As contingency-based attorneys, you don’t catch a lot of breaks. However, one benefit you do have is the unique option to defer your fees and delay the recognition of taxable income. There are several products that exist today; the most common is the traditional structured attorney fee but there are other options as well, such as Non-Qualified Deferred Compensation.

What is an attorney fee deferral?

In its simplest form, a fee deferral product is a tax-advantaged solution that can aid you in managing your practice and your personal wealth. Each one will come with different features, but they all allow you to defer your contingent fees and delay recognizing that fee as taxable income on your personal income tax return. 

Why should I consider deferring my fees and what are some of the potential benefits of utilizing a fee deferral product?  

Utilizing a fee deferral product can allow you to lower your marginal and/or your effective tax rate. Your marginal rate is simply the highest rate at which you pay taxes. For example, if someone makes more than $647,850, and files their taxes jointly with their spouse, then their federal marginal tax rate is 37%. That is the highest tax rate you’ll pay. Since we have a progressive tax system, you pay tax at each tax bracket. Once you are over $647,850 you will start paying at the highest federal rate of 37%. The effective tax rate is just the blended average tax rate that you’re paying. 

As a contingent fee attorney, your income is likely inconsistent. By utilizing a fee deferral product, you can choose when and how you’ll receive your fee in the future. Creating a stream of future payments can ultimately give you more control over your income and smooth out the ebbs and flows.  

If you’re interested in learning more about deferring your fees, please give us a call today at 866-683-6743.