Contents: Guide To Accounting for Lawyers: Everything You Need to Know
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10. 7 Top Tax Deductions for Lawyers and Law Firms
If you’re running a law firm, every dollar counts—especially during tax season. Rounding up a year’s worth of personal and business expenses can be tedious and often confusing. But it’s in your best interest to ensure you’ve claimed all possible tax deductions for lawyers. The key is to do so without overstepping and claiming more than you’re entitled to.
So what lawyer tax deductions can be claimed? And which law firm tax deductions do you need to be careful about?
In this article, we guide you through the top tax deductions for lawyers that you can apply to your next tax return. You can keep these tips in mind as you conduct business throughout the year to maximize your return. Whether you’re looking for tax deductions for solo attorneys or work in a law firm, it’s important to be proactive in understanding smart tax strategies.
If you’re already at year-end, we’ve written a guide to year-end law firm accounting. It goes in-depth and helps you set your firm up to thrive in the new year.
Clio Accounting is built to help law firms easily manage their invoices, payments, and vendors, produce vital financial reports, and conduct trust account reconciliation. Learn more about Clio Accounting.
The top 7 tax deductions for lawyers and law firms
At the bare minimum, business expenses must be both ordinary and necessary in order to be claimed, but there are particular law firm tax deductions to be aware of when assessing your expenses and filing the tax return for your law firm.
To help you prepare for tax time, we’ve rounded up some of the top tax deductions for attorneys to consider. We’ve also made note of a few precautions you should take before claiming those expenses.
1. Home office expenses
With law firm software like Clio Complete, working from home or from a shared office space is incredibly easy because it gives you the flexibility and efficiency you need to do your work. But, if your home office is your principal place of business for your law firm, you may be able to deduct certain expenses.
Determine what percentage of your home is dedicated as office space. Multiply that by your applicable home expenses for the year. These include portions of your rent or mortgage payments, utilities, insurance costs, depreciation, and repairs.
Another option is to use the safe harbor method, which allows you to claim up to $1,500 per year based on $5 per square foot up to 300 feet. However, if you use this method, you cannot claim the depreciated value of the portion of your home used in trade or business.
| Caution: To claim home office expenses as a tax deduction, your home needs to truly be your primary place of business. Additionally, a portion of your home needs to be exclusively and regularly used for business. That means if you work from home only occasionally, that likely doesn’t count. |
2. Advertising, business meal, and promotion expenses
Almost all forms of law firm marketing expenses are tax deductible for lawyers and can be claimed when filing your tax return. This includes flyers, local ads, print ads, email marketing, and even table fees for tradeshows. And don’t forget that online advertising for lawyers and law firms, law firm website design, and SEO services for law firms may also be deductible.
Include marketing expenses in your annual budget as part of your law firm’s accounting practices, and retain all invoices and receipts.
If networking is a big part of your promotion strategy, it’s worth noting that you can typically claim 50% of expenses for business meals if they meet specific criteria.
| Caution: Claiming business meal expenses can be a useful tax deduction for attorneys, but you’ll need to make sure that your outing was strongly related to your business. If you have a steak dinner with a client but you don’t discuss any business, that meal can’t be claimed.
The Attorneys Audit Technique Guide from the IRS provides a specific example: “In Israelson v. United States, 367 F. Supp. 1104 (D. Md. 1973), an attorney gave a party at a country club. Although the party was attended by some clients, persons who refer clients, and other business associates, no business was discussed. Therefore, no deduction was allowed.” If you did discuss business at that steak dinner, you’ll need to prove it if the IRS comes knocking. Make sure you keep records of all your business meetings that take place over meals. |
3. Travel expenses
Another one of the more common lawyer tax deductions to consider is the cost of traveling for business. If you need to travel on behalf of your law firm, many of those business expenses are tax deductible. For example, if you travel a fair distance to a courthouse you wouldn’t normally go to, you may be able to deduct travel costs.
| Caution: As with business meal expenses, you must be absolutely certain that your travel expenses are solely related to your business. Claiming attorney-client privilege to avoid disclosing the business purpose of your travel won’t work either.
Here’s another example from the IRS’s Attorneys Audit Technique Guide: “For example, one attorney substantiated airfare and lodging for several ski trips. When asked the business purpose he refused to answer, claiming the attorney-client privilege (refer to “Attorney-Client Privilege” in Chapter 1). The examiner questioned the documents provided because they included the names of his children and wife.” |
4. Legal education costs
As a law professional, you may be able to deduct ordinary and necessary education expenses required as a lawyer. Deductible costs must be directly related to your role as a lawyer. Expenses incurred for Continuing Legal Education (CLE) required for you to maintain your law license with the state bar are likely deductible, for example, while courses in related fields like marketing wouldn’t make the cut.
