The Legal Loopholes: How to Lower Your Tax Bill Before December 31st

As the end of the year approaches, every law firm and attorney should be looking for ways to reduce their tax liability. With a little planning and awareness of legal loopholes, you can make strategic moves that will help you keep more of your earnings and set yourself up for a strong start in the new year.

But here’s the catch: Many lawyers overlook important deductions or strategies because they’re buried in tax law fine print. By tapping into lesser-known tax strategies, you can unlock significant savings before the year ends.

Let's explore the most effective tax-saving strategies that lawyers and law firms can use before December 31st to lower their tax bill.

1. Leverage Section 179 Deductions for Equipment Purchases

One of the most underutilized strategies by law firms is the Section 179 deduction. This tax code provision allows businesses to immediately deduct the cost of new equipment and business assets instead of depreciating them over time.

For law firms, this means that any investments you make in office equipment, such as computers, printers, or even furniture, can be deducted in full—up to a certain limit—before the year ends. In 2024, the maximum deduction under Section 179 is $1,220,000, which can significantly reduce your taxable income.

How to take advantage:

• Purchase or lease new office equipment before December 31.
• Make sure the equipment is in use by the end of the year.
• Deduct the full cost of the equipment on this year’s tax return.

Pro Tip: Don’t wait until the last minute—if the equipment isn’t in use by year-end, you won’t be eligible for the deduction.

2. Utilize Bonus Depreciation on Qualifying Assets

In addition to Section 179, you can also take advantage of bonus depreciation. Bonus depreciation allows law firms to deduct a percentage of the cost of certain qualifying assets in the first year they’re placed in service. For 2024, bonus depreciation is set at 80%, meaning you can immediately deduct 80% of the purchase cost of qualifying assets.

This strategy is especially useful if you’re investing in larger capital expenditures, such as real estate improvements or other high-cost assets. Bonus depreciation applies to both new and used property, which makes it an attractive option for firms looking to expand or upgrade.

Example:

• If your firm buys a $100,000 piece of equipment, you can deduct $80,000 as bonus depreciation in the year of purchase.
• The remaining 20% will be deducted through regular depreciation over the following years.

Pro Tip: Combine Section 179 and bonus depreciation for even greater savings. By using these strategies together, you can reduce your tax liability substantially.

3. Offset Gains with Losses Through Tax-Loss Harvesting

If your law firm holds investments—whether it’s in a portfolio, real estate, or another form of capital—you may be sitting on unrealized losses. One of the most effective ways to lower your tax bill is to use these losses to offset your gains, a strategy known as tax-loss harvesting.

Here’s how it works:

• If you’ve sold investments at a gain this year, look for opportunities to sell underperforming investments at a loss.
• By selling these losing investments, you can offset your gains, lowering your taxable income.

For example, if you have $50,000 in capital gains but $20,000 in capital losses, you only need to pay taxes on the net gain of $30,000.

Pro Tip: If you don’t have enough gains to offset, you can use up to $3,000 of capital losses to offset ordinary income and carry over the remaining losses to future tax years.

4. Maximize the Qualified Business Income (QBI) Deduction

The Qualified Business Income (QBI) deduction is one of the most powerful deductions for law firms, as it allows certain eligible businesses to deduct up to 20% of their qualified business income. However, many lawyers overlook this deduction, thinking they don’t qualify.

Here’s what you need to know:

• Law firms structured as pass-through entities (LLCs, partnerships, or S corporations) are eligible for the QBI deduction.
• The deduction is based on the net income of your firm, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).

If your law firm’s income exceeds these thresholds, you may face limitations on the deduction, but there are still ways to maximize your QBI deduction by:

• Strategically deferring income into the next year.
• Increasing retirement plan contributions to lower your taxable income.
• Maximizing deductions to bring your income within the eligible range.

Pro Tip: The QBI deduction can be complex, so it’s essential to work with a tax professional who understands the unique needs of law firms.

5. Take Advantage of Tax Credits for Energy-Efficient Office Improvements

If your law firm is planning to make any energy-efficient improvements to its office space, now is the time to do it. Tax credits for energy-efficient upgrades can directly reduce your tax liability and help you invest in a more sustainable future.

Qualifying improvements include:

• Installing solar panels or other renewable energy sources.
• Upgrading to energy-efficient HVAC systems, lighting, or insulation.
• Retrofitting your office for better energy efficiency.

In 2024, businesses can claim a credit of up to 30% of the cost of these improvements. Not only do these upgrades reduce your tax bill, but they also help lower your operating costs in the long run.

Pro Tip: If your firm owns its office building, these credits are especially valuable. Even if you lease, some improvements may still qualify for the credit.

Why These Year-End Tax Moves Matter for Your Law Firm

Taxes can feel like an overwhelming maze of regulations and fine print, but by taking the time to understand and implement these lesser-known strategies, you can significantly reduce your tax bill before December 31st.

Remember: Each dollar saved on taxes is a dollar that can be reinvested in your firm’s growth, whether it’s through new hires, upgraded technology, or improved services. Don’t miss out on the opportunity to optimize your tax strategy—now is the time to act.

Unlock Tax Savings—Get a Personalized Tax Plan!

At Prestige Accounting and Consulting, we specialize in helping law firms navigate the complexities of tax law. My team understands the unique needs of legal professionals, and we’re here to ensure you’re taking advantage of every deduction and credit available.

Contact me today to schedule a consultation and get your personalized tax-saving plan before the year ends.