Just when you thought the people of Louisiana couldn’t possibly take another shot to the face, there’s another one coming. It turns out that people who received claim money from BP could see that money taxed at the highest possible rate because the BP oil disaster wasn’t officially declared a disaster.
CPA Ted Stacey said, “If you were paid for lost wages or income, that’s going to be ordinary income that is taxed at the highest rate you pay. It could be as high as 35 percent for federal or 5 percent state.” [...]
However, for those who have already spent their BP money, Stacey said, “This may be the time to seek professional help.”
And for those who are thinking of getting away with not declaring their BP claims, Stacey said he is strongly advising against it.
“If BP paid you money for missing wages, income, etc., they are likely going to send a notice to the IRS about it,” Stacey said.
For so many people in Louisiana, the oil disaster ??? killed their livelihoods, eliminating the only source of income on which so many people relied. Frequently, when I was in Louisiana in May at the height of the spill, I heard from people who never declared much, if any income. A good portion of the economy was in bartering or otherwise under the table. Now, after getting some relief from BP, the government could tax it at 35%.*
Any thoughts on how we can stop this from happening?
*UPDATE: Not all claims will be taxed at 35%; that is just the highest marginal rate, and I doubt very many fisherman qualify at that level. Still, it appears that claim money will be deducted as regular income and not exempt.
Want the kicker though? BP could deduct the money it paid out in claims from its taxes.