In addition to education required by law for lawyers, you may also be able to claim other items as law firm tax deductions. This includes courses you take or legal conferences you attend. For example, if you attend the Clio Cloud Conference to network and learn new skills for improving your law practice, you can claim that as a deduction.
To make the claim, you’ll need to prove the education you get “maintains or improves the skills required in your trade or business.”
| Caution: Not all education expenses are tax deductible for attorneys. A course that helps you build skills for any other profession than law isn’t tax deductible. For example, if you’re taking a course in HTML so that you can design your own website, that might not make the cut. |
5. Books and periodicals
Knowledge is power for legal professionals. Reading the best books for lawyers (like The Client-Centered Law Firm by Jack Newton) can help you run a great legal practice. Additionally, having the relevant legal research materials available can help you win cases.
Many lawyers are moving their legal libraries online, using services such as Fastcase or Casetext for legal research. However, if you still keep a library with hard copies of legal research materials, these could potentially be considered a tax deduction for lawyers. Just as you can claim the depreciated value of your work laptop and/or printer as a tax deduction, you may also be able to claim the depreciating value of the books you keep in your legal library.
| Caution: Items in your legal library are depreciable depending on how long they’re usable for your profession.
As IRS Publication 946 outlines, for example, “You maintain a library for use in your profession. You can depreciate it. However, if you buy technical books, journals, or information services for use in your business that have a useful life of 1 year or less, you cannot depreciate them. Instead, you deduct their cost as a business expense.” In other words, you can’t claim depreciated value for periodicals or other legal materials bought on an annual basis. This includes loose-leaf volumes that receive periodic updates. These need to be claimed the year they’re purchased as a business expense. |
6. Credit card convenience fees
When it comes to billing-related tax deductions for lawyers, you may have to wait weeks or even months from invoicing your client to when you get paid. However, according to the 2023 Legal Trends Report, law firms that collect at least 75% of their payments electronically collect half their bills within just three days of issuing them—which is five times faster than firms that don’t collect payments electronically.
While accepting electronic payments may make it easier for law firms to get paid faster, there is one particular qualm that arises with accepting credit cards. Credit card companies charge fees for usage, and these can add up quickly if you have a lot of transactions.
So are credit card fees tax deductible? According to the IRS, these fees can be deducted as a business expense, as long as they are actually paid or incurred by your law firm.
| ProTip: Clio’s legal billing software makes the process of getting paid much simpler. You’re able to: Bill securely from anywhere, any time, reduce time spent billing, get paid faster, accept payment for multiple bills at the same time.
If you use Clio Payments to accept clients’ legal credit card payments securely and compliantly, those processing rates will be industry-low. |
Are you a solo firm? Learn about how becoming an S Corp can save you money on taxes: IRS Form 2553 and S Corporations: A Guide
7. Office equipment and supplies
Don’t forget about the costs of office supplies and business equipment needed to keep your law firm office running—such as desks, computers, pens, and some business-related software—which are typically tax deductible.
When it comes to office supplies and equipment costs, it’s important to ensure that anything you claim is used solely for business purposes. You can’t, for example, claim a computer as an office expense for a lawyer tax deduction if it’s also used for personal use.
Staying on top of lawyer tax deductions keeps you ahead
There’s a lot to think about when dealing with law firm accounting and filing your tax return. But, by carefully considering tax strategies for law firms, you can maximize your deductions. Know what you’re entitled to so you can avoid trouble with the IRS. Take the time to record all of your business expenses throughout the year. You’ll then be positioned to get the most out of your tax return.
Looking to make tax season less of a headache? Built for legal professionals like you, and not just accountants, Clio Accounting is an intuitive and efficient way to manage your firm’s finances right from your case management software. This will help you:
- Manage your firm’s invoices, payments, and accounting in one place
- Remove manual data entry and the risk of error
- Maintain compliance the entire time client funds are in your hands
- Easily generate reports for tax season
Ready to manage your money with confidence? Book your demo today.
The information in this article applies only to US practices. This article is for informational purposes only. It does not constitute legal, business, or accounting advice.
Are legal fees tax deductible for lawyers?
While it depends on the specific scenario and cause for legal fees, there are certain business-related instances where legal fees may be tax deductible for lawyers. For example, IRS Publication 529 notes that you “can deduct legal expenses that are related to doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business.
Are there any tax deductions for solo attorneys?
Solo attorneys can make many of the same tax deductions for ordinary and necessary business expenses that lawyers from larger law firms do, as long as they follow the appropriate rules and regulations. These may include deductions for things like marketing and advertising, business travel, business meals, and office supplies. Solo attorneys working from home may also make home office tax deductions.
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