A CPA for Attorneys Who Already Speaks Trust Accounting

"Attorney taxes" is really three different subjects. A solo practitioner or firm owner runs a business: entity choice, self-employment tax, deductions, trust compliance, and payroll all live on their desk. A W-2 associate has the simplest picture, wages with withholding, and under current law cannot deduct unreimbursed job expenses, so planning is mostly retirement and preparing for partnership. An equity partner sits in between: no business to run alone, but a K-1 instead of a W-2, quarterly estimates, self-employment tax, a capital account, and often nonresident state returns.

The biggest tax events in a legal career are the transitions between columns: hanging a shingle, making partner, or adding partners to a solo practice. Each one changes how you are paid, what you owe quarterly, and which entity makes sense. If you are staring at a partnership offer right now, go straight to the law firm partner taxes guide. If you own or are starting a practice, keep reading.

Hourly practices generate steady receivables and the classic law firm problem: the gap between hours worked, hours billed, and dollars collected. The accounting question is realization, and the tax question is timing, because most firms report on the cash basis, so income lands when clients pay, not when you bill.

Flat-fee practices (estate planning, immigration, criminal defense) look simpler but hide a trust accounting question: in many states, unearned flat fees belong in the trust account until earned, and the books have to show when each fee crosses from client money to firm money.

Contingency practices are the extreme case. Costs go out for years, revenue arrives in lump sums, and a single settlement can triple a year's income. That combination breaks generic bookkeeping in two places: advanced client costs are generally treated as loans to the client rather than current deductions, and the income spike demands estimated-tax and retirement planning in the settlement year, not the following April. Both problems get full treatment on the law firm bookkeeping page and the law firm tax planning page.

How money moves from the firm to the owner depends entirely on the entity. A solo on Schedule C takes draws, which are not expenses and not payroll; tax is computed on net profit regardless of what was withdrawn. An S corp owner takes a reasonable W-2 salary plus distributions, and the split is where the self-employment tax savings live. Partners in a partnership or LLP receive guaranteed payments for services plus a distributive share of profits, all on a K-1, and under long-standing IRS guidance a partner should not be on the firm's W-2 payroll at all.

Two numbers frame the self-employment side for 2026. The SE tax rate is 15.3% (12.4% Social Security plus 2.9% Medicare) on net earnings, with the Social Security portion capped at the $184,500 wage base and an extra 0.9% Additional Medicare Tax above $200,000 single or $250,000 joint.Half of SE tax is deductible, which softens but does not solve the problem. Structuring compensation to manage that 15.3% layer, without triggering reasonable-compensation trouble or blowing up the QBI deduction, is the core of attorney comp planning.

Client retainers, settlement proceeds, and other client funds live in a trust account, typically an IOLTA account, and never in the operating account. The rules come from your state bar, not the tax code, and they vary by state, but the accounting requirement is consistent: every dollar in trust is a liability, every client has an individual ledger, and no client's ledger may ever go negative.

The compliance workhorse is the monthly three-way reconciliation: the trust bank statement, the trust ledger in the books, and the sum of all individual client ledgers must agree exactly. On the tax side, IOLTA interest goes to legal aid programs under state rules and is not the firm's income, and client funds passing through trust are not revenue; only earned fees moved to operating are.We cover the mechanics, the software setup, and the classic failure modes in depth on the law firm bookkeeping page.

Attorneys cannot always use the entities other businesses use. Most states require licensed professionals to organize as a PLLC, professional corporation, or LLP, and none of these shield you from your own malpractice, only from general business liabilities and, in some structures, from a co-owner's malpractice. The tax layer sits on top: a PLLC can be taxed as a sole proprietorship, partnership, or S corp; a PC is usually a C corp or S corp; an LLP files as a partnership.

The decision is driven by numbers, not labels: net income level, your state's treatment of professional entities and S corps, the QBI phase-out, and whether the firm will add owners. The full decision framework, with the state wrinkles, lives on the law firm entity structure page, and the S corp math itself can be tested in our S corp savings calculator.

Tax planning earns its fee at specific moments. For attorneys, the recurring triggers look like this:

• Net income crosses the S corp break-even zone. Once profit comfortably exceeds a defensible salary for your market, the SE tax savings usually outweigh the payroll overhead.
• Taxable income approaches the QBI phase-out. For 2026, the 20% deduction for a law practice begins phasing out at $201,750 of taxable income (single) or $403,500 (joint) and is fully gone at $276,750 and $553,500. Inside that band, a dollar of retirement contribution can do double duty.
• A large contingency fee is about to land. The settlement year is when estimated taxes, retirement plan design, and income timing all need to be decided, ideally before the check clears.
• A partnership offer or new partner admission. Buy-in structure, guaranteed payment levels, and the payroll-to-K-1 transition are all easier before the effective date.
• State tax pain in a high-tax state. Pass-through entity tax (PTET) elections can restore state tax deductions the SALT cap limits, which matters at partner income levels.See the PTET workaround guide.
• Retirement contributions feel maxed but taxes still hurt. At partner incomes, a cash balance plan layered on a 401(k) can move six figures per year into deferral. The design options are on the law firm retirement planning page.

The season-by-season version of this list, with the cash-basis year-end moves, lives on the law firm tax planning page. For general small-business planning beyond the legal niche, see small business tax planning.

A recurring engagement for a law practice is not "we do your taxes in April." The monthly rhythm looks like this:

• Operating account reconciled and transactions categorized to a law-firm chart of accounts.
• Trust account reconciled with the three-way reconciliation documented and archived.
• Advanced client costs posted to the balance sheet by matter, not expensed.
• Payroll reviewed: associates and staff on W-2, of-counsel and contract attorneys on 1099 where the facts support it.
• Monthly financials: profit and loss, balance sheet, and the firm KPI set below.
• Quarterly: estimated tax recalculation for owners and a planning check-in against the trigger list.
• Annually: entity and compensation review, retirement plan funding decisions, and the returns themselves.

Firms that only need the books handled can start with outsourced bookkeeping; firms that need a one-time strategy session before committing can book an accounting consultation.

None of these come from a tax return. They come from monthly books built for a law practice, which is the practical argument for treating bookkeeping as management information rather than a compliance chore.

We work with more than 1,000 clients nationwide, and the attorneys among them tend to fit one of three profiles: solo practitioners and small firm owners who want the books, trust compliance, and taxes handled as one engagement; equity partners who need personal tax planning around a K-1, estimates, and multi-state filings; and associates on the edge of partnership who want the transition planned before it happens.

We are honestly not the right fit for large firms with in-house accounting departments, or for anyone shopping for aggressive positions. Everything we implement is built to survive an IRS exam and a bar audit, documented and defensible.