Tax Breaks for Attorneys
Brandy Derrick
Making Law Practice Bookkeeping Easy | 1 of 200 people in the QuickBooks Online Trainer/Writer Network
The April tax filing deadline will be here before you know it, and that means that now might be a good time to scavenge up every single legal tax break you can find. Attorneys make great income, as a rule. They also pay a lot of taxes on that income. The money is well-earned, so it is important to work at keeping as much as possible. Check out these 5 tax breaks you might be able to claim to help you this year on taxes.:
- Business meals
If you have a meal with a colleague to discuss business, take employees out for a lunch, or meet with a client over coffee, save that receipt! Your business meals are now 100% tax deductible for all of 2021 and 2022! Up until now, business meals were only deductible at 50% of their cost. The deduction goes back to 50% in two years, unless Congress decides to keep it. This is the time to eat!
Definitely keep close records, though, because auditors will want proof of those meals being actual business expenses, not just you treating yourself. Meal expenses can quickly add up and look suspicious to the IRS. Receipts and details about each meal will prove the business purpose in an audit.
Buying lunch, coffee, or dinner has always been a great way to expand your marketing, business meetings, and even boost your client’s appreciation for your services, all while reducing your tax bill. Especially now that the entertainment deduction is no longer available, taking colleagues or potential clients out for a meal can be a nice gesture instead of that ballgame or concert.
2. Business assets can be fully expensed, to the tune of one million dollars per year
In the past, a business had limits on the expenses they could claim on their taxes each year. If a law office bought ten new computers, only a certain amount of the expense could help reduce taxes, and the remaining amount had to be slowly added over the years as depreciation expenses.
In the recent years, however, the IRS began drastically increasing the spending limit for items to be used in the business that could be fully deductible at tax time. Every year the limit increases, so check with your tax professional to find out if you are getting too close to the line.
This deduction, called Section 179, is a great way to cut down on bookkeeping, CPA fees, and general headache. If you buy an expensive vehicle (for the business), improve your building, upgrade computers, or purchase the latest copier, those expenses can go directly to tax deductions, up to and sometimes over $1,000,000. Your tax professional will assist you in taking advantage of this nice benefit, just mention section 179 and they’ll do the rest.
3. Having your business contribute to a 401K for you will cut down on your taxes
Even if you as an attorney are a single-member LLC business, you can have your business contribute to your 401K as a business expense. This will lower your tax bill and give you the benefit of putting away funds for retirement one day.
Look into the Solo 401K to take full advantage. The Solo 401K allows you to contribute to a 401K of your choice as both employer and employee, and has much higher limits that you can contribute per year over regular 401Ks.
4. Health Insurance can be paid for by the business
If you own the business, you can use the business funds to pay for your own insurance. This is a legitimate tax break that any business owner can take. Attorneys get sick just like everyone else, so having a great health insurance plan, such as a Health savings account, can really help.
5. Home office expenses
If you have dedicated office space at your own home, the IRS allows you to deduct a good amount of expenses based on your square footage. Especially during this time of virtual work, if you track and follow the rules for using a home office, you can not only enjoy the home office deduction, but perhaps cut down on office space rent costs as well.
Remember, not spending money is also a great way to save in your business. Don’t be so worried about lowering your tax bill that you spend too much on unnecessary expenses and don’t have any money left by the end of the year!
Bonus: Business travel can also be a great way to cut down on taxes, provided you follow the rules. Keep track of business miles traveled, especially for any trips you have to take several hours from your hometown. Even traveling for conferences or education improvement counts as a business expense, so head on out and enjoy new places!