It is time to consider new ideas and strategies to help you settle claims. In that spirit, this article will share strategies that allow you to settle by giving more and spending less. How is this possible? The secret is in the tax code.Litigation
The default position for the IRS is that all income is taxable. Good planning can result in better tax treatment, and the way to better the tax treatment of lawsuit recoveries can be accomplished by memorializing the case facts in the settlement agreement.
For example, you might have an employment case where a component of the alleged damages is for emotional distress.
In this type of case, taxes could decrease if the wording in the settlement agreement specifies the amount of the recovery that is allocated toward plaintiff’s medical expenses. Or, if the claim is for physical injuries, specifying the amount of the recovery allocated to future medicals could allow the plaintiff to deduct future medical expenses paid out of pocket.
In both cases, the wording in the settlement agreement can save the plaintiff a significant amount on taxes. This savings can benefit defendants and plaintiffs--defendants spend less and plaintiffs keep more. Everybody wins.