Attorney Tax Deductions That Can Be Claimed
Running a business is challenging for several reasons, not least because there can be substantial expenses involved. From inventory and payroll to legal software, the common adage that ‘you have to spend money to make money’ rings true.
Savvy business owners are always looking for cost-cutting measures, and tax deductions can be a great way to reduce expenditures. Though it may be tempting to speed through your filings as quickly as possible when tax season rolls around, you might be leaving money on the table in the rush to finish.
Let's look at some common attorney tax deductions that could help save your firm money.
Best Attorney Tax Deductions
There are a variety of tax deductions for lawyers. In the next few sections, we’ll walk you through the major categories of attorney tax deductions, arming you with the information you need to set up an accounting system that equips you to run a profitable, efficient legal practice.
Marketing Expense Deductions
Like any other enterprise, law firms need to spend money on advertising and marketing. You can’t get clients if they have no way of finding you or hearing about the services you offer, so getting the word out effectively is a huge competitive advantage.
And it turns out that the majority of expenses related to marketing campaigns are tax deductible. This includes hiring an SEO agency, creating a website, running paid advertisements on platforms like Google and Facebook, printing flyers, or outsourcing the job to qualified external firms.
Retirement Plan Deductions
Businesses often fund their employees' retirement accounts partially, and law firms are no exception.
In addition to being a great way to incentivize top talent to work at your firm, this is another source of law firm tax deductions. Two of the most popular kinds are Simple IRAs and 401(k) plans.
The ‘Simple’ in ‘Simple IRA’ stands for ‘Savings Incentive Match Plan for Employees’, and it’s available for small businesses that have no more than 100 employees. Simple IRAs have the employer making contributions of 2% or 3% of employee compensation.
The 401(k) option is more adaptable, allowing you to choose the percentage you want to match.
If you own your own practice you can decide which retirement-account structure makes the most sense for you. Both offer law firm tax deductions you can take advantage of.
Most of the action in popular legal dramas takes place in the courtroom, but lawyering actually requires a fair bit of travel. This can include driving to meet a client, commuting to interview a witness, examine evidence, or take a deposition, and more.
As a result, you can deduct the mileage you rack up during these activities to reduce your tax burden.
You have two options. The first is taking the IRS’s standard mileage deduction, which in 2023 is 65.5 cents for every mile driven for business purposes. The second is to actually itemize mileage-related expenses – such as gas, tire rotations, and insurance – and base your deductions on that.
Regardless of which option you choose, be sure that your record keeping is in order. In case of an IRS audit, you must have receipts for your mileage and concomitant costs.
It’s not just mileage on your personal vehicle you can deduct – a wide variety of travel expenses are also eligible for tax deductions.
These include generic transportation costs, such as the cost of airplane tickets or ridesharing services like Lyft or Uber. In many cases, you can also deduct meals, accommodations such as hotels, and even laundry services.
Be aware that ‘travel’ means traveling far away from your ‘tax home’. If you stay in a hotel five miles from your home then that’s probably not eligible for a deduction; you must actually travel a substantial distance for an expense to be deductible.
Educational Expense Deductions
The legal profession is famously cerebral. From digging through the archives for an obscure case to trading verbal blows in court, practicing law successfully means staying sharp.
Part of this process is staying up-to-date on new legal developments. Your education doesn’t end with law school or passing the bar; you might, for example, attend Continuing Legal Education (CLE) classes which are required to maintain your license.
LawPay offers a variety of high-quality CLEs, all of which are available for free. And, for any classes you invest in, check and see if you can write those off as a tax deduction. It pays to brush up on your legal know-how.
Credit Card Fees
These days, more and more commerce happens online. This means that law firms, like other kinds of businesses, are moving to accept digital payments, like credit cards.
There are advantages to using credit cards. Besides the convenience, offering the option to pay by credit card can substantially reduce the time required for a bill to be settled. According to 2021 data, customers who accepted online payments received them 32% faster than those who relied on traditional methods. If this is a route you’re interested in pursuing, LawPay’s payment processing software offers transparent pricing, affordability, and a bevy of cutting-edge features.
The major disadvantage to credit cards, however, is that credit card companies charge processing fees for handling transactions. If you’re doing many transactions, these fees can add up fast, and you need a method for keeping it all straight.
Those fees, however, are also tax deductible so long as it’s actually your firm paying them. This has the added advantage of boosting client satisfaction because you’re footing the bill for transaction fees instead of passing the expense on to them. It’s a win-win for everyone.
Interest On Student Loans
Student loans are not tax-deductible, but you can claim as much as $2500 annually on the interest on student loans.
To qualify it has to be a student loan taken out for you, your dependents, or your spouse – and the loan doesn’t qualify if you are claimed by someone else as a dependent.
These deductions don’t just apply to student loans granted by the federal government; all student loans are eligible.
Track Your Business Expenses To Manage Your Taxes Properly
There are many distinctive features of practicing law, but when it comes to running a legal practice, many of the challenges are the same. You must track your business expenses to manage your taxes properly, for example. But if you understand how to find the best tax deductions for lawyers, it’s also possible to keep more money in your pocket by deducting things like continuing education and travel expenses. For more accounting tips for your law firm or to learn more about how LawPay can simplify the financial side of running a legal practice, get in touch today!