The CPA’s Year-End Tax Checklist for Law Firm Owners
December 4, 2025
What to Do if You Had a High-Income Year (But No Plan Yet)
Let’s be honest—if your law firm had a phenomenal year, you’re not alone. Many attorneys crushed their revenue goals in 2025, especially with contingency fees landing or case settlements closing late in the year. But if your income is way up and your tax planning hasn’t kept pace, the next few weeks are critical.
Because a high-income year without a strategy doesn’t just mean writing a larger check to the IRS—it can wreck your Q1 cash flow, erode savings, and put your firm in a reactive financial position.
Here’s how to stay proactive even in late Q4—with smart, legal, and CPA-backed strategies designed specifically for law firm owners.
Why High-Income Years Catch Lawyers Off Guard
- Contingency fees hit all at once
- Year-end settlements boost revenue fast
- Increased billing or collection efforts surge in Q4
- Expenses stayed flat while income rose
You were focused on serving clients—not counting every dollar. And now the IRS wants their cut.
But here’s the good news: It’s not too late.
1. Get a Real-Time Profit Snapshot
Your tax planning hinges on accuracy. Guessing or using outdated reports can backfire—hard.
You need to know:
- Total YTD income (not just what hit your bank)
- Total deductible expenses
- Estimated quarterly payments already made
- Owner draws or distributions
If you haven’t done a mid-year financial review, now’s the time. Run your P&L and get your books up to date this week.
Need help? 2. Consider Making a Final Estimated Tax Payment
If your income surged unexpectedly in Q3 or Q4, the IRS may penalize you for underpayment—even if you pay in full at tax time.
To avoid or reduce those penalties:
- Make a final estimated tax payment before January 15, 2026
- Base it on your YTD profitability and remaining 2025 income
- Work with your CPA to run multiple payment scenarios
This strategy can reduce penalties, interest, and surprises in March.
3. Prepay 2026 Expenses (If You’re Cash Basis)
As a law firm, chances are high you operate on the cash basis—meaning you deduct expenses when paid, not when incurred.
That means you can:
- Prepay bar dues, legal research tools, or subscriptions
- Pay your January rent or insurance now
- Book and pay for Q1 marketing campaigns
- Invest in CLEs or coaching happening in early 2026
If you’ve got cash in the bank, use it strategically to reduce taxable income.
Reminder: You can’t prepay payroll, contractor services not yet rendered, or inventory-style expenses. 4. Max Out Retirement Contributions
A high-income year is the perfect time to supercharge your retirement savings—and shave down your tax liability.
Options include:
- Solo 401(k): Up to $23,000 employee deferral ($30,500 if age 50+), plus up to 25% of compensation as employer contribution
- SEP IRA: Up to 25% of net earnings (max $70,000 in 2025)
- Defined Benefit Plan: Great for high earners looking to sock away six figures, but setup deadlines matter
If you’re self-employed and haven’t set up a plan yet, some can still be opened before the filing deadline, but act fast.
5. Strategically Time Your Income
While it’s not always possible, deferring income may be smart—especially if you expect lower earnings next year.
Possible ways to defer:
- Delay invoicing until January
- Defer settlement distributions (if not yet finalized)
- Consider if retainer payments can be held in trust until 2026 (check IOLTA rules)
Talk to your CPA before trying this. You must document intent and ensure it aligns with IRS rules.
6. Make Smart Asset Investments
Need new equipment, computers, or office upgrades?
The Section 179 deduction allows you to expense qualifying business assets (up to $1,220,000 in 2024) in the year you place them in service.
- Must be used more than 50% for business
- Must be purchased and in use by December 31
- Applies to tangible goods—not services
This is perfect for tech upgrades, especially if your team is scaling.
7. Don’t Forget Charitable Contributions
Donating to qualified charities not only supports causes you care about—but it reduces taxable income when done right.
- Contributions must be made by December 31
- Gifts over $250 require written acknowledgment
- For non-cash donations, get a fair market value assessment
- Ensure it’s a 501(c)(3) eligible organization
Charitable giving can also support your law firm’s brand, especially if aligned with your practice area or values.
Example: A family law attorney supporting domestic violence shelters shows clients that your firm walks its talk. 8. BONUS: Document Everything
Don’t let deductions go to waste due to poor recordkeeping.
- Save receipts, invoices, and confirmations
- Use accounting software to tag and categorize expenses
- Take screenshots of online donations or payment confirmations
- Label payments as “2025 prepaids” or “2026 expenses” where applicable
If you’re ever audited, these habits can save your practice.
Need a CPA Who Knows Law Firms?At Prestige Accounting & Consulting, we specialize in tax strategy and financial systems for lawyers.
If you just realized you’re going to owe way more than expected this year—don’t panic. Book a quick consultation, and we’ll walk you through the smartest next move.
Let’s turn your high-income year into a high-strategy finish.
