You may wish to consult with a tax professional. In personal injury the portion of the settlement that replaces wage or income losses are taxable but the rest is not (i.e. medical bills, out of pocket expenses and pain and suffering. )
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You should consult with a tax attorney in your area. Try the AVVO attorney search.
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I would suggest a CPA over a tax attorney. Most damage are not taxed. However, certain exceptions, most notably punitive damages, are exceptions. While the estate will be taxed (if any), the heirs will not be taxed directly unless they take distributions before reporting any required amount to the IRS and California Department of Revenue.
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