S Corp Owners: Make This Move Before December 31 to Save on Taxes
December 23, 2025
How to Spot a CPA Who Doesn’t Know Legal Industry Tax Rules
If you’re a lawyer, your accountant shouldn’t just “do taxes.”
They should know how your law firm operates, how your trust accounts are regulated, and how to help you make strategic financial decisions that reduce risk—not increase it.
But far too many attorneys are working with CPAs who are completely unaware of the unique compliance and tax challenges law firm owners face.
That’s a problem.
And it’s a liability for your license, your finances, and your firm’s future.
Here’s how to spot a CPA who doesn’t understand the legal industry—and what to do if you’re working with one now.
Red Flag #1: They’ve Never Asked About Your Trust Account
Let’s be clear: If you have an IOLTA or client trust account, your accountant should have:
- Asked how it’s set up
- Reviewed your three-way reconciliation process
- Discussed your state bar’s rules
- Flagged if your bookkeeping system is out of compliance
If your CPA doesn’t know:
- What a three-way reconciliation is
- That commingling can get your license suspended
- That unearned retainers shouldn’t hit your P&L until earned…
You’re on your own with compliance—and that’s dangerous.
Want to check if your CPA is even qualified to manage this?
Red Flag #2: They Report Income Before It’s Earned
Some CPAs automatically report all your trust deposits as income, even when the funds haven’t been earned yet.
That’s not just wrong—it’s a double tax trap:
- You’ll pay taxes now on unearned income
- You’ll pay again when you actually earn and report it later
Your CPA must understand revenue recognition rules for lawyers. If they’re not asking how you handle fee draws, settlements, or contingency fees, you could be:
- Overpaying taxes
- Misrepresenting your income to the IRS
- Violating state bar accounting rules
Red Flag #3: They Use the Wrong Entity or Tax Structure
Are you:
- Operating as a sole prop when an S Corp would reduce self-employment tax?
- Using an S Corp but your CPA isn’t helping you with officer salary compliance?
- Not contributing to retirement accounts even though you’re eligible?
These are all signs your CPA may not understand:
- Profit distributions vs. payroll
- Strategic retirement planning for firm owners
- Entity selection based on liability and tax structure
The wrong structure can cost you $10K+ per year in taxes—or worse, expose you to audit risk.
Red Flag #4: They’re Not Reviewing Your 1099s, Payroll, or Vendor Classifications
If your CPA only files your taxes—and doesn’t touch your:
- Payroll classifications
- 1099-NEC filings
- Contractor vs. employee tests
- Attorney referral fee reporting
They’re not helping you stay compliant.
A law firm CPA must ensure:
- W-2s are filed for employees, even if they’re part-time
- Contractors are properly classified (especially other attorneys or paralegals)
- Referral payments are reported accurately
- Payments to expert witnesses are handled correctly
If they don’t bring this up before January, you’re at risk for late filings, penalties, and IRS red flags.
Red Flag #5: They Talk About “Clients”—But Not Your Caseload
A CPA who works with restaurants, real estate investors, and doctors doesn’t understand:
- The seasonality of your caseload
- The cash flow implications of contingency fees
- The compliance risk of client fund handling
- The fact that malpractice risk starts with your money—not just your court calendar
An attorney’s CPA should ask:
- What billing models do you use?
- How do you track time or project flat fees?
- How many open cases do you have in active vs. dormant status?
- Do you have a plan for closing old matters and moving funds out of trust?
If they’re not speaking that language, they’re not built to support your firm.
Red Flag #6: They Never Explain What They’re Doing
You deserve a CPA who will:
- Translate tax strategy into plain English
- Help you understand your numbers
- Teach you how to read a P&L or balance sheet
- Show you what those numbers mean for payroll, draws, taxes, and hiring
If you feel like you’re “just signing things” without knowing why—you’re not being supported, you’re being managed like a file.
So, What Should a Qualified CPA for Lawyers Actually Do?
Here’s what we do for every client at Prestige Accounting & Consulting:
- Set up and maintain bar-compliant trust account systems
- Perform monthly 3-way reconciliations
- Analyze whether an S Corp or partnership structure saves more in taxes
- Create a year-round tax strategy—not just file returns
- Provide monthly reporting and financial coaching
- Prepare for state bar audits and IRS notices
- Act as a strategic advisor, not just a data processor
You don’t need someone to “do taxes.”
You need someone to protect your license and grow your firm.
If You’re Not Sure, You Already Know
- If reading this made you sweat…
- If you’ve never heard your accountant mention these things…
- If your books haven’t been reconciled in 60 days or more…
It’s time to change that.
Download our free guide: Is Your Accountant Qualified to Work With Lawyers?
Use the checklist to audit your current accountant Know the signs of risk and what you’re missing Schedule a consultation if you want a second opinionFinal Thought: Your CPA Should Be Part of Your Legal Team
Just like you wouldn’t let your paralegal give legal advice, you shouldn’t let a generalist CPA handle your law firm finances.
The financial rules for lawyers are different.
The tax traps are steeper.
The consequences are bigger.
You deserve a financial partner who knows your industry, understands your ethics, and protects your peace of mind.
Ready to work with a CPA who actually knows the legal profession?
