There might be situations when you see a large chunk of your profits going into tax payments. Some of the largest companies on the horizon have recently counted tax payments amounting to approx $7 billion on average.
If you don’t want to part with the hard-earned money from your law firm, it is time to do tax planning. Tax planning is one of the biggest challenges that all companies face, and yours might be no different. But here’s a piece of good news, you can avail your company of various tax planning allowances and have more cash to keep back.
Incorporate some planning or involve an expert on such matters for your business. If you are the owner of a legal firm, there are areas where you can save on taxes, like meals, professional fees, building, and furniture. Travel, health insurance, and adult education are other areas. Read about the various corporate tax planning strategies for legal firms in detail here.
Avail Tax Rebates on Tangible for Business
Suppose you have incurred expenses on the building, machinery, equipment, or any other physical asset for your business. In that case, it is time to claim capital allowance for the accounting department. When the accounting year is on the verge of closure, you can make some purchases at the last moment. IRC Sec. 179 allows tax rebates on fixed asset purchases. The IRC Sec. 168(k), bonus depreciation, allows 100% deduction. The rules differ a bit from one state to another.
As a law firm, there are various areas where you can avail of this. The building from where you run your office is of primary consideration here. Research, development, and patents also count for this rebate. The rebate is applied against the taxable profits of the client.
Get Continuing Education Allowances
If you are a lawyer or own a law firm, you can claim continuing education allowances. The State Bar Association mandates attending CLE classes to maintain the bar license. Apart from the course fees, there are other items that you can claim exemption on. If you attend any legal seminar for education, you can include the expenses for that as well.
Additionally, you have to prove that the education pertains to your current profession. Knowledge is essential for lawyers. Moreover, the laws keep changing, so it is apt to continue your education. Books and periodicals also count in as exempt from taxes.
You might also have to procure legal research material from time to time. Many lawyers and attorneys have full-fledged libraries with books, journals, and periodicals. You can claim a good amount of deduction on such materials. Additionally, you can also claim the depreciating value of these materials.
There are various kinds of operating structures for law firms. LLP and LC are the most preferred choice for law firms today. But one size might not fit all. Traditional partnerships are somewhat similar to the Limited Liability Partnership, as well. The Limited company offers several advantages above the others. They include profits generated in the course of the business, to be taxed lower than the LLP.
However, nothing is full proof. If the company becomes insolvent, the director could face charges for wrongful trading. Additionally, governance is more dynamic in a Limited company. There are more factors to be considered here that tax advisors can discuss.
File Taxes in All Jurisdictions
Lawyers are required to file in multiple jurisdictions. This can get complicated and often invite penalties if you miss out on some. You can also consult the tax advisor on such issues. Document all your filings beforehand to avoid audit negativity. You might also have to file foreign tax returns. So, this area needs your continuous and urgent attention.
Get Tax Exemption on Marketing Expense
Your law firm might be running marketing to get more clients. In doing so, you incur various entertainment, advertising, and promotions expenses. Now, you can claim tax deductibles under these heads. These include flyers, print ads, and trade show fees as well. Online advertising for lawyers and law firms is also deductible.
Retain all invoices and receipts pertaining to this expense. If you frequently organize networking meets, it is essential to arrange meals and entertainment. You can save on that front as well. Just ensure to keep proof of all events and shows on the business.
Avail Tax Rebate on Travel
The cost of travel for cases and lawsuits is also tax-deductible. If you have to travel for work or client-related activities, you can claim rebates. However, your travel should be strictly for work purposes since the claim of attorney-client privilege does not work here.
These are a few ways to reduce taxation liabilities for your law firm. You should take note of these if you run a law firm.