Plaintiff attorneys can retains some of the benefits that their clients do by structuring contingent fees for future payments, known to many as structured fees. Structured fees not only reduce an attorney’s current taxable income, but they also offer a secure way to set aside income for future needs.
An attorney is taxed only as payments are received. Payments are reported on Form 1099 Misc in the year in which the payment(s) is scheduled.
By using a structured settlement an attorney can:
- Spread legal fees over years, possibly avoiding a higher marginal tax bracket, allowing the money saved by deferring current taxes to be invested with little risk and no management fees. It is important to remember that when structuring a fee, an attorney is investing pre-tax, locking her or his settlement proceeds into a high-yielding investment.
- Choose when the payments will start at the time of settlement; there’s no need to wait until age 59 1/2 for payments to begin.
- Create a low-risk foundation for a diversified portfolio.