Strategies to Combat Phantom Income
Founding Partner at Price Benowitz LLP
Partner at Koshers & Company
EVP & Head of Corporate Development at Esquire Bank
Phantom income can be a drain on your resources and time. Through proper financial planning, you can avoid phantom income sources and ensure that you can pay the taxes on your phantom income by setting up transactions appropriately.
Watch Ari Kornhaber (EVP & Head of Corporate Development, Esquire Bank) and Bryan Koshers (Contingency Fee Accounting Specialist) as they discuss ways to avoid phantom income and make a positive impact on your finances.
I think we have to turn our conversation to case costs and how they’re treated and what law firms can do because they have a very unique opportunity when it when it comes to paying for their case costs which obviously, they need to incur.
Maybe we could start with you, Brian and talking about phantom income. It’s a phrase that is thrown around quite a bit and quite frankly I don’t know if everyone on this webinar truly understands what phantom income is.
Maybe you could help us start with what is phantom income and then we could go from there.
Sure. Phantom income is a term that’s not industry specific but generally it’s defined as when a business owner has taxable income, but the money used to generate that taxable income has gone and therefore the tax bill comes and the money to help pay that tax bill has been spent on something else. So, in this situation it would be spent case costs.
So, when a contingency fee lawyer has case costs that are recoverable or in essence theory recoverable and the resolution of these cases you know are expected to be more than a year, those aren’t deductible expenses.
Those are considered loans or receivables and can’t be deducted as expended so several firms many firms and unfortunately this is widely overlooked use this philosophy of self-funding, they take their legal fees, and they spend those dollars on case costs, and they took a hundred dollars in they spend 100 out.
They think the world’s a good place and unfortunately that’s just not the case so um you know in that situation we want to make sure that you know clients understand that this self-funding philosophy could generate if treated properly could generate this phantom income that’s sort of a disaster in our industry.