Most law firms that operate a contingent practice currently fund their hard case costs with the firms excess cash flow or personal funds. In most cases this is the most ineficient use of ones capital as the IRS generally treats these expenditures as loans and thus not deductable. This results in you paying taxes on phantom income. Since these contingent advances are not deductable, as such the funds that you invest in cases ends flowing through as income. Trial attorneys in most cases will always be better off establishing a line of credit, whether they use a specialty finance company or their local bank, to fund these hard costs and if structured properly the interest can be passed on to the case. Now the money is free to invest in other areas like retirement accounts, advertising, firm expansion, etc. For a more detailed discussion please visit www.amicuscapitalservices.com.
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