Tax Planning Strategies for the End of the 2024 Tax Year and Legal Settlements: Avoiding Constructive Receipt Issues and Unexpected IRS Forms 1099

As the end of the 2024 tax year approaches, individuals are hurrying to make payments that can be deducted before year-end. With the expiration of the Trump tax cuts, there may be changes to tax planning strategies. It is generally recommended to speed up tax deductions and delay income where possible, but there is a risk of constructive receipt if you have a legal right to payment but choose not to receive it. Timing payments and negotiations for deferred payments can be effective tax deferral planning strategies.

When resolving a lawsuit, it is feasible to ask for payment in installments and make your signature conditional on this requirement. This does not count as constructive receipt, unlike postponing the receipt of a paycheck for services already rendered. It is vital to consider tax issues when settling a lawsuit, as legal settlements and fees are subject to IRS taxation. Failure to plan ahead may result in receiving an unexpected IRS Form 1099.

Receiving a settlement in installments is not considered constructive receipt, as long as the signature was conditioned on the payment being received in a specific way. This differs from delaying the acceptance of a paycheck for services already performed. It is important to consider the tax implications of legal settlements and fees, as the IRS may issue a Form 1099 if not properly planned for. Failure to plan ahead could result in unwanted tax consequences.