The #1 Financial Mistake Solo Lawyers Make (And How to Fix It)
January 13, 2026
Should You Be Paying Yourself More? Understanding Owner’s Compensation
Owning a law firm isn’t just about serving clients it’s about building a business that pays you well for the value you provide.
But here’s the question most attorneys don’t ask often enough:
Am I paying myself what I’m actually worth?
If your monthly draws are inconsistent…
If your salary hasn’t changed in years despite firm growth…
Or if you don’t know what you’re paying yourself until tax time…
Then this blog is for you.
What Is “Owner’s Compensation,” Really?
When you run your own firm, your paycheck doesn’t just show up automatically.
You have to decide how and when to pay yourself—and whether to do it as:
- A draw (common for sole proprietors or partnerships)
- A salary (required for S-Corp owners)
- Or a combination of both
And unlike traditional employment, there’s no payroll department making sure you’re being compensated fairly. That’s your job now.
Signs You Might Be Underpaying Yourself
We work with dozens of law firm owners, and here are the top red flags that you’re not paying yourself enough:
- You’re scared to transfer money from the business account—even when it’s there
- You wait until the end of the year to “see what’s left” before you pay yourself
- You’ve never adjusted your pay even though revenue has grown
- You’re not saving for taxes because you think owner draws “don’t count”
Let’s fix that.
How Much Should a Law Firm Owner Pay Themselves?
There’s no one-size-fits-all formula. But here’s a CPA-backed framework we use at Prestige Accounting to evaluate appropriate compensation:
1. Understand Your Revenue
What is your monthly and yearly revenue? If you’re making under $250K/year, you may still be in a phase where cash flow fluctuates. But if you’re consistently earning more, compensation should increase with scale.
2. Know Your Profit Margin
We recommend owners take home at least 30–50% of net profit after business expenses. If your margin is lower, it’s a red flag that your pricing or overhead may be out of balance.
3. Use the 50/30/20 Model
Here’s a simplified way to allocate revenue:
- 50%: Operating expenses (payroll, rent, marketing, software)
- 30%: Owner pay
- 20%: Profit and tax savings
This varies by firm size, but it’s a healthy starting point.
4. Match Compensation to Your Entity Type
If you’re an S-Corp (or taxed as one), the IRS requires you to take a “reasonable salary”. This must be:
- Commensurate with your role
- Comparable to what you’d pay someone else to do the same job
- Not just a token $20K if you’re pulling in $500K revenue
Skipping this is a big audit red flag.
What Happens When You Don’t Pay Yourself Right
When your compensation isn’t strategic, a few things happen:
- You under-save for taxes, then panic in April
- You feel broke even though your firm is making money
- You delay hiring help because you don’t know what’s “left over”
- You feel burnt out and resentful because you’re not being paid for your effort
Let’s be honest—if you had to apply for your own job at your firm, would you accept the salary?
When You Should Give Yourself a Raise
Here are signs it’s time to increase your compensation:
- Your revenue has grown, but your salary hasn’t
- You’ve delegated major responsibilities and now operate more like a CEO
- You’re hitting consistent profit margins month over month
- You’re still doing billable work and managing the firm
Compensation should reflect not just what you do, but also the value of what you’ve built.
How We Help Our Clients Decide
At Prestige Accounting, we don’t guess.
We analyze:
- Your real-time profit margins
- Your tax structure
- Your cash flow forecasts
- Your owner goals
And we design a compensation plan that aligns with both financial stability and tax efficiency.
If you’re unsure what’s “reasonable,” what’s “safe,” or what’s “strategic”
Book a consultation here and let’s run the numbers together.You deserve to get paid like the boss you are.
