If you use the profits from your cases — your own money — to finance your next case, you’re using after-tax dollars. The IRS sees that money as pure profit, but if you’re trapped in a cycle of continually tying up your income in the next case, it’s really operating capital that is not tax-deductible. Using borrowed money not only breaks that cycle, but lowers your tax burden. That’s because loan payments are generally tax-deductible as a business expense, so you’re using before-tax dollars to fund your case. That translates to more profit for you to run and expand your business, invest elsewhere, or just to enjoy.
The tax benefits of structuring attorney fees can be even greater. Structured settlements for plaintiffs are usually completely tax-free, unlike most investment income, making them an obvious choice for those with expensive long-term care needs. Structured attorney fees, meanwhile, offer the advantage of spreading out your tax burden over the life of your payments. Because the money is taxed as it arrives, rather than in one lump sum, spreading it out offers you the chance to move to a lower tax bracket, taxing the income at a lower rate than it would otherwise have been.
Finding the maximum tax advantage in your unique situation is research-intensive, and requires specialized knowledge. Contact us for a free detailed book on the subject.