Synergy Blog

Now Is the Time to Defer Taxes on Contingent Legal Fees: When does a 0% rate of return make sense?

If you have ever considered deferring some of your contingent legal fees, now is the time to take a harder look.  With looming changes to the tax scheme, now more than ever it may make sense to do so even if the rates of return are lower.  There are two primary ways that attorney fees can be deferred. The first involves using an attorney fee structure.  An attorney fee structure is either a fixed annuity or an indexed annuity.  The second involves a deferred compensation mechanism that is widely used for highly compensated executives.  Either method achieves the same thing which is deferral of taxes on the contingent legal fee earned in that particular year.  To learn more about these options, visit http://www.synergysettlements.com/service/attorney-fee-deferral/

With the change in administrations last year, new tax rates are coming down the pike.  We all have seen that the President continues to try and push his agenda forward.  He does want to reduce the tax rates and continues to work on his campaign promises.  Now is the time to consider doing some planning to take advantage of what likely will be a lower effective rate for attorneys and other investors with tax deferral methods.   President-elect Donald Trump released his plan earlier this year. For the purposes of this blog, we will use his proposed plan and the current estimated 2016 plan under President Obama to illustrate what the tax differential is likely to be. Both of these charts were obtained from The Tax Foundation website ( www.taxfoundation.org )

 

 

In an effort to keep things simple, we are only going to discuss the marginal tax brackets; however, it is safe to assume that other deductions and credits will also change moving forward. For an attorney, filing jointly, that earns in excess of $231,450, they can see a potential tax savings of 6.6% annually under the new rates. The current 10-year treasury rate is under 2%. If you combine a traditional tax deferred attorney fee structure (the most conservative way to god) with a marginal tax savings, you can see a 3-9% return on your money.  Not bad for taking little to no risk on an investment!

For a better idea of the options available, please review our previous blog that reviews the various options available:

Are you cutting a check to the IRS this year?

Ask us how to start deferring taxation for contingent legal fees today. Don’t delay any longer!

 

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