Posted by Income Taxes and Bookkeeping LLC

Tax Deductions for Lawyers & Law Firms

Tax Deductions for Lawyers & Law Firms

Every dollar counts if you have a law firm, especially during tax season. An integral part of your firm's tax is the calculation of tax deductions for lawyers. We understand that rounding up personal and business expenses over a year can be tedious. But it is in your interest to ensure that you have claimed all possible tax deductions for lawyers. The key is to do it without overdoing it and demanding more than the fair share.

So what tax deductions are claimable for lawyers? And what tax deductions for law firms should you pay attention to?

This article shows the top tax deductions lawyers can make on their next tax return. You can consider these tips when conducting your business throughout the year to maximize profitability. Whether you're looking for tax deductions for independent attorneys or you work for a law firm, it's essential to be proactive in understanding smart tax strategies.

Best Tax Deductions for Lawyers and Law Firms

At the minimum, business expenses must be ordinary and necessary to be claimed. However, you should be aware of certain law firm tax deductions when filing your law firm's tax return.

Home Office Expenses

Working from home is incredibly easy with law firm software, as it gives you the flexibility and efficiency you need to get the job done. If your home office is the headquarters of your law firm, you may be eligible to deduct certain expenses.

Determine what rate of your home is dedicated to offices. Multiply that by the applicable household expenses for the year. This includes a portion of rent or mortgage payments, utilities, insurance costs, depreciation, and repairs. These fees can be used as tax deductions for lawyers.

Another option for attorneys' home tax deductions is the Safe Harbor method. This method lets you claim up to $1,500 per year based on $5 per square foot, 300 feet. However, if you use this method, you will not be able to claim the depreciated amount of the part of the house used for trade or business activities.

Note: In order to claim home office expenses as tax deductions for attorneys, your home must actually be your principal place of business. In addition, part of your home must be used exclusively and regularly for professional purposes. This means that if you only occasionally work from home, it probably doesn't count.

Advertising, Entertainment, and Promotional Costs

Almost all forms of law firm marketing fees are tax-deductible for lawyers and can be claimed when filing a tax return. These include brochures, print advertisements, and even exhibit table fees. And don't forget that online advertising for law firms and lawyers is also tax-deductible.

Include your marketing expenses in your annual budget as part of your law firm's accounting practices, and keep all invoices and receipts. Suppose networking is an important part of your promotional strategy. In that case, it should be noted that 50% of your meal and entertainment expenses can be claimed as a tax deduction from an attorney.

Disclaimer: Claiming entertainment expenses can be an attractive tax deduction for lawyers, but you should ensure that your outing is closely related to your business.

If you talked business over dinner, you'd have to prove it if the IRS asks for receipts. Be sure to keep track of any business meetings that take place over meals.

Travel expenses

In addition to the deductions mentioned above, another opportunity is the cost of travel. If you have to travel on behalf of your law firm, these expenses are tax-deductible. For instance, if you travel a considerable distance to get to a court where you would not naturally go, you may be able to deduct the travel expenses.

Note: As with entertainment expenses, you must ensure that your travel expenses are exclusively related to your business. Invoking solicitor-client privilege to avoid disclosing the business purpose of your trip won't work either.

Legal training costs

As legal personnel, you can include ordinary and necessary training expenses required as an attorney in your attorney's tax deductions. IRS 535 states:

"For example, an attorney may deduct the cost of attending continuing education courses (CLE) required by the State Bar Association in order to maintain a license to practice law."

In addition to the legal education required by lawyers, you can also claim other items, such as tax deductions from law firms. This includes legal conferences you attend or courses you take. For instance, if you attend a conference to connect and learn new skills to improve your legal practice, you can claim it as a deduction.

To make a claim, you will need to prove that the education you receive "maintains or enhances the skills required in your trade or business."

Note: Not all tuition fees are tax-deductible for lawyers. Courses that help you develop skills for any profession other than law are not tax-deductible. For example, if you're taking a programming course to design your company website or app, that might not count.

Books and Periodicals 

Knowledge is power for legal professionals. Reading the best books for lawyers helps you run a great law firm. Additionally, having relevant legal research materials at your disposal helps you win court cases.

Many attorneys are moving their legal libraries online, using online services for legal research. However, if you still maintain a paper library of legal research materials, they could be considered tax deductions for lawyers. Just as you are eligible to claim the depreciated value of your laptop and/or printer as a tax deduction, you can also claim the depreciated amount of books you have in your law library.

Note: Items in your law library are only tax-deductible if they can be used for more than one year. IRC §167 allows "cost recovery of any asset used in a commercial or entrepreneurial activity if it has a life of more than one year and declines in value over time."

In other words, the depreciated amount of periodicals or other legal documents purchased annually cannot be claimed. This includes loose-leaf volumes that receive regular updates. They must be claimed in the year in which they are purchased as a business expense.

Credit Card Service Charges

For tax deductions related to lawyer billing, you have to wait an average of three months from when the client is billed until payment is received. However, according to the Legal Trends Report 2019, 57% of electronic payments are paid the same day of invoicing and 85% within a week.

There is a particular problem with accepting credit cards. Credit card companies charge usage fees, and they add up quickly if you have a lot of transactions. So, are credit card charges tax deductible? According to the IRS, these fees are tax-deductible as a business expense, as long as they are actually paid or borne by your law firm.

 Knowing Lawyer Tax Deductions Keeps You Ahead

There's a lot to consider when it comes to accounting for a law firm and including lawyer tax deductions on your tax return. But you can maximize your deductions by carefully considering law firm tax strategies. Avoid the IRS by knowing what you are entitled to. Take the time to record all of your business expenses throughout the year. Then you will be able to get the most out of your tax return.



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