How To Minimize the Taxes on your BP Claims Check

Those who have filed and received a claims payment from BP or GCCF for damages suffered as a cause of the Deepwater Horizon oil rig accident and spill are likely going to have to make sure Uncle Sam gets his share.

BP Claims Payments are Considered Income

Claims payments are considered income by the Internal Revenue Service, and as such, taxable just like any other paycheck, lottery win, or unemployment compensation. The IRS always gets their cut anytime money changes hands. For those along the Gulf Coast not accustomed to even having to file a tax return, this is going to come as quite a slap in the face.

FEMA Check where not Taxable Why Are GCCF Checks?

Many along the Gulf Coast received checks from FEMA after the Hurricane Katrina disaster. Those checks were not taxable, yet these are. What is the difference? In a nutshell, the checks being shelled out to the Deepwater Horizon victims are to replace lost income, lost means of income, and damage to businesses that once provided you with income.

It is essentially giving you the paycheck you should have had anyway, if the oil spill had not have occurred. Since that income was going to be taxable, so these claims should be taxable. The money that came from FEMA after Katrina was money to provide victims with the very essentials of life, such as a roof over their head, toiletries, medicines, and food. Those FEMA payments were not necessarily an income replacement, but rather a life replacement, if that makes any sense.

Minimize Your BP claim Check Taxes

How, then, can you minimize the damage about to be done to your income by the IRS? Well, first off, make sure you file. If you received more than around $9,000 either from your paychecks or from your BP settlement, then you need to file a tax return.

Once the Gulf Coast Claims Facility (GCCF) cuts you a claims check, they report it to the IRS anyway, so it is not like they will just forget about you. Go ahead and file and don’t risk a chance that the IRS comes after you with interest and penalties or even jail time for not filing a tax return.

Who knows – you might even end up getting some money back. Keep in mind that any damages you suffered from the Deepwater Horizon accident and spill can be deducted from what you might owe the IRS.

Any losses your business suffered can be deducted as well. Anything you paid out for cleaning up after the accident can be subtracted from what you might owe. It is a good idea to get with an accountant or a certified financial planner or a tax professional like H&R Block to make sure you do everything the right way.

As I said before, you may end up even getting more back than you would have if you had not filed. Do not be scared to file just because you do not have the money either. Even if you are flat broke and owe the IRS, they are usually very good about working with people, especially victims of accidents like this, and arranging terms that are agreeable to everyone.