Yay! Saved a client $50k

A businessman contacted me recently to help him out of a difficult tax situation. He received a settlement for a real estate investment and dissolution of a partnership. The settlement was more than $200,000 and he had assumed at the time that it wasn't taxable. That was a bad assumption.

Once he realized there were tax liability implications, he consulted a tax preparer (not us) who told him that he would need to pay nearly $90,000 in taxes and underpayment penalties. Obviously, this was upsetting and shocking since he had little knowledge about taxes and settlements.

A client of mine referred him to me for a second opinion. After consulting with the client and careful analysis I was able to determine that the tax code allowed him an exemption for half of the settlement. He'll still have to pay a little more than $40,000 in taxes and penalties but that certainly is an improvement from $90,000! As part of the analysis, we were also able to help him save another $1,800 by paying estimated taxes before 15 January which is the deadline for paying estimated taxes on income earned that had not been taxed.

And it turned out, if he had consulted a business attorney regarding the formation of the original partnership he would have saved significantly more as he would've been able to utilize business expenses that he paid. A business attorney would also have been able to make sure the final agreement specified more details of the payout which in turn would've allowed me to further decrease his tax liability.