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Question for the Money Doctors

Question submitted on May 15, 2014.

Question

Does Ct tax a wrongful death settlement? How much would they tax it if they do? Does the IRS tax it?

Answer

Sorry about your loss.

If you received punitive damages that was in a civil action that is a wrongful death action and under applicable state law that provides that only punitive damages may be awarded in the action.

To properly draw the right conclusions in your situation, I strongly recommend consulting with a CPA in your area who has expertise on this issue. You do not want to make a mistake and run into a disagreement with the IRS. The CPA will need to review the settlement agreement to help you determine the taxability of this settlement.

There a couple of IRS Publications you may find helpful. You can find them on www.irs.gov. Please search for Publication 4345 - Settlements-Taxability and Publication 525 - Taxable and Nontaxable Income.

You can also look at the IRS Audit Guide for Lawsuits, Awards, and Settlements. This document gives you a roadmap that an IRS Agent will use when determining if the settlement is taxable or not.


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