Tax Strategy for Trial Lawyers: Special Year-End Moves You Need to Know
November 26, 2024
Tax Moves for Law Firms with Employees: End-of-Year Payroll and Benefit Strategies
December 10, 2024
Law Firm Expense Audit: Ensure You’re Not Missing Any Tax Deductions
As a lawyer, while you’re busy with the day-to-day demands of your law firm, there’s one critical aspect you might be overlooking: tax deductions. Every dollar that goes unclaimed in deductions is a dollar left on the table—and for many law firms, the potential savings are significant.
The end of the year is the perfect time to conduct an audit of your firm’s expenses and ensure you’re not missing out on any valuable tax deductions. From office supplies to travel expenses, there are numerous opportunities to reduce your taxable income and boost your bottom line.
Here’s a step-by-step guide to conducting a comprehensive expense audit and uncovering missed deductions before tax season hits.
1. Conduct an Audit of Office Expenses (Rent, Utilities, Office Supplies)
Your office is the backbone of your law firm, and the expenses associated with running it can provide some of the most valuable deductions.
Key office expenses to audit:
- Rent and utilities: Office rent and utility payments (electricity, water, internet, phone) are fully deductible as business expenses. Make sure you’ve accurately recorded all payments throughout the year and are claiming the full deduction.
- Office supplies: Items like pens, paper, printers, and even cleaning supplies are considered deductible office expenses. Review your purchases for the year to ensure that every eligible expense is accounted for.
- Leasehold improvements: If you’ve made any improvements to your office space—like painting, renovations, or new furniture—these can be deducted either in full or over time, depending on the nature of the expense.
Pro Tip: If you’re working from a home office, don’t forget to claim the home office deduction, which allows you to deduct a portion of your rent or mortgage and utility expenses based on the percentage of your home used for business.
2. Review Software and Technology Subscriptions for Tax Deductions
In today’s digital age, law firms rely on software and technology to manage cases, communicate with clients, and run the business efficiently. Many of these tech-related expenses are fully deductible, but it’s easy to overlook subscriptions or licenses that renew automatically.
What to review:
- Case management software: Whether you’re using Clio, MyCase, or another legal practice management platform, your subscription fees are deductible as business expenses.
- Legal research tools: Subscriptions to legal research platforms like Westlaw, LexisNexis, or Fastcase are fully deductible. Review your monthly or annual payments to ensure they’re included in your deductions.
- Other business software: Cloud storage services, project management tools, and communication platforms like Zoom or Microsoft Teams are all deductible if used for business purposes.
Pro Tip: Don’t forget to review renewal fees for software that automatically renews. These are easy to overlook but can add up to significant deductions when properly tracked.
3. Maximize Professional Development Expenses (CLE, Legal Conferences)
As a lawyer, staying up to date with continuing legal education (CLE) and attending legal conferences is essential for your practice. The good news is that professional development expenses are also tax-deductible, allowing you to reduce your taxable income while investing in your career.
Expenses to include:
- CLE courses: Fees for mandatory CLE courses are fully deductible as professional development expenses. Make sure to include any online or in-person courses taken this year.
- Legal conferences and seminars: Registration fees, travel expenses, and accommodations related to legal conferences are also deductible. If you’ve attended any conferences, review your expenses to ensure they’re all accounted for.
Pro Tip: Keep detailed records of course fees and travel expenses for each professional development event to ensure you can easily substantiate your deductions if needed.
4. Deduct Travel and Meals Related to Client Meetings
For many lawyers, client meetings often involve travel and meals, and these expenses are generally deductible if they are directly related to business. However, it’s important to follow the IRS guidelines to ensure that you’re claiming the deductions correctly.
Eligible travel and meal expenses:
- Travel: Airfare, hotel stays, rental cars, taxis, and other travel-related expenses for client meetings or court appearances are deductible. Keep receipts for all travel-related expenses, and be sure they are properly categorized as business travel.
- Meals: Client meals, whether in a restaurant or catered in your office, can be deducted at 50% of the actual cost. The meals must be directly related to conducting business, and you should keep detailed records of the client or case related to each meal.
Pro Tip: The IRS requires clear documentation for travel and meal deductions, so ensure that you’re keeping receipts, noting the purpose of the meal or travel, and tying each expense to a specific client or case.
5. Ensure Charitable Contributions Are Properly Recorded for Deductions
Many law firms give back to their communities through charitable donations, and these contributions can provide valuable deductions when properly recorded.
Types of contributions to review:
- Cash donations: Donations made to qualified charities are generally fully deductible, up to 60% of your adjusted gross income. Review your firm’s charitable giving for the year to ensure that all donations are accounted for.
- Non-cash contributions: If your firm has donated office equipment, furniture, or supplies to charity, these non-cash contributions can also be deducted. Be sure to document the fair market value of the items donated and obtain a receipt from the charitable organization.
Pro Tip: For donations of more than $250, the IRS requires a written acknowledgement from the charity, so make sure you have the necessary documentation to support your deduction.
Why Conducting an Expense Audit Matters for Law Firms
For law firms, missing out on tax deductions can have a significant impact on the bottom line. By conducting an end-of-year expense audit, you can uncover missed opportunities, ensure that every eligible deduction is claimed, and reduce your overall tax liability.
The bottom line: A thorough expense audit not only maximizes your tax savings but also provides valuable insights into your firm’s financial health. The more strategic you are with your deductions, the better positioned your firm will be for financial success in the upcoming year.
Audit Your Firm’s Expenses Now—Maximize Your Deductions Before It’s Too Late!
At Prestige Accounting and Consulting, we specialize in helping law firms conduct detailed expense audits, identify missed tax deductions and much more. Our team of experts will ensure that every eligible expense is accounted for, so you can minimize your tax liability and focus on what matters most, growing your practice.
Contact us today to schedule a consultation and get started on your year-end expense audit.
