Settlement

[Tracy Lee]

My son has a large court case coming up in September that has been postponed for 3 years (thanks covid)  it looks like he will be receiving approximately $850,000.00 to 1,000,000.00 in settlement.  Some of it will be for wages and some of it will be compensatory damages.  He files single, although he does have a son (ex wife claims).  He is 90% disabled vet with all his health expenses paid through the VA and his disability pay.  He is heading off to Nursing School in September (He already has his associates degree) with all of it being paid with his GI Bill and a lot of scholarships.  He has no other income.   My question is:  He is going to have to pay ALOT of taxes unless I can figure out someway to offset that income.   I do not do taxes for high income earners so I do not have a good base of knowledge in that area.  I know he will phase out of making any IRA contributions, and because of the VA health there seems no point in starting a HSA for that deduction.  He does not want to own any rental property or start a business.  He is planning on continuing his education in the medical field and working for the VA.  Any good suggestions on how to offset his taxes? 

[Lee B]

Assuming there is an attorney involved by far the biggest issue your son will have is the non deductibility of legal fees.

Many articles out there about this problem. Here is one from Forbes:

 https://www.forbes.com/sites/robertwood/2022/02/17/how-to-write-off-legal-fees-on-your-taxes/?sh=32a25c77217f

[Gail in Virginia]

Was any of this award due to discrimination based on disability?  It seems that I remember there used to be some exception related to that.  I don't know if that is still the case, or if I am remembering correctly but if this pertains you might do some research to see if there is any help there.  

[Tracy Lee]

I am aware of the legal fees being taxable.  We are not sure which direction they are going to take.  Lawsuit is based on whistleblower but they are trying to stay away from that and use other stupid reasons.  They have already paid out two other whistleblower cases and has another suit pending after my sons case.  This is definitely big corrupt business trying to squish the little guy!

[ILLMAS]

 

[Lee B]

Tracy,

The biggest potential taxable income offset would be available only by starting a Schedule C Sole Prop business.

In your son's situation the focus needs to be on preserving as much of his Settlement proceeds, net of legal fees as possible.

Given your original post, I am not aware of any significant tax offsets.

[Lion EA]

This is one year, and not much you can do once the settlement is "settled"/legally designated. Use a good investment strategy to stretch his income out over his lifetime, using a mix of taxable and LTCG and tax-exempt investments appropriate to his age and place in his life cycle. Work with a well-recommended, experienced financial advisor.