MTVA Spotlight

Earning Contingency Fees? Save on 2022 Taxes Before the End of the Year

November 28, 2022

“I wish I had known about this strategy twenty years ago.” 

It’s not the hindsight any attorney wants – finding out that for decades, there has been an exclusive financial tool that allows attorneys to plan when and how they receive their fees.

Since the 1990s, trial lawyers have been able to arrange their contingency fees in the form of periodic payments and reap the tax benefits that come with spreading out large lump sums of income. Attorney fee structure, also called fee deferral, works in tandem with an attorney’s investment portfolio and allows them to smooth out their flow of income. By spreading contingency fees into a schedule of payments over the coming years, they know exactly when and how much they’ll be paid. They can create their customized payment schedule around life’s milestones and their financial goals, rather than just hoping fees come in at opportune times. Anyone earning income in large lump sums would benefit from this tool, but it’s only available to attorneys earning contingency fees.  

There’s also a major perk related to tax planning. When an attorney defers a fee, those funds are placed in an investment account or annuity, pre-tax. The attorney is only responsible for paying income tax on the payments they receive in a year – a much smaller sum than the whole fee. The results are owing less in taxes yearly, possibly avoiding a higher tax bracket, and helping solidify future financial security. 

It’s Not Too Late to Save on 2022 Taxes 

As the year wraps up, you will likely know which contingency fees are slated to come in before January 1. You can still defer those fees before the end of the year and reap the financial and tax planning benefits. If you are interested in exploring the benefits of attorney fee deferral, give Milestone a call at (716) 883-1833.

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