Car accident settlements in Buffalo, NY, require extensive documentation and negotiations. After being in a car accident, the person’s priority is their well-being, and the second is filing for insurance. After being done with your insurance settlement, you may have other concerns too.
Roadway deaths in the U.S. may have declined in 2019 by 2% compared to the previous year, but that doesn’t mean that one should not gain knowledge about the subject. A common question many people involved in car accidents encounter is if car accident settlements are taxed in Buffalo, NY. The short answer is yes. However, there are many variables that can determine the outcome.
The first thing to do after an accident is to file a police report, to help figure out who is at fault. This also helps you build a concrete insurance claim later. Immediate medical attention is necessary, even if you think you are fine. Some injuries may not visible to you. Instead, they show up through a doctor’s diagnosis, such as soft tissue injuries. If these are left untreated, they can have long-lasting effects. When filing for an insurance claim, medical documentation is to be provided, thus make sure it is complete and true.
Negotiating for a Car Accident Settlement in Buffalo, NY:
Negotiating with an insurance company can be tricky. They will use tactful and clever means to reduce the settlement as much as possible. After all, they are a business. Some insurance companies offer you an immediate settlement, which does not cover all of your medical expenses, repair costs, and time lost at work. It is often advised to hire a car accident attorney to help negotiate with the insurance company to help you receive a fair settlement.
Do You Have to Pay Tax on Your Insurance Settlement?
A lot of people ponder over whether they have to pay taxes on their insurance settlement, and how to go about filing them. In Buffalo, NY, taxing an insurance settlement depends on what the compensation is covering. Typically, an insurance settlement covers medical bills, lost wages, attorney fees, and pain and suffering. If the compensation is based on paying for a physical injury, it is not taxed. Since you are being reimbursed for the money you spent on medical care, it is not income, thus not taxable.
On the other hand, there are some exceptions, which are taxed. Firstly, any punitive damages can be subject to taxation by the state. Secondly, if there is an interest payment added to your final decision, the money you receive will be subject to taxes. Lastly, if you are claiming lost wages, they will be taxed, as your compensation is considered as your income now. The tax rate may vary for this, based on whether it is a small settlement or a big one.
In short, the only tax-free compensation you will receive will be for physical injury and sickness. Anything other than that is taxable. Lastly, the attorney fee is also subject to taxes.
Often there is a blurred line between physical injuries and emotional stress. If a person gets a cardiovascular disease, is it a symptom of emotional stress or physical? These ambiguities make it difficult to distinguish between physical and emotional illnesses. Emotional distress caused by the accident is exempted from tax. However, if your pain and suffering are classified as emotional stress, then it is taxable.
How Can I Reduce the Tax That is Owed?
You can reduce your tax amount in a few ways. Your car accident attorney can help you in the process. Firstly, if you are receiving a hefty amount, covering many years, you can choose to have the money paid out over a long period to reduce taxes. This is a structured settlement that allows you to exclude some income from current taxes.
Furthermore, the insurance company has to purchase an annuity for you, which will earn enough interest income which will replace your lost wages. The payments you get from this are non-taxable. The money paid by the insurer will be taxable. On average, a structured settlement can save at least 25% of the income tax, which would have been taxed otherwise.
Categorizing your damages into general and special can help your car accident settlement in Buffalo, NY, as well as your tax obligation. General damages are subjective and non-taxable. Pushing more settlements into this category can lower your tax amount. Special damages are easily quantified, such as lost wages. These are always taxed.
How Can a Buffalo Car Accident Lawyer Help You?
An attorney can help alleviate your financial burdens as a result of a car accident. Their experience in such cases makes them well suited for getting you a fair settlement as well as reduce the taxes as much as possible. To get the best outcome for your insurance claim, contact us today and schedule a free consultation. Let us handle your car accident settlement in Buffalo, NY.