View Padgett President Roger Harris' congressional testimony on the impact of the Corporate Transparency Act and the BOI reporting requirements here.
If you’re like most busy attorneys, you don’t want to take time away from billable hours and business development to deal with federal and state tax responsibilities. Yet implementing tax-saving strategies and ensuring you don’t become subject to tax penalties or suffer other negative tax consequences are key to maintaining a financially healthy law practice. So effective tax planning for law firms and lawyers, along with tax compliance, is critical.
That’s why small law firms and solo attorneys can benefit from engaging an outside tax professional who understands the specific tax issues they face.
Padgett is here to help. We specialize in providing high-quality tax planning for law firms, law firm partners, and individual lawyers. We’ve worked with both general and boutique practices as well as sole practitioners.
The tax professionals at Padgett bring extensive experience and expertise to the delivery of tax services for law firms, including:
Preparing tax returns and IRS forms
Of course, we can prepare federal, state, multistate, and local returns for your law firm, as well as assist individual attorneys with their tax responsibilities. But we’re not available just during tax season. We can assist with 1099 processing, Schedule K-1 filing, estimated tax payments, and payroll tax requirements, including making sure you’re in compliance with state nexus laws.
Planning long-term tax strategies all year round
In order to reap the benefits of tax deductions and credits, or reduce taxable income, you often need to plan ahead. We’ll work with you all year so your law firm can take advantage of every available tax break. For example, we’ll help you maximize tax breaks and properly document deductible business expenses associated with equipment, office space, travel, professional development, retirement saving, marketing, and more.
In addition, as you know, tax law is regularly changing. We stay on top of the evolving laws and regulations so you can focus on representing your clients. With comprehensive advice, you can reduce future tax obligations.
Assisting with a tax audit
Law firms and their attorneys can be the target of tax audits. While you may not be able to avoid an audit by the IRS or a state tax authority, we can help your firm take steps to reduce a negative outcome.
Navigating contingent fee issues for your firm and its clients
The federal income tax treatment of contingent fees paid to attorneys out of taxable nonbusiness judgments or settlements has historically been a source of confusion and litigation between taxpayers and the IRS. Determining the proper tax treatment of contingent fees and lawsuit award proceeds can be tricky. The IRS even has a 37-page guide for its auditors on how to approach these amounts when they’re examining tax returns. We can help you and your clients navigate the complex requirements. For example, it’s important for law firms to properly treat the costs that are advanced to clients in a contingency case because this could face IRS scrutiny in an audit.
Seeking tax advice early in the litigation process is prudent because better tax results can sometimes be achieved with proper planning.
Evaluating partner retirement, buyout, and succession issues
Attorneys are older than professionals in most industries in the United States, according to the American Bar Association. The median age for lawyers is 46, as compared with 42.3 years old for all U.S. workers. Of course, this means your staff members want to save for retirement in tax-advantaged accounts. We can help you evaluate the best option for your unique situation.
But having an older workforce also means your law firm may have to make payments to retired or exiting partners in order to liquidate their ownership interests. There are important tax implications for both the retiring partner and the partnership when partners retire and payments are made to settle their ownership interests.
Your law firm may encounter other situations when you have to buy out a partner, such as due to disability or death. How a buyout is structured can have enormous tax implications. In these situations, careful planning is needed to achieve the best tax results.
Properly allocating law firm start-up expenses
If you’re starting a new law firm, you may incur several types of “pre-opening expenses.” These expenses are incurred during the period before the new firm is actually up and running and earning revenue.
Special federal income tax rules apply to different types of costs, and special tax return elections may be necessary to get the best treatment for your firm’s expenditures. We can help you get the most favorable tax treatment.
Assessing entity selection
Some law firms consider changing their business structure. Depending on your situation, there can be unintended negative tax consequences. We can help you evaluate the tax implications of sole proprietorships, partnerships, limited liability companies, S corporations, and C corporations so you make the most advantageous choice.
Providing tax advice for law firms related to new partners
Under the right circumstances, a Section 754 election can be a tax-smart move for a law firm partnership when a new partner buys into the business. A Section 754 election, under the Internal Revenue Code, allows a partnership to adjust the basis of the property within a partnership when a triggering event occurs.
This often-complex strategy deals with the tax basis of a partner’s share of the firm’s appreciated assets. We can advise you on when such a move might be beneficial and how to make an election.
At Padgett, we understand the complex Internal Revenue Code inside and out. Unlike some other areas of law, tax law is constantly evolving with new legislation, regulations, IRS guidance, and inflation-adjusted changes. We stay on top of these developments as well as proposed tax law changes in Washington in order to help our clients plan for the best possible outcomes in the future.
Whether you need small business tax services for your law firm, tax strategies as a high-net-worth individual, M&A tax planning or other tax assistance, we’re here to help. (We also offer extensive accounting services for law firms to provide for your other financial management needs.)
Padgett Advisors takes the worry out of daunting IRS and state tax responsibilities with our tax services for law firms so that you can concentrate on your clients. Contact us today to discuss how we can help with tax planning and compliance for you and your law practice.
