Annuities and Paying Taxes
You have a settlement and while the payments coming in nice, you would like to get cash for settlements that you have instead of the payments. So you start to look around and see what options are available. You find a company and start to work on getting the transaction started. But there is one factor that most people forget to think about and that is the IRS.
How Does the IRS Get Involved?
When a structured settlement annuity is setup, there are strict guidelines that must be followed. If cash for settlement is done, then they get involved. Some of the reasons they do this are:
- Taxes – A structured settlement annuity is protected by the Periodic Payment Settlement Tax Act of 1982. This act was adopted to encourage the use of structured settlements to provide long term security for those seriously injured and their families. A structured settlement is excusable from gross income and will not be taxed. However if a settlement is turned into cash, the settlement will then be considered an investment and will be taxed accordingly.
- How Much? – Sometimes, depending on the amount of the settlement and cash that is received, this can still be covered under the settlement and not be taxed by the IRS. Some settlements have clauses in the contracts to allow for cash to be taken and the settlement be sold, and no penalty or fees have to be paid to the IRS.
- Legalities – When a settlement annuity is sold for cash, the paperwork that is done while working with the selling company will be sent to the IRS and also be documented with the court system. This ensures that all laws at the local, state, and federal levels are being followed and nothing has been omitted. These cases are assigned and if everything is documents and done correctly, they will be qualified to be approved. But the judge holds the final decision on any case.
- Cares About You – When it comes to structured settlements, the IRS actually cares about you and making sure that the money can be accessed. This also means that the amount of money that is in the settlement will not be taxed or reduced unless you want it to be reduced. Reducing a settlement can be done by taking a loan or other action such as what is being discussed here.
For Your Protection
The IRS is only involved with structured settlements because they want to make sure that the person receiving the settlement gets all of the money. The Payment Settlement Tax Act of 1982 prevents anyone from taking money out for taxable purposes. However when getting cash for settlement options, these will be taxable. You must make a decision regarding if selling is the best choice or not.
All companies that handle these types of cases will require payment of some form, and will be the insurer of the settlement once it’s sold. Most companies will sell these, but their pricing may vary and research must be done. The research will help to decide which company will work best for you and give you the most money for your settlement. When the case comes before a judge, they will look at everything to include the price that your company will be charging. If they feel this is not a fair deal for all parties, they will then deny the case.
Getting cash for a settlement happens often, and with this in mind, proceed but do so with caution. Make the right choices and decisions, and the money will be yours.Call Us Today
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