With recent changes to tax legislation and filing processes, law firms must be ever-vigilant when it comes to accounting and filing taxes. Working at my company, making corporate returns, I’ve witnessed lawyers make costly mistakes or miss opportunities because of not managing their money as diligently as they should in their primary business. In order to limit risks from audits and maximize deductions efficiently and minimize risks of audits or tax liabilities; law firms of any size will find these tips valuable. Kangs Solicitors is an established and dynamic tax solicitors in UK firm with branches in London, Birmingham and Manchester. Proud recipients of the highly esteemed Legal 500 Criminal, Fraud and Licensing Law Firm of the Year’ National Award since 1997, we specialize in all areas of criminal law from serious fraud such as VAT/MTIC fraud to money laundering cases as well as significant blue collar criminal matters throughout the US – handling some of the largest legal proceedings ever seen here in recent years.
Set up the best business structure
Attorneys typically begin their businesses by forming a limited liability company (PLLC). This requires filing their Schedule C on their individual tax returns; however, this may not be the most efficient structure as the risk of audit is higher and taxes could quickly spiral out of control. Switching your business structure to C-corp or S-corp could bring substantial tax advantages while helping your firm expand.
As an advisor to those operating PLLCs, I suggest they set aside 30% of every dollar to lower both tax obligations and quarterly payments. Businesses often find themselves amazed at just how high their profits are relative to expenses; many find they have made more profit than anticipated and end up incurring greater tax costs as a result.
Be sure your bookkeeping is perfect
When I meet with attorneys, I stress the importance of books. While it was once possible to cut corners when it came to accounting, the IRS no longer tolerates this practice. With all the online software and reasonably-priced accounting firms out there today, it has become less easy for businesses to avoid this obligation – particularly attorneys, as most don’t spend as much time bookkeeping than they do invoices at tax time and expect their tax professional to keep receipts, balance books and address discrepancies on time; the costs can add up quickly if not done immediately – which could potentially become very costly indeed!
Track equity, distributions and loans
Monitoring distributions, equity and loans to partners of firms is often problematic. When the firm’s balance sheets are inaccurate and their distributions and loans to partners inaccurate, it gives the illusion that its foundation may not be as solid. This can harm them when borrowing or when one or more partners leave or join.
Keep accurate records of expenses
Attorneys tend to be adept at handling paperwork, yet not as skilled at keeping receipts. No matter your size, make sure that accurate documentation of expenses that can be deducted from your account are kept. Many lawyers fail to maintain receipts for parking expenses, court expenses and meals which are now all tax deductible as 100% expenses and 50% as 50% expenses!
Attorneys must remember to claim deductions for home office and travel expenses, professional dues payments and continuing education costs when claiming deductions for them. I also advise firms that don’t yet own expensive items like computers to purchase one before year end to maximize deductions and increase deductions.
Don’t overlook tax credits and donations
Tax credits can help businesses with employee retention and student loan debt relief. Businesses paying employees during an outbreak may qualify for a completely refundable tax credit of 50% of qualified wages, although this process can be complex so seek advice from your tax expert for guidance. Family and sick leave credits are also offered. Did you know businesses can contribute up to $5250 annually towards employees’ student loan debt and claim it as an expense?
Rules regarding charitable donations have changed recently, making deducting donations simpler than ever. Some states offer income tax credits that allow companies to qualify for higher donations than individuals; law firms with substantial earnings should consider making significant donations as this allows for tax savings as well.
Digitize all receipts
An efficient way of tracking expenses or donations is storing them electronically. Make sure all receipts (even those taken with a phone) are scanned, then saved to an individual file – many businesses now offer text or email receipts, making this task even simpler.
Everyday people ask me how long I should keep my documents? IRS law mandates seven years; however, in case of an audit to one of those years they can go back further if required; state audits can often go back further depending on the nature of audit conducted.
I recommend to my clients that they digitize all their collections and store everything for the future. A hard drive costs nothing, while secure drives can be easily obtained for less than $100; doing this is worth every penny when considering the potential audit costs involved.
Properly record depreciation
Maintaining accurate profit and loss reports and balance sheets are paramount in order to properly depreciate assets. Depreciation applies to vehicles, office equipment and real estate buildings alike – but depreciation could also attract the IRS’ attention if not completed correctly. It is therefore imperative that each asset is recorded and depreciated accordingly.
My experience has taught me that tax professionals often prepare the correct depreciation calculations in their tax returns; however, when law firms fail to keep track of it in their accounting books and match up depreciation with that calculated on tax returns it causes issues when selling assets requiring depreciation calculations for sale.
Outsource human resources
Many companies may not realize the availability of affordable human resource services that can reduce time and energy spent managing HR documentation by outsourcing this process. No matter whether they pay employees directly or through contractors and subcontractors, outsourcing this process ensures all necessary paperwork is submitted on time while saving both energy and time by outsourcing the process.
Large companies and firms must now enlist HR personnel who understand the law to prepare tax returns and provide necessary reports on payroll and other matters.
Meet with a tax adviser
Tax law can be complex and daunting, taking up much of your valuable time when filing returns on your own. Hiring a professional to manage this aspect will save you both time and money in the form of deductions or credits earned over time.
Tips to Choose a Tax Lawyer
Where to search for a tax lawyer
Assume you need tax advice, reach out to people you trust such as accountants, bankers or lawyers for advice. If none are available in your immediate circle of acquaintances, consider reaching out to the bar association of your state association to discover which professionals operate locally.
Inquire Lawyer’s credentials
Tax lawyers must possess both a bachelor’s degree in law and be authorized to practice as lawyers in order to offer services as tax lawyers. Furthermore, they should possess knowledge regarding tax law as well as hold an active license from their state of practice. By checking credentials and credentials when selecting your tax professional you can ensure they will help with your issues efficiently and competently – or for even more assurance you could consult the local bar association website of your state to gain some additional insight.
Find Out Their Specialisation and Success Rate
An experienced tax attorney should have extensive experience dealing with IRS and handling similar cases to yours. While all tax attorneys can manage various situations, some will likely have more expertise handling what you are experiencing than others. Some will provide free consultations so you can gauge their approach to managing tax issues; ask how often they have won in court before hiring one; don’t hire one with low success rates such as Orlando criminal defence lawyer
Search if they’re Reputed or not
Reputation and recommendations should be your top considerations when searching for a tax attorney, so make sure to talk with trusted people and gain their opinions as part of your research process. Once you’ve narrowed down a few candidates, make sure to do further investigation to make sure each one boasts an exceptional track record.
Make sure they’re affordable and have the time
Finding an experienced tax lawyer isn’t always straightforward, with price and time both being major factors. Finding one who works efficiently while being affordable will allow you to quickly resolve your tax issues with an attorney who doesn’t take up too much of your time – otherwise waiting could take weeks or even months before receiving answers!