INFORMATION DEPARTMENT VOLUME 9, NUMBER 7
Tax Tidbits Five Key IRS Rules On How Lawsuit Settlements Are Taxed Many plaintiffs win or settle a lawsuit and are surprised they have to pay taxes. A little tax planning, especially before you settle, goes a long way. It's even more important now with higher taxes on lawsuit settlements under the recently passed tax reform law. Here are five rules to know. 1. Taxes depend on the “origin of the claim.” If you get laid off at work and sue seeking wages, for example, you’ll be taxed for wages. But the rules are full of exceptions and nuances, so be careful. 2. Recoveries for physical injuries and physical sickness are tax-free, but symptoms of emotional distress are not physical. The rules can make some tax cases chicken or egg, with many judgment calls. 3. Allocating damages can save taxes. Most legal disputes involve multiple issues. And even if there is only one issue, the total settlement likely involves several types of consideration. 4. Attorney fees are a tax trap. If you are the plaintiff with a contingent fee lawyer, you’ll usually be treated as receiving 100% of the money recovered by you and your attorney, even if the defendant directly pays your lawyer his contingent fee cut. 5. Punitive damages and interest are always taxable. You might receive a tax-free settlement or judgment, but punitive damages and interest are always taxable. This can make it more attractive to settle your case. To view the full text of the article, please click here.	Top Stories of July 2019 TAX PLANNING Warren Buffett Gives $3.6 Billion To Charity, How To Supersize Your Donations Too The news that Warren Buffett is donating a whopping $3.6 Billion of his Berkshire Hathaway stock to charity means he has surpassed the $3.4 billion gift he gave last year. Victims of California Wildfires Have Complex Tax Issues To Consider How fire victims are taxed depends on a number of factors—not least being whether they sue PG&E and eventually recover. It can all build out a complex tax picture. How IRS Taxes Fire Victims Do wildfire victims worry about their taxes? You bet. How fire victims are taxed depends on what they collect, what they claim on their taxes, if they are rebuilding their property, their insurance and more. FOREIGN ACCOUNTS What the IRS Says Is Willful Keeps Expanding Under the tax law, willful and non-willful conduct are treated differently. Innocent tax mistakes can often be forgiven, sometimes with no penalty. And even when penalties are imposed, they are much lower than the penalties for conduct involving bad intent. DIGITAL CURRENCY Avoid State Taxes on Crypto With US Supreme Court’s Recent Trust Decision? To shield you and your beneficiaries from state tax, creative trusts can be worth trying. But it depends on the right facts, and you need to be careful. FINES AND PENALTIES Equifax $650M Data Breach Settlement Could Bring Tax Deduction Section 162(f) of the tax code prohibits deducting any fine or similar penalty paid to a government for the violation of any law. But the law is riddled with exceptions, and creative companies can often find a way to write off even the biggest fines.
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