for a free attorney consultation at 702-388-4476 or request a call through our website.