I recently received a large settlement from a lawsuit. do I need to do an estimate of my tax before April 15th and pay taxes on it or can I just claim the amount at end of year when I do my taxes? I do not want to end up paying a penalty.
Hello and thanks for reaching out today,
Estimated taxes are due within 15 days after the quarter in which you receive the income. If you don't pay enough tax by the due date for a particular quarter, you may still owe a penalty even if you are due a refund at the end of the year.
Another thing to consider is how much of your settlement is taxable. Depending on the settlement type, some or all of the amount may need to be reported on your return and taxed. Physical injury or sickness settlements don't go on your tax return at all while many other types (employment discrimination, defamation) are indeed taxable.
Here are some helpful links.
IRS link on estimated payment due dates:
https://www.irs.gov/faqs/estimated-tax/individuals/individuals-2
Article about the taxability of settlements:
Regards,
jscottjr_CPA
Hello and thanks for reaching out today,
Estimated taxes are due within 15 days after the quarter in which you receive the income. If you don't pay enough tax by the due date for a particular quarter, you may still owe a penalty even if you are due a refund at the end of the year.
Another thing to consider is how much of your settlement is taxable. Depending on the settlement type, some or all of the amount may need to be reported on your return and taxed. Physical injury or sickness settlements don't go on your tax return at all while many other types (employment discrimination, defamation) are indeed taxable.
Here are some helpful links.
IRS link on estimated payment due dates:
https://www.irs.gov/faqs/estimated-tax/individuals/individuals-2
Article about the taxability of settlements:
Regards,
jscottjr_CPA