The Power of Attorney Fee Deferrals
Personal injury attorneys have the unique ability to defer the receipt of their legal fee to future tax years. We specialize in creating customized strategies for attorneys to minimize income taxes (and thus maximize income tax savings), fund retirement or other future goals, normalize firm cash flows, and retain key employees.
The following video provides an overview of fee deferrals and outlines some creative uses cases:
Structured Settlement Annuity vs. Deferred Compensation Plan
There are two main options for deferring contingent legal fees. The first option is a structured settlement annuity. This option provides a guaranteed rate of return and fixed payout dates. It can be a good solution in certain situations.
Most of the attorneys we work with prefer the second option: using a private, deferred compensation plan. This option allows for market rates of return, flexible payout dates, and zero involvement of the defense.
This two-page PDF compares the structured settlement annuity and the deferred compensation plan:annuity-vs-deferred-comp-plan
After-Tax Investing vs. Investing in a Deferred Compensation Plan
Sometimes we speak to an attorney about using a deferred compensation plan, and the attorney will say: “I’ll just take my legal fees, pay taxes, and then invest the after-tax amount in my own investment account.” While that’s certainly an option, it is not tax-efficient and will result in a significantly lower total return.
After-tax investing does not take advantage of two of the unique benefits of using a deferred compensation plan: investing on a pre-tax basis, and having the account grow tax deferred.
The following two-page PDF compares after-tax investing with investing using a deferred compensation plan:after-tax-investing-vs-deferred-comp-plan
Maximizing QBI Deductions
Another element that contingency fee-based attorneys should consider is how to maximize their Qualified Business Income (QBI) deduction. QBI is a new addition from the 2017 Tax Cuts and Jobs Act (TCJA).
We published an article in the Spring 2019 Utah Trial Journal about how attorneys can use attorney fee deferrals to maximize their income tax savings — and maximize their QBI deduction.
You can view the article below:How-Personal-Injury-Attorneys-Can-Benefit-from-the-Tax-Cuts-and-Jobs-Act-Utah-Trial-Journal-Spring-2019
A Resource for Questions
We love working with contingency fee-based attorneys to minimize income taxes and maximize wealth accumulation.
Most financial advisors are completely unaware of the unique tax planning opportunities available through deferring your legal fees.
At Amicus, we are attorneys and Certified Financial Planners. We focus exclusively on financial planning for personal injury attorneys and their clients. We understand the unique opportunities and challenges you face.
Contact us today for a no-obligation analysis of how much you could be saving on your income taxes by setting up your own fee deferral strategy.