"Criminal' attorneys never charge a percentage because there is nothing to recover. Their charge is based on the time and complexity of the case. In civil court, the punitive damage portion of settlements and awards are taxable. Also, interest received as part of the award is taxable. Now comes the big one - remember that percentage 40% that you paid the attorney? That is not deductible.
Say you receive $1 million as an award and you paid the attorney $400 thousand as contracted. At this, point, most people think that they got $600 thousand free and clear. However, assume 50% of the award is for punitive damages, emotional distress, etc, and the balance is recovery of expenses for pain and suffering, etc. That $500 thousand is taxable and most probably at 35% or about $175 thousand.
Wait a minute - what about the $400 thousand that I paid the attorney, shouldn't the taxable amount be reduced by that? No, because miscellaneous itemized deductions are no longer allowed.
So, to recap, you received $1 million; you paid your attorney $400 thousand and you paid $175 thousand in income tax. Your net share of the total settlement is about $425 thousand - just slightly more than what your attorney earned.
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