Certified Public Accountants familiar with the practice of law are more qualified to advise lawyers as to which business entity to select.

So after all the schooling and examines, you’ll need to select entity you wish to practice law under:

  • Sole Proprietorship – or self employed
  • PLLC – Single Member – taxed as sole proprietorship if no election is made, or with elections can be taxed as S Corporation or C Corporation.
  • PLLC – Multi Member – Tax as partnership if no elections are made, or with election can be taxed as S Corp or C Corp.
  • Professional Service Corporation, such as C Corporation (if no elections are made), or S Corp (if elections are made).
  • Partnership – each partner treated as self-employed
  • Shared Expense Arrangements – sharing expenses versus sharing profits

Your entity selection will affect Income Tax and Payroll/Self-Employment Tax, so there are a number of considerations there in.

There are also common tax deductible expenses available to lawyers such as:

Entertainment Expenses

  • Substantiation under IRC Sec. 274

Travel Expenses

  • Must comply with substantiation requirements of IRC Sec. 274

Books, Periodicals, and Software

  • Cost of books and subscription services with useful life of more than one year is depreciable over 5 years.
  • Software is not depreciable property subject to bonus depreciation of section 179 depreciation. Software is to be amortized over 3 years straight-line.
  • Books, subscription services, and software purchased on annual basis having useful life of one year of less are currently deductible.

Bonus Depreciation and Section 179 Depreciation

  • The bonus depreciation amount for qualifying business assets purchased after December 31, 2011 has returned to 50%.
  • Bonus Depreciation Qualifying Property: The bonus deprecation allowance is only available for new property (original use must being with the taxpayer) which is depreciable under MACRS and has a recovery period of 20 years of less.
  • Section 179 depreciation has a $125,000 dollar limit and $500,000 investment limit for tax years beginning in 2012.

Other considerations for lawyers include:

  • Which is the best method of accounting:  Cash versus Accrual?
  • What are the tax implications of a specific retainer, an annual retainer?

And, it’s likely that you have your own specific question. Contact us, and we’ll do our best to give you a straight forward answer.

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