Mid-Year Tax Planning for Attorneys Who Don’t Want Surprises

But Q3 tells a different story.

At Prestige Accounting and Consulting, we see far too many attorneys misinterpret their mid-year cash flow as a signal that everything is fine—only to realize in December that their profit margin has silently ballooned. And with it, so has their tax liability.

So what exactly should firm owners be doing right now to avoid an unexpected tax bill in Q4? Let’s walk through the mindset, strategies, and financial adjustments that make the difference between panic and preparation.

One of the most dangerous financial misconceptions is assuming that if you don’t have a lot of cash on hand, you won’t owe a lot in taxes.

A firm can be highly profitable on paper—showing strong net income—while still experiencing tight cash flow due to slow-paying clients, uneven billing cycles, or poor financial structure. Taxes are based on profit, not bank balance. That means even if your firm is cash-poor, the IRS still expects payment on your earnings.

This is especially common among growing firms that have recently raised rates, added staff, or transitioned to flat-fee billing models. These changes often improve profitability, but they also increase taxable income—and most lawyers don’t adjust their estimated payments accordingly.

From a tax perspective, the most powerful planning tools are often time-sensitive. Certain deductions, deferral opportunities, and tax-saving strategies require action before December 31—but they’re far more effective when implemented during Q3.

Why? Because the third quarter offers clarity without urgency. You have six to nine months of financial data to analyze. You can see patterns. You can predict your likely year-end revenue with reasonable accuracy. And most importantly, you still have time to course-correct.

Waiting until late November limits your options. For example, adjusting payroll, making retirement contributions, restructuring owner pay, or maximizing deductible expenses all require lead time. The IRS doesn’t reward last-minute guesswork—it rewards structured, well-timed financial planning.

Too often, law firm owners use last year’s tax bill—or worse, a ballpark percentage—as the basis for current quarterly payments. But changes in caseload, staffing, rates, or expenses can shift your entire tax picture.

By conducting a mid-year projection based on actual income and expenses to date, you can forecast your likely taxable income for the year—and determine whether your current tax payments are sufficient.

If you’re underpaying, increasing your Q3 or Q4 estimates can help you avoid IRS penalties and interest. If you’re overpaying, you can adjust payments and free up cash flow that can be reinvested into your firm’s operations or savings.

Mid-year is also the perfect time to evaluate where you stand with common tax-saving strategies that must be implemented before year-end. For example, if you plan to purchase new equipment, invest in legal tech, or attend business-related travel or education (including CLE), you may be able to time those expenses to offset expected profit.

Additionally, contributions to retirement plans—particularly SEP IRAs or Solo 401(k)s—can be structured in a way that maximizes tax deferral while supporting long-term financial security. These strategies require accurate income forecasting to avoid overfunding or under-utilization.

Another area often overlooked is owner compensation. For firms structured as S Corporations, attorney-owners must pay themselves a “reasonable salary.” This salary is subject to payroll taxes, while additional distributions are not. Properly balancing salary and distributions—based on actual earnings—is a critical tool for minimizing self-employment tax without triggering IRS scrutiny.

It’s also worth noting that mid-year planning isn’t just about tax savings—it’s also about compliance. If your firm hasn’t maintained up-to-date books or properly reconciled trust accounts, you may be out of compliance with your state bar rules and unaware of income that’s already taxable.

Reviewing your bookkeeping now gives you time to correct errors, catch up on reconciliations, and ensure your tax reporting will be accurate. This protects not only your finances, but your license.

When law firm owners ignore their tax position until Q4, they end up making reactive decisions—rushing to spend money, scrambling to meet deadlines, or blindly sending payments without understanding the bigger picture.

But when you plan in Q3, you take back control. You reduce liability, increase clarity, and improve profitability—all by getting ahead of your numbers.

If you’re ready to stop fearing the fourth quarter, this is your moment to act.

At Prestige Accounting and Consulting, we specialize in proactive tax strategy and financial forecasting for lawyers. We’ll help you run projections, review your books, and plan your next tax move before the pressure hits.