Prepping for 2025: Year-End Tax Moves Law Firms Should Make Now

As the year draws to a close, it’s natural to focus on wrapping up client cases and meeting those final deadlines. But here’s the reality—year-end tax planning could be the most important step you take to set your law firm up for success in 2025.

By taking a proactive approach now, you can reduce your tax liability for 2024 while ensuring that you’re on track for a more financially efficient 2025. The decisions you make in these final months will directly impact your firm’s profitability next year. So, where should you start?

Let’s explore the key year-end tax moves your law firm should consider to get ahead.

1. Review Quarterly Tax Payments and Make Any Necessary Adjustments

The last thing you want is a surprise tax bill come April. As the year ends, take a step back and review your quarterly tax payments to ensure you’ve paid enough to cover your estimated taxes.

Here’s what you should do:

• Compare your actual earnings for the year to your projected earnings from earlier in the year. If your income has increased, you may need to adjust your final quarterly payment to avoid underpayment penalties.
• Make sure you’re accounting for any income from additional sources or unexpected cases.

Pro Tip: If you’re unsure whether you’ve paid enough, it’s better to overpay slightly on your last payment to avoid penalties. You can always apply any overpayment to next year’s taxes.

2. Consider Purchasing or Leasing New Office Equipment to Claim Deductions

Law firms often have significant equipment needs—whether it's upgrading your computers, purchasing new office furniture, or investing in software tools to streamline operations. The end of the year is the perfect time to consider making these purchases to maximize your tax deductions.

Why it matters:

• The IRS allows businesses to deduct the cost of qualified office equipment under Section 179, up to a certain limit. This means you can deduct the full purchase price of equipment in the year you buy it, rather than depreciating it over time.
• Even if you lease new equipment, you may still be able to deduct the cost.

Example: If your firm purchases $50,000 worth of computers and technology before December 31, you could deduct that entire amount, reducing your taxable income for 2024.

Pro Tip: Make sure the equipment is placed into service by December 31 to qualify for the deduction this year.

3. Set Up Retirement Accounts or Make Contributions Before Year-End

Retirement planning is one of the smartest ways to reduce your tax burden while securing your financial future. If your law firm has not yet set up retirement accounts for 2024, now is the time to do so.

Here’s how you can take advantage:

• If you’re a solo attorney or a small firm, consider setting up a Solo 401(k) or a SEP IRA. These accounts allow for significant contributions that reduce your taxable income.
• Max out contributions to any existing retirement accounts, such as a traditional IRA, Solo 401(k), or SEP IRA. You can contribute up to $69,000 (for SEP IRAs and Solo 401(k)s) for 2024, depending on your earnings.
• If your firm has employees, setting up or contributing to employee retirement plans can not only reduce your tax burden but also serve as a great incentive for attracting and retaining talent.

Pro Tip: If you haven’t made your contributions yet, don’t wait—contributing before the end of the year will give you an immediate tax benefit.

4. Evaluate Whether a Change in Entity Structure Could Save on 2025 Taxes

As your law firm grows and evolves, so do your tax liabilities. It’s worth evaluating whether your current business entity structure is the most tax-efficient for your firm in 2025.

Why this matters:

• Law firms structured as LLCs or S-corporations may benefit from pass-through taxation, but as profits increase, switching to a C-corporation might make sense for tax purposes.
• S-corporations can allow you to pay yourself a reasonable salary while taking the rest of the profits as dividends, which are not subject to self-employment taxes.
• C-corporations may offer a lower corporate tax rate and allow you to retain more earnings within the business for reinvestment.

Pro Tip: Consult with a tax professional to review your current structure and determine if changing your entity could lead to tax savings in 2025. Switching structures can take time, so starting this process before the year ends is critical.

5. Update Your Bookkeeping and Accounting Systems for 2025 Planning

If your law firm’s financial records aren’t up to date, now is the time to get everything in order. Accurate bookkeeping is essential not only for filing your 2024 taxes but also for planning your 2025 tax strategy.

Here’s what you need to do:

• Review your books to ensure that all income and expenses are properly recorded.
• Ensure that your expense tracking system is efficient and that you’re categorizing deductions correctly. Software like GoLegalFlow can help you streamline your expense management and ensure that no deductions are missed.
• Project your earnings for 2025 and create a budget that accounts for anticipated tax liabilities and major firm investments.

Pro Tip: Work with your CPA to ensure your books are accurate and complete before closing out the year. This will make tax filing easier and reduce your risk of an IRS audit.

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

By proactively addressing these tax strategies now, you can not only reduce your current tax liability but also ensure that your firm is well-positioned for success in 2025. The tax code is complex, but with careful planning, you can take advantage of available deductions, credits, and strategies that could save your firm thousands of dollars.

The earlier you begin planning, the better prepared you’ll be to navigate tax season stress-free and keep more of your earnings in your pocket.

Plan Now, Benefit Later—Contact Us to Prepare for 2025!

At Prestige Accounting and Consulting, we specialize in helping law firms like yours take control of their financial futures. With our expert tax planning services, you can rest easy knowing that you’re taking advantage of every deduction and strategy available.

Contact us today to schedule a consultation and start prepping your law firm for 2025 success.