Can I shield monies won in a legal mediation settlement by investing them back into my business?

by Nicholas J. Crocetti, CPA | Jan 31, 2019

Can I shield monies I won in a legal mediation settlement by investing them back into my business? I am a self-employed sole proprietor, and the investment would be a home in which I build my new studio.

First, the question needs to be expanded as to the quality, structure, and amount of the settlement. Is it taxable? How are professional fees accounted for? Are the professional fees deductible?  When was it paid?

Second, if the funds are used to acquire or build an office, then a capital asset has been created that should be subject to depreciation. Since it is a building, then the appropriate life should be utilized for depreciation purposes. The life can be substantially accelerated (shortened) if a cost segregation study is preformed and the various structural components can be broken out.

I suggest that you reach out to a qualified CPA who can review all of the above items and develop an appropriate plan of action.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Nicholas J. Crocetti, CPA, is director of tax advisory solutions with CBIZ MHM LLC in Plymouth Meeting, Pa. 

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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