A Solution to a Typical Plaintiff Attorney’s Tax Planning Frustrations

Plaintiff attorneys often don’t know about the tax planning opportunity that lets them defer fees using deferred compensation plans (instead of using a structured settlement annuity). Here’s a story about a plaintiff attorney who was unsatisfied with the typical options for deferring his fees — and his story is similar to the hundreds of attorneys we’ve spoken to over the years.

Our firm met with an attorney named John several years ago. Amicus had been working with him and his clients on settlement planning issues for several years (i.e.structured settlement annuities, investment management, special needs trusts, etc).

After helping many of his clients with their settlement planning issues, we spoke to John about his own tax planning. He mentioned that his CPA and other advisors had recommended to him many of the more common tax planning strategies: maxing out his 401(k), buying a 179 deductible truck, hiring family members, and more.

Because John was paying so much in income taxes, his CPAs had started to recommend less traditional planning vehicles like investing in conservation easements. Despite all of these strategies, John was not satisfied with the options given to him as they were cumbersome and hard to understand — and he was still paying hundreds of thousands of dollars more in income tax than he wanted to pay.

John had heard of using structured settlement annuities (structured fees) to reduce his taxes. However, he wasn’t interested due to the low-interest rates available and the inflexible payout options. We were able to introduce John to a new tax planning strategy — a completely unique option that’s only available to plaintiff attorneys: private deferred compensation plans.

We explained to John that the deferred compensation plan is like a supercharged 401(k). Although it is not a 401(k) or a “qualified” retirement plan, the principles are much the same: you fund the plan with pre-tax money, and the funds in the plan grow on a tax-deferred basis. The funds in the plan are only taxed when the attorney elects to receive distributions from the plan in future tax years.

After explaining the strategy, John was excited to get started. Within a few days, he established his own plan — and he’s been deferring fees each year for many years. Now, he’s able to have full control over his income tax bill and invest in his deferred compensation plan on a pre-tax and tax-deferred basis.

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