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Lawsuit Taxes Aren't Always Reality Of Settlement

When you receive a lawsuit settlement or award the outcome is usually a large lump sum or annuity payment. You should consider whether you will owe any lawsuit settlement taxes on any compensation that you receive. There are cases where taxes aren't owed on settlement funds received by litigants, but this isn’t always the case. It's up to you to find out whether you will owe the government any taxes on the amount you receive due to a settlement or judgment. If you fail to pay any required taxes you could owe hundreds or even thousands of dollars in penalties depending on the size of the settlement amount.

After time lost from work or the enjoyment of your life due to injury or other cause, it feels good to receive a settlement. But when the subject of lawsuit settlement taxes is raised, there can be an accompanying sense of dread. Determining whether you will have to pay out taxes is fairly simple. For the most part, if you decide to take a lump sum payment you will owe out Federal and possibly state taxes on the amount. The rate of taxing will differ depending on the current tax rate and the state of tax laws both state and federal.

Lawsuit Settlement Taxes Can Be Avoided In Cases

For many, the best way to avoid lawsuit settlement taxes when it comes to accepting a large settlement, is to avoid taking a lump sum directly. In the case of larger amounts of compensation it's may be better to take annuity payments instead. Annuity payments usually break down large settlements into monthly payments that can span many years. However these regular payments are tax-free, unlike lump sum payments. You can even take a lawsuit settlement advance and receive a lump sum by selling your future payments. They will remain tax-free even in this case as long as the money isn't reinvested. If the money you receive from a settlement cash advance is invested, the interest or dividends would be taxable.

Lawsuit settlement taxes aren't a given when you're entitled to compensation. It's up to you to make sure you do what's best for yourself financially. An annuity settlement might be the best way to assure that you avoid paying a lot of taxes on your settlement amount. Not only that, but the span of the payments may help you to maintain a steady income that you can count on.

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