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John Bair
John Bair
Contributor • (716) 883-1833

How do I defer taxes on my BP claim?

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Now that BP has finally lost in the litigation process, we expect many of the 1000’s of claims to start moving forward to payment.

The question is, “is a lump sum of cash best for your, your business and your family?”

As a court appointed broker, our firm consults with your attorney, tax adviser’s and your business partners on what your options are. Receiving your entire settlement in cash may be the best thing for you, but you should make that call once you’ve evaluated all of your options.

Through the Deepwater Horizon Claim site, one of your options is taking a portion of your BP claim settlement in the form of periodic payments, or a deferral for tax reasons. If you allocate a portion of your claim to be received in future, you will not incur any taxes on that portion of the settlement until you receive it.

This basic concept has existed for every major national tragedy, to include the Victims Compensation Fund set up after 911. The Federal Court has approved of companies like ours to assist you in evaluating the benefits of a potential deferral.

Many of our clients businesses are back into full swing, and they don’t need the taxable income now. Through careful planning, reviewing the existing retirement plans of the businesses, the equity positions of the owners, in many situations it may make sense to cash flow the settlement over 10-15 years, so that each an every year decisions about contributions to traditional retirement plans, profit sharing plans or 401K’s can be made. All of those future planning options are eliminated if you take all of the money this calendar year.

We recently consulted with a gulf business owner, who merely wanted to put the entire settlement into a retirement income beginning at age 65, when he intends to sell his business or wind down. This simple deferral will make a considerable difference in how much taxes he will pay on his settlement, as each an every tax year the settlement is spread over, creates more opportunities for expenses or lower brackets if income will be lower in the future.

The key to understanding this is essentially asking yourself “when do I want to be taxed on this, and what can I do with the assets before they become taxable”  See DeepWater Horizon Settlement site here.

See our previous post about the BP settlement program here.

Milestone Consulting is a comprehensive settlement planning firm that can assist you in evaluating your BP claim, it’s tax effect, and exploring what your options are.