How Does a Court Case Affect My Taxes?
It seems as though everything you do has an impact on your taxes. If you work, you pay taxes. If you make improvements on your home, you may apply for tax deductions. If you have a child, you may get tax credits. But what if you are involved in a court case?
Court cases and taxes are not often connected in the mind of the average person. The fact is that you may have deductions available to you if you were involved in a court case, so listen up. Here is what you need to know.
1. Legal Fees
If you were charged with a crime and hired an attorney, your legal fees could mean a deduction. There is a combined state and federal deduction of 40%. That means if you paid $20,000 in legal fees, you may only pay $12,000.
The not so good news is that if your legal fees were due to a personal nature, divorce, child custody, etc., your fees are not deductible. Knowing exactly what you paid a lawyer for is important.
2. Personal Vs. Business
Business legal fees are deductible for everyone. It means that you have the same right to deduct legal fees as a proprietor as you would as a CEO of a major company. To be able to effectively claim this deduction, you must actually be in business. A tax professional can help you sort out the details so you don’t get into hot water with Uncle Sam.
3. Damages
If you were involved in a personal injury case and awarded a settlement, your recovery is tax-free. Punitive damages and interest are taxed. You will need to know how much of your settlement was lumped into each category to understand what you need to report and what you don’t.
Do not rely on this article as your sole piece of tax advice. While many of your fees are deductible and some of your recovery may be tax-free, there are rules that apply. Someone well-versed in tax law can help you fill out your paperwork this year. It really is in your best interest to have someone who knows the finer details of tax law help you the year that you need to include your court case on your taxes.
If you need a personal injury lawyer in Austin, reach out to our team today. We will provide you with a free case evaluation and advise you of your options. Call now for more information about how we can assist you.