Certified Public Accountants familiar with the practice of law are more qualified to advise lawyers as to which business entity to select.
- 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:
- Substantiation under IRC Sec. 274
- 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?