How the Tax Cuts and Jobs Act Affects Personal Injury Attorneys
How the Tax Cuts and Jobs Act Affects Personal Injury Attorneys
The Tax Cuts and Jobs Act of 2017 made headlines by dropping the corporate tax rate from 35 percent to 21 percent. While that sounds like great news for every business, many personal injury attorneys operate as pass-through entities—not corporations.
So will personal injury firms get a tax break under this new law? The answer is, as so often in matters of tax law, both simple and complex: It depends. Here are a few things that every personal injury lawyer should know about the new tax law:
- Pass-through businesses can take a new deduction—but only under certain income limits, and odds are attorneys don’t make the cut.
Certain pass-through organizations—sole proprietorships, partnerships, and S corporations, for example—can deduct up to 20 percent of business income from their taxes under the new law. But the benefit scales down at a certain income threshold, and many personal injury attorneys may not be able to take advantage.
The deduction cap is reduced at a limit of $175,000 for single filers and $315,000 for married couples. At an annual income of $415,000, the deduction disappears entirely.
- Firms that are organized as corporations will benefit from the reduced corporate tax rate.
Of course, not every personal injury firm is organized as a pass-through. Businesses that are taxed as corporations can take advantage of the heavy drop in the corporate rate, which, as we mentioned, dropped from 35 percent to 21 percent.
- Contingent-fee attorneys in the Ninth Circuit narrowly avoided an end to deduction benefits.
At Precise Imaging, we work with lots of contingent-fee lawyers, thanks to our flexible payment program that includes liens and letters of protection. So we know that deductions for these legal firms operate differently in California and the rest of the Ninth Circuit than they do elsewhere in the nation.
Attorneys who work through gross fee contracts, in which they agree to pay legal costs through their own percentages at the conclusion of a case, are allowed to deduct those costs. An early draft of the Tax Cuts and Jobs Act ended this deduction for the Ninth Circuit, but by the time the President signed the bill into law, that provision was gone. So contingent-fee attorneys with gross fee contracts can continue to deduct costs in California and elsewhere.
This last point brings us to the services we at Precise Imaging provide for personal injury attorneys. Diagnostic imaging can be considered a legal cost, and as such, the expense is often deductible for Ninth-Circuit lawyers with gross fee contracts.
To discuss the ways diagnostic imaging can help with a personal injury case in California and beyond, or to learn more about liens and letters of protection for imaging services, call us at 800-558-2223.