Trust accounting and IOLTA rules, the chart of accounts, client costs advanced, partner compensation, entity structure, and tax planning for solo lawyers and law firms.
20 guides, each written by a CPA licensed in the US and Canada.
When a contingency fee becomes taxable income, how cash and accrual methods produce different timing results, how to handle advanced litigation costs.
US TaxClient money goes in a separate trust account, gets reconciled three ways every month, and earned fees come out promptly.
US TaxHow associate compensation works (salary, bonuses, origination credit), what changes when an associate makes partner. Associates are W-2 employees whose.
US TaxLaw firms write off 10-15% of recorded time before billing, then collect only 85-90% of what they bill. A law firm records billable time.
US TaxThe chart of accounts must reflect all of this, or the financial statements will not tell the partners how the firm is actually performing.
US TaxCosts that a law firm advances on behalf of a client with an expectation of repayment are not deductible business expenses under IRC 162.
US TaxIOLTA interest goes to the state bar foundation, not the lawyer or client. Before IOLTA, these funds sat in non-interest-bearing trust accounts.
US TaxLaw firms hold client data that is protected by attorney-client privilege, work-product doctrine, and ethical obligations under ABA Model Rule 1.
US TaxAll insurance premiums (malpractice, cyber, general liability, workers' comp) are fully deductible under IRC 162. Bar dues.
US TaxLaw firms are pass-through entities. The real decision is between partnership taxation (LLP or PLLC taxed as a partnership.
US TaxFor most law firms the entity question is really the S-corp question: whether to split owner income into salary and distributions.
US TaxLaw firm M&A looks nothing like corporate M&A. No stock, no entity-level gain in most structures.
US TaxA law firm partner's pay arrives as guaranteed payments and a distributive share on the K-1, and both carry self-employment tax.
US TaxGuaranteed payments under IRC 707(c) are payments to a partner for services (or capital use) that are determined without regard to partnership income.
US TaxMulti-partner law firms with associates and staff can defer $200,000 to $350,000+ per partner per year by combining a 401(k) with a cash balance plan.
US TaxLaw firm partners can defer over $200,000 a year by stacking a solo 401(k) with a cash balance plan. How each plan type works and the contribution limits.
US TaxA law firm without a succession plan loses value when a founding partner exits. It loses the client relationships that partner built over decades.
US TaxLaw firms have deductions other businesses do not: malpractice insurance, bar dues, CLE, and legal research subscriptions.
US TaxHow to set up IOLTA trust accounting correctly, run a three-way reconciliation every month, handle interest reporting, and prepare for a state bar audit.
US TaxWIP (work-in-progress) in a law firm is time recorded but not yet billed. It is distinct from accounts receivable (time.