After having lost a loved one to an accident in Quincy, your first course of action is likely to be to grieve. After that may come the decision to pursue compensation for your loss through a wrongful death lawsuit. If and when you are rewarded a settlement from such action, your thoughts may then turn to discovering the tax implications of whatever settlement money that you may have coming in. Problems in dealing with a legal reward can easily add unnecessary stress to your life rather than helping to relieve the financial burden that your loved one left you with.
To understand how to successfully handle the taxes that result from a wrongful death lawsuit, you must understand the concepts of punitive and compensatory damages. Punitive damages are meant to serve as some small form of punishment. Compensatory damages, on the other hand, are specifically-designed to compensate for any incurred loss. The nature of these different forms of damages has a direct influence on how the money that results from them is treated when it comes to be tax season.
According to the guidelines governing lawsuits, awards, and settlement techniques done by the IRS, compensatory income can be excluded from your overall annual wages. Punitive income, however, cannot be. The only exception to this rule is for states that only offer punitive damages in a wrongful death lawsuit. In these cases, special provisions within IRS guidelines allow them to exclude a certain potion of these assets. This, however, is not the case in Massachusetts. Here, both compensatory and punitive damages can be awarded to you as an accident victim.