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When faced with the tragic loss of a loved one in death, you may choose to hire a personal injury lawyer to help you recover compensation for your losses. However, taking legal action can come with various costs and expenses, including attorney fees. This may lead you to wonder if you can deduct legal fees from a wrongful death lawsuit on your taxes.
In this article, we will explore whether attorney fees from a wrongful death lawsuit are ever deductible. Understanding how wrongful death settlements are taxed is essential to managing your financial expectations and ensuring compliance with Internal Revenue Service (IRS) regulations.
If you are considering pursuing a wrongful death claim but have concerns about the expenses and tax deductions, contact our law firm. Our personal injury attorneys can openly and honestly explain the potential fees involved in a wrongful death settlement. Call us or complete our contact form today to schedule a free case review.
Sadly, according to a recent report by the CDC, there were over 227,000 unintentional injury deaths in the US during 2022. A wrongful death claim is a civil lawsuit filed by the survivors of a deceased person whose death was caused by someone else’s negligence or intentional actions. Typical defendants in wrongful death cases include drivers in car accidents, product manufacturers, or medical professionals.
Damages recoverable in wrongful death cases can include:
As the deceased’s family members seek legal representation to pursue justice, they need to understand the tax implications of attorney fees.
Before examining lawyer fees, let’s discuss whether wrongful death claims are considered taxable income.
In the US, the IRS generally does not tax wrongful death settlements or awards when they are intended to compensate a family for the loss of their loved one. These types of compensatory damages are typically considered non-taxable because they are meant to address non-economic losses.
What if a wrongful death settlement includes punitive damages? These types of damages are intended to punish the defendant for particularly harmful behavior. Punitive damages, unlike compensatory damages, are often considered taxable by the IRS.
This distinction is critical when it comes to determining the taxability of lawyer’s fees, as it may impact how these fees are handled.
Under current US tax law, the general rule is that personal legal expenses, including those for wrongful death cases, are not deductible.
As we discussed earlier, compensation for wrongful death settlements is typically non-taxable. When these damages are not taxed, the expenses to secure this compensation are likewise not deductible. However, there are exceptions under certain circumstances.
Generally, personal legal fees are not tax deductible. However, there are certain circumstances and types of legal fees that may qualify for deductions or other tax benefits.
Punitive damages are awarded in some wrongful death cases. Unlike economic and non-economic damages, punitive damages are intended to punish the defendant rather than to compensate the family for specific losses. As a result, punitive damages are generally taxable.
In wrongful death cases where punitive damages are awarded, a portion of the lawyer fees related to these taxable damages may be deductible.
Some wrongful death cases result in judgments that include interest payments (often due to lack of payment). This interest is generally taxable. The legal fees associated with securing this interest might be deductible since it is taxable income.
Another situation in which lawyer fees may be deductible is if the wrongful death is connected to business activities. For example, if an employer incurs legal fees related to pursuing a wrongful death case within the scope of the business, these fees could be deductible as business expenses.
Keep in mind that this is rare and usually only applies in cases involving corporate or commercial liability.
Wrongful death settlements may include compensation for medical costs incurred as a result of the deceased’s accident. If these medical expenses were already claimed as a deduction on your taxes in previous years, you would need to pay tax on the money you are now receiving to compensate you for medical bills.
Consider the following tips for managing your legal fees in cases involving wrongful death:
Since most wrongful death settlements are not considered taxable income by the IRS, you would not typically receive a 1099 form. However, if your settlement included taxable income, such as punitive damages, you would need to complete a 1099.
It is recommended to work with a tax professional if you need clarification about which portion of your settlement is taxable and what needs to be included on the 1099 form.
Your first step in filing a wrongful death claim should be to speak to a personal injury lawyer. A lawyer can review the circumstances of the accident and determine whether you qualify to file a claim.
Depending on state-specific laws, the following parties may be eligible to file a wrongful death case:
A wrongful death attorney can also help you collect all necessary evidence, complete required documents, and ensure you meet filing deadlines. Most personal injury law firms offer free initial consultations, so don’t hesitate to reach out to discuss your legal options.
When filing a wrongful death claim, it is essential to have an experienced lawyer on your side. While tax deductions may not always be an option, having knowledgeable legal representation can make a major difference in the outcome of your claim.
A skilled wrongful death lawyer can guide you through each step of the claims process, working to maximize your settlement to help relieve the financial strain of your tragic loss. You need not carry the burden alone.
The compassionate legal team at Fielding Law is here to help you file a wrongful death claim and get your rightful compensation. Call us at (877) 880-4090 or complete the contact form to schedule your free case evaluation.
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