Tax mitigation lawsuit settlement

[rlottie]

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.

[LdiJ]

Originally Posted by rlottie

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.

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.

[abezon]

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.