If you are like most people, you dread that time of year when the tax man comes calling. Taxes are a necessary evil but if you are smart and plan ahead you can significantly reduce or even significantly alleviate any financial burden.

How is this possible? I am glad you asked because the answer is simple…Brook-Hollow Financial!

This week was a great week for Brook-Hollow. I received three calls from happy attorneys, pleasantly surprised with how much capital they still had in their pockets.

Why you may ask? It is because all three had just met with their accountants and could not believe what they heard. “No tax bill this year!”…”way lower than last year,”…”why don’t you do this with all of your fees?”

Even though these were all clients who understood the tax advantage of our deferral and investment solutions, they all could not help but be shocked to see the results in action.

Now, you may be thinking…how can a deferral help save taxes and earn me money?

Tax deferred investing has two advantages:

  1. You invest fees on a pre-tax basis. If you earn a $1 million fee, you invest the full $1 million rather than the after-tax amount (assume $600,000), providing a greater opportunity for appreciation.
  2. There are no taxes on your gains. If your $1 million deferral increases by 10%, you have $1.1 million. Alternatively, if you had invested your fee post-tax and it grows by 10%, you would be again subject to pay taxes on the gain. i.e. $600,000 invested, earning 10% minus taxes leaving you with roughly $640,000.

You may think this sounds great, but what if I need to access to my fees now?

Brook-Hollow is dedicated to providing financial freedom for contingent fee attorneys through Brook-Hollow Financial’s tax deferral programs and Brook-Hollow Capital’s working line of credit. For those attorneys that need access to capital now, we provide our clients the opportunity to borrow up to 97% of their pretax fees at a low, fixed interest rate (3%), providing attorneys additional capital to grow. That means that instead of only getting access to $600,000 after taxes you could have access to $970,000 working capital.

Let me share one example of how our solutions have helped our client.

One of our newer clients just settled two cases this year. He received a little more than $4 million in fees on the first and $2 million on the second. He is the sole owner of a small, but growing firm. He made it clear that he currently needs every penny to keep building and growing his practice. He needs to hire additional staff, has a couple million in case costs, is looking for additional case acquisition, and has not paid himself in a year.

His first fee came in and we deferred the full pretax amount. As cash restraints were the main concern, we provided him with a low fixed interest line of credit from which he could draw upon as needed from Brook-Hollow Capital. The next day he had access to $3,880,000! He did not recognize that $4 million fee as income because he deferred it and thus there was no income to tax.

A month later, the second fee came in. This time, he invested his fees into several high yielding investments which are earning him a significant return. These investments are growing and compounding tax free—like a 401k but with no cap and no investment restriction. Again, no income recognized thus no income to tax.

The bottom line is that we allowed him to get the most use out of his fee now when he needed it most. He used the line of credit to reinvest into his firm and has seen 40% growth in revenue during the last 14 months.

This is just one example of many. All our clients have different long- and short-term goals. The key is to plan ahead and customize a solution that will work for you. If you have fees expected within the next six months, it cannot hurt to talk with one of our trusted advisors to learn all your options. A deferral is something that must be setup prior to fee disbursement and a firm receiving constructive receipt of funds.

Adrienne Carter
Adrienne Carter obtained her undergraduate degree in Business from the University of Western Ontario before pursuing a Master’s in International Business from City University of Hong Kong. She has spent the last 15 years working in the legal and financial services industry.


Submit a Comment

Your email address will not be published. Required fields are marked *

Share This