Call Now (800) 681-1295
Close

Tax considerations for plaintiffs vs. defendants

Table of Contents

    Yes. The tax considerations in litigation differ depending on whether you are a plaintiff or a defendant. Effective tax planning for litigation is best performed at the outset of litigation even before the complaint is filed. Often in order to achieve the most favorable results, extensive tax planning and strong documentation early on in the litigation stages.

    Proper tax planning in litigation can serve as leveraging point during negotiation talks, and the effects could be significant. With proper tax planning, a plaintiff could maximize his net proceeds from a settlement or judgment. From a plaintiff attorney’s perspective, failing to consider the tax consequences in a case could potentially expose the attorney to legal malpractice.

    Example. Suppose your client recovers of $1,000,000 in damages. Suppose also the worst case scenario, where the entire amount of the recovery is taxable as ordinary income (rather than, e.g., a capital gain), with an attorney contingent fee of 33% deducted as a miscellaneous itemized deduction (subject to the 2% floor). The federal tax burden in this case would be $216,305. However, because of the applicability of the Alternative Minimum Tax (“AMT”) in this situation, the deduction for attorney fees is disallowed and tax is applied to the entire $1,000,000 at a flat ~28% rate, resulting in a total federal tax liability of $276,500. After accounting for California income tax of $79,832, the taxpayer is left with a mere $313,668 out of a total $1,000,000 settlement. This is hardly an encouraging result for your client—a result that in many instance is avoidable. (Query whether your client would sue you if he learned that).

     

    Tax Help Videos

    Representing Clients from U.S. and International Locations Regarding Federal and California Tax Issues

    tax lawyers

    Main Office

    Orange County
    2601 Main St. Penthouse Suite
    Irvine, CA 92614
    (949) 681-3502

    Our headquarters is located in Irvine, CA. Our beautiful 19,700 office space is staffed full-time and always available for our clients to meet with our highly qualified and experienced staff of Attorneys, Certified Public Accountants and Enrolled Agents. We also offer virtual consultations and can travel to meet with clients in one of our satellite offices.

    Outside of our 4 hour initial consultation option, we do not charge travel time or travel expenses when traveling to one of our Satellite offices, or surrounding business districts, where it is necessary to meet personally with taxing authority personnel, make court appearances, or any in person meeting deemed necessary for the effective representation of a client. To make this as flexible, efficient, and convenient as possible, David W. Klasing is an Instrument Rated Private Pilot and Utilizes the Firms Cirrus SR22 to service client’s in California and in the Southwest by air. Offices outside these areas are serviced via commercial jet airlines. None of these costs are charged to our clients.

    Satellite Offices

    California
    (310) 492-5583
    (760) 338-7035
    (916) 290-6625
    (415) 287-6568
    (909) 991-7557
    (619) 780-2538
    (661) 432-1480
    (818) 935-6098
    (805) 200-4053
    (510) 764-1020
    (408) 643-0573
    (760) 338-7035
    Arizona
    (602) 975-0296
    New Mexico
    (505) 206-5308
    New York
    (332) 224-8515
    Texas
    (512) 828-6646
    Washington, DC
    (202) 918-9329
    Nevada
    (702) 997-6465
    Florida
    (786) 999-8406
    Utah
    (385) 501-5934