Defer Taxation – Taxable Damage Settlements
Receiving a lump sum settlement after settling a taxable damages suit can lead to quick dissipation of the settlement. First, the government gets its taxes since the entire amount of the settlement is taxable in the year of receipt. Any investment of the settlement proceeds has to be done on an after tax basis. Second, poor management of the funds can lead to having nothing left very quickly. A cash settlement may not result in a positive outcome for you.
A structured settlement or periodic payment plan via an annuity can result in a substantial tax savings and effective financial management of the settlement proceeds. Comparing a professionally managed periodic payment arrangement that is a pre-tax investment with a lump sum settlement illustrates the power of this solution. Having the ability to earn interest on the principal investment, accumulating interest on deferred payments and interest on the deferred taxes produces an attractive result for you. Structured settlement annuities can be uniquely tailored to your specific needs as well. You may wish to review the revenue ruling (provided upon request) approving structured settlements for taxable recoveries to learn more about the power of deferral of taxation of your damages.
Structured Settlements can be used for the following types of taxable damage settlements:
- Employment litigation (can’t be used for wages)
- Any type of discrimination action
- All nonphysical injury cases
- Divorce settlements
- Punitive Damages
- Environmental litigation
- Long-term disability settlements
- Property claims
- Legal Malpractice or Errors & Omissions
- And Many other types of claims, just ask!
A tax advisor should be consulted regarding tax consequences, if any.
