if i use all of the settlement proceeds to put down on a business loan am i still responsible for income taxes on that money or is untaxable because it was used for an investment?
2007-08-09 11:44:01 · 6 answers · asked by steven e 1 in Business & Finance ➔ Investing
It depends on what the settlement is for. Most settlements are income tax free - at least up to a certain dollar amount.
If there is any part that is supposed to be subject to income tax, placing it into an investment does NOT make it untaxable.
If you owe you just OWE! Sorry... but congrats on your settlement!
2007-08-09 11:47:57 · answer #1 · answered by AriesJWR 4 · 1⤊ 1⤋
Whatever taxes are due, will be due regardless of what you do with the money. Depending on the nature of the settlement, some or all of the settlement may not be taxable. You should have a tax attorney review the settlement before you do anything with the money to determine how much to set aside for taxes. As a general rule, any portion of the settlement intended as compensation for something you would not have paid taxes on (IE medical costs) is not taxable. Any portion intended as punitive damages (to punish the other party) are as compensation for something you would have been taxed on (IE lost wages) is taxable.
Again, taxes on a multi-million dollar settlement could be hundreds of thousands of dollars. It is well worth the money to consult a tax attorney to be sure your handle your taxes properly.
2007-08-09 18:58:46 · answer #2 · answered by STEVEN F 7 · 1⤊ 1⤋
What you do with the settlement proceeds is immaterial for tax purposes. What matters is the reason you received the settlement. See IRS Publication 525.
2007-08-09 21:31:25 · answer #3 · answered by Anonymous · 0⤊ 0⤋
It depends on the type of settlement. Some settlements are not taxed if you receive it in a lump sum, if you elect to receive it in annuity payments, then you could be taxed.
2007-08-09 18:50:46 · answer #4 · answered by ava 3 · 1⤊ 2⤋
It's still taxed. You should really find a good accountant for this, who can tell you exactly how much you're going to lose to taxes.
2007-08-09 18:48:09 · answer #5 · answered by Stephanie C 5 · 1⤊ 1⤋
It is still taxable, and I would make sure I knew how much you had to pay before investing it. The feds take their piece of the pie, as well as your state.
2007-08-09 19:31:54 · answer #6 · answered by Landlord 7 · 0⤊ 2⤋