Tax mitigation lawsuit settlement

What is the name of your state?What is the name of your state?What is the name of your state? Texas

I may be getting a large lawsuit settlement from a brokerage firm. The case was taken on a contingency basis. Since I'll be responsible for income tax on the whole of any settlement -- my percentage and the lawyer's -- , is there any way to minimize the tax implications? We have not yet entered into settlement negotiations with the brokerage firm.

rlottie said:

What is the name of your state?What is the name of your state?What is the name of your state? Texas

I may be getting a large lawsuit settlement from a brokerage firm. The case was taken on a contingency basis. Since I'll be responsible for income tax on the whole of any settlement -- my percentage and the lawyer's -- , is there any way to minimize the tax implications? We have not yet entered into settlement negotiations with the brokerage firm.

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I am not sure, but I believe that the lawyers get the payment first, and then its disbursed to you. Therefore, I don't think that you have to pay taxes on the lawyer's portion. However, I could be wrong.

You also don't necessarily have to pay taxes on the entire settlement. It depends on what the settlement is for, and how much of it is punitive.

If the settlement is for a discrimination case, you can deduct the atty fees as an adjustment to income. Otherwise, the fees go on Sch. A as a misc. deduction subject ot 2% AGI reduction. You also get to deduct the atty fees against your AMT.

If the settlement is for wrongful discharge (not discrimination-related), the fees go on Sch. A but you still get to deduct them against AMT.

If the settlement is for some other civil suit, fees go on Sch. A & you cannot deduct them for AMT.

If part of the settlement is non-taxable (property damage/physical injury), you have to prorate the atty fees before deducting anything.

A settlement over time might be your best option.