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I am about to enter a settlement for a sizable amount. For

this example lets use $200k...
I am about to enter a settlement for a sizable amount. For this example lets use $200k, 30% will go to my lawyer and 40% to tax leaving about $60k over. The payment will be made to the lawyers trust then disused from there, i am not trying to get out of taxes but i would like to reduce them as much as possible, in general what are the options and individuals I should consult?
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Answered in 8 minutes by:
11/17/2017
Chad CFP ®
Chad CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Finance
Satisfied Customers: 921
Experience: Managing Director
Verified

Hello. My name is ***** ***** I will be able to assist you.

The fees you pay for legal expenses or court costs are deductible, as long as the legal matter is business and not personal.

In your scenario above, the 30% paid to the attorney would be deductible as long as the matter is for business purposes.

___

Fines and punitive damages are not deductible.

___

Deduct the settlement costs using Schedule C or Schedule E, as appropriate for your business structure. For instance, on Schedule C -- for sole proprietors -- you write off attorney fees on Line 17.

Settlement costs that are legally deductible. Subtract them, along with your other expenses, from your business structure. For instance, on Schedule C -- for sole proprietors -- you write off attorney fees on Line 17.

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Below is a link for further verification.

http://smallbusiness.chron.com/deduct-settlements-related-business-75269.html

https://www.pwc.com/gx/en/industries/pharmaceuticals-life-sciences/publications/tax-news-irs-factors-deductibility-of-settlement-payments.html

"Payments made pursuant to a settlement agreement or court judgment ordinarily will be characterized, from the payor's perspective, as a deductible expense, a capital expenditure, or a nondeductible, noncapital payment"

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The origin and character of the claim with respect to which an expense was incurred determines its tax treatment.

Generally, if a claim arises from acts performed by a taxpayer in the ordinary course of its business operations, settlement payments and payments made pursuant to court judgments related to the claim are deductible under section 162. For example, payments made to compensate a plaintiff for actual damages or harm caused by the defendant's action generally are deductible.

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I would be happy to answer any follow up questions you may have.

At the conclusion of our conversation please take a moment to accept the answer by rating the answer with three stars or more. A positive rating of five stars is always appreciated. Thank you!
Chad CFP ®
Chad CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Finance
Satisfied Customers: 921
Experience: Managing Director
Verified
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Customer reply replied 1 month ago
This is for a wage/hour claim settlement from my to my employer.
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