Top Tax Deductions For Your Law Firm
Tax Season is upon us!
This means it’s time to take a serious look at your paperwork in order to ensure you have everything in order come April 15th – and for this year, April 18th. While this may seem overwhelming, the more you understand your financial situation, the easier the entire process will be.
After all, being prepared ahead of time means you can make the most of the different tax deductions that are available to you.
With that in mind, here are just some of the best tax deductions for lawyers and law firms. Please note that when making decisions about your business or personal income taxes, it’s best to consult with a certified tax expert.
Many legal professionals travel as part of their job, whether they’re representing a client in court or traveling to and from conferences or client meetings. Fortunately, you may be able to recoup some of these expenses by filing them as business travel expenses.
The IRS allows these deductions as long as they are not “lavish or extravagant, or that are for personal purposes.”
According to the IRS, you can deduct the cost of
- Travel, whether by plane, public transport, or car (see standard mileage rates here).
- Baggage and shipping fees
- Lodging and accommodation costs
- Dry cleaning and laundry
- Business calls while on your business trip
- Tips you pay for services related to any of the above expenses
In order to deduct business travel expenses from your taxes, you must ensure you track your expenses carefully. Keep booking confirmations on file, alongside any receipts.
Business meals play an important role in winning over clients or improving their relationship with your firm. As they fall under the umbrella of networking expenses, they are also tax deductible. However, the meals must fall under specific criteria laid out by the IRS in order to be fully deductible. For example:
- The person who claims the expense or deduction must be present;
- The expense cannot be lavish or extravagant;
- The meal must be from a restaurant that meets the IRS standards; and
- Business must be the topic of conversation.
Careful records of business meetings and their accompanying receipts must be stored carefully when filing for this kind of return.
In most cases, the IRS limits the deduction to 50% of the costs of business meals, though, in some circumstances, you can take advantage of the enhanced meal deduction system and claim 100% back. In any case, it is important to consult with a qualified tax professional to understand how your deductions should comply with local, state, and federal laws.
Office Equipment & Software
The equipment, tools, and software you purchase to support your team in their daily operations may also be tax-deductible, though it must be purchased within the relevant tax year. This is a deduction that is often overlooked by law firm owners.
As more attorneys move their practices to a fully-remote or hybrid company, individual workers may also be able to claim tax deductions due to the fact they work from home. For law firms, this could include the cost of things such as office equipment, computers, cybersecurity software, and more.
Work-related education expenses may also be tax-deductible, providing that you can prove they were a necessary expense in maintaining your law firm or licenses. For example, CLE courses and practice-area licensing exams that are required may be a deductible.
It is important to consult with a tax professional to understand which business and professional development education are deductible and what forms must be filed with the IRS for those deductions. You can find out more information about educational expenses here.
Despite the fact that tax deductions are a great way to improve your financial standing, many legal professionals do not take advantage of these opportunities – often due to the fact that they are simply unaware of which deductions they qualify for.
At FinOp Group, we have years of experience supporting law firms when it comes to tax planning – which means we can also help you save money by filing the relevant tax deductions.
Some of our tax planning services include:
- State and local tax planning
- International taxes, including investment structuring
- Tax dispute resolution
- Business formation and choice of entity
- Tax qualified plans, including 401(k)s, profit-sharing, and pension plans
Get in touch today to find out more!