How to Avoid Paying Taxes on Settlement Money: 5 Essential Tips

This video explains 5 tips on how to avoid paying a huge tax bill on your legal settlement so you can maximize the amount that you will take home.

Chapters:
00:00 - Intro
01:07 - Legal Disclaimer
01:16 - Do I have to pay taxes on my settlement?
03:05 - Common types of tax-free settlements
04:34 - Tip #1: Use a Structured Settlement Annuity
05:15 - Structured Settlement Annuity Sample Settlement Payout
06:06 - Tip #2: Use the Plaintiff Recovery Trust
06:19 - The Tax Cuts and Jobs Act of 2017
06:35 - Case types that allow for an above-the-line deduction
06:58 - Examples of taxable cases
07:14 - Sample of the impact of The Tax Cuts and Jobs Act
08:10 - The Plaintiff Recovery Trust
08:42 - Tip #3: Use an Annuity and the Plaintiff Recovery Trust
10:19 - Tip #4: Maximize the Medical Expense Exclusion
10:46 - Cases where maximizing medical expense allocation applies
10:54 - Specific case examples
12:42 - Tip #5: Allocate All Damages in the Settlement Agreement
12:58 - Settlement Portion Allocation Example
14:16 - Conclusion
14:40 - Free 15-minute phone call for plaintiffs
15:22 - Settlement Tax Calculator

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Video Summary:
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In this video, Greg Maxwell, a practicing attorney and Certified Financial Planner, shares five legal tax-saving strategies for individuals receiving legal settlements. The IRS typically considers settlement money as taxable income unless proven otherwise. Taxation depends on the nature of the lawsuit and its origin. Settlements for personal, physical injuries are generally tax-free under Section 104(a)(2) of the Internal Revenue Code.

Here are the five key tax-saving strategies:

1. Use a Structured Settlement Annuity: This method involves receiving settlement funds in smaller installments over time, lowering the overall tax burden and potentially saving thousands in taxes.

2. Use the Plaintiff Recovery Trust: The Tax Cuts and Jobs Act of 2017 changed the deductibility of legal fees. Plaintiffs in certain cases can no longer deduct legal fees, resulting in higher taxes. The Plaintiff Recovery Trust helps avoid the "Plaintiff Double Tax Trap" by excluding attorney fees from taxable income.

3. Combine a Structured Settlement Annuity and the Plaintiff Recovery Trust: Combining these two strategies maximizes tax savings by spreading income over time and excluding legal fees.

4. Maximize the Medical Expense Exclusion: Even in cases not related to personal injuries, plaintiffs can allocate settlement funds to past and future medical expenses, reducing the overall tax liability.

5. Allocate All Damages in the Settlement Agreement: Plaintiffs can allocate specific amounts to tax-favored categories, such as personal, physical injuries, reimbursement for lost investments, or medical costs. Customized allocations can significantly reduce tax payments.

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If you'd like to explore tax-saving options for your settlement, book your free 15-minute phone call at amicusplanners.com/call.