What Types of Damages Can You Include in a Car Accident Settlement?
The types of damages that you can typically recover following a car accident are categorized in two ways: economic Damages and Non-Economic Damages.
Economic Damages cover tangible items such as medical bills, property damage, or wages lost while tending to your injuries. Tangible due to the paper proof of the costs associated with medical bills, the expenses to repair your vehicle, and wages that you would have otherwise been able to obtain.
Non-Economic Damages are not tangible and are more challenging to prove, but they can add up quickly. Non-economic damages would cover things like emotional distress, pain and suffering, loss of enjoyment of life, scarring or disfigurement, and more. These damages won’t have a direct dollar amount attached to them; instead, an experienced attorney can help you calculate an estimated dollar amount of these damages.
What Are Punitive Damages?
Another category of damages that may occur after a car accident is punitive damages. Not every case will result in punitive damages. These damages exist as an additional penalty to the offender for their behavior and to deter them and others from committing the same acts that led to the accident.
For example, if an individual was driving drunk and caused an accident, punitive damages may be involved to further punish the driver for reckless or careless decisions. These damages reflect the driver’s choice to drink irresponsibly and drive, knowing their actions could cause a wreck, and chose to anyway.
Are Car Accident Insurance Settlements Taxable?
The short answer to this question is that some of your settlements may be taxable, and some may not. A best practice is to review the damages you are pursuing with your experienced personal injury attorney to ensure minimal tax ramifications.
For example, the settlement is not taxable if the dollar amount is related to damages such as pain and suffering, medical bills, or property damages. Due to this, if you can attribute your costs primarily to one of the above needs, you can generally avoid taxes. Do you have medical bills in the past and an estimate of those that will continue to occur in the future as a result of the accident? If you can prove this, this entire amount can generally be tax-free.
What Are Other Examples of Damages That Are Tax-Free?
Almost anything related to your medical injuries can be considered tax-free for the most part. These medical costs can include emergency care received, bills related to surgery or care, physical therapy, costs of prescriptions, costs of necessary medical devices, and more. It is important to note that you must check with your attorney when calculating these damages and what deductions you plan to take to ensure you are minimally affected by taxes and can plan accordingly.
In addition to medical costs, dollars awarded based on emotional pain and suffering are also non-taxable. Pain and suffering, according to Cornell Law, is “the physical discomfort and emotional distress that are compensable as noneconomic damages” and refers to “pain, anguish, inconvenience, and emotional trauma that accompanies an injury.” As previously mentioned, these are non-tangible damages, so they can be challenging to calculate, but a skilled attorney can assist you.
Property damages awarded are also not taxed. The reason for this is due to the property needing to be fixed or replaced; if you were taxed on this amount, that would leave you effectively less than whole, so amounts attributed to property damage are not taxed.
What Types of Damages are Taxable?
Lost income or anticipated future income lost due to injuries would be taxable. The reason for this is that should you have been able to obtain that amount in wages, you would have been taxed on it, so any damages awarded that are attributed to wages will be taxable.
Punitive damages are also taxable. Due to the reason that punitive damages exist to punish the offender further rather than compensate for a loss, whoever receives the punitive damages must claim them as income and be taxed appropriately.
How Can a Personal Injury Attorney Help Me?
A skilled and trusted attorney can be invaluable to you after an accident. They can assist you in gathering the necessary documentation, negotiating with insurance companies and legal representatives, gathering and providing the essential evidence that effectively proves your need for compensation, and more. Think of them as your most determined and tireless advocate.
Planning ahead can help to navigate the complex calculation of damages and how it will affect you from a tax standpoint to avoid unnecessary tax implications. With over twenty years of experience, we are confident we can help you to plan for the next chapter of your life and put this one behind you. Don’t settle for less than you deserve, and don’t move forward blindly without planning how your damages can affect you from a tax standpoint.
Contact our office today at (702) 819-9528 to learn how we can help to navigate you through this process. Accidents happen daily, but that doesn’t mean you should be treated as a statistic. Let us ensure that you are compensated accordingly for what you have endured, and provide you with some financial stability as you move forward with your life.
We look forward to serving you.