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    Tax Prep for Law Firms: Year-End Tips

    Tax Prep for Law Firms Year-End Tips

      While the end of the year may put most people in a festive mood, not all aspects of the season are universally celebrated. The overabundance of holiday cookies. One too many “Season’s Greetings” emails. And year-end tax prep.  

      While there’s no enjoyable time for year-end tax prep, let’s face it: the year’s end is probably the worst possible time for it, with attorneys juggling a multitude of personal and professional responsibilities, as well as waning motivation as time out-of-office awaits.  

      Prepping for tax season can seem daunting, but it’s well worth it—and with some careful planning and proactive measures, you’ll be ready for anything that comes up when it’s time to file. 

      To help get your firm up to speed on year-end tax prep, we’ve compiled this list of seven essential tips to take the headache out of doing your taxes and allow you to return to focusing on what matters most: your clients. 

      7 tips for law firms to get ready for taxes 

      Grab a holiday cookie and turn off your email notifications. Make a start on your year-end tax preparation with these seven steps. 

      1. File your tax forms 

      When you think about taxes, one of the first things that likely pops into your head is all the forms! And that’s a big part of your year-end tax prep.  

      Filing year-end tax forms is crucial for law firms for several reasons. First, it’s your legal requirement, and failure to comply can result in penalties, fines, and even legal action. Second, year-end tax filing allows you to establish a comprehensive financial overview from which you can assess your income, expenses, and profitability…and plan for next year (more on that below!). 

      2. Reconcile all your accounts 

      Law firms must reconcile their bank accounts at the end of the year to ensure financial accountability and transparency. This process can be involved, as it requires diligently cross-checking financial records with bank statements to detect any discrepancies or errors.  

      However, the effort is well worth it. By performing thorough reconciliations, firms can accurately track their revenue and expenses, prevent fraud, and uphold ethical financial practices.   

      Crucially, year-end bank account reconciliation also facilitates the most accurate tax preparation and financial reporting possible, which fosters trust with clients and stakeholders. 

      (Note that you don’t have to trudge through the entire reconciliation process by hand—legal accounting software can lift a significant portion of the burden from your shoulders!) 

      3. But especially, check your trust accounts 

      Trust accounting tasks should be handled on a monthly basis, but it’s important to do a final year-end review. This process solidifies the firm's reputation for integrity and trustworthiness.  

      Moreover, this final check allows for a clear financial start in the new year, and it’s critical during tax preparation to ensure all client funds are accounted for separately from the firm's own finances. 

      4. Get your receipts in order 

      Accurate record-keeping is critical for tax preparation. Your receipts serve as essential evidence of business expenditures and can be invaluable during audits or in the event of a dispute with tax authorities. 

      As the year comes to an end, it’s imperative to review and organize all receipts associated with your business activities. You can do this by organizing your receipts into categories like: 

      • Office supplies 
      • Travel expenses  
      • Client-related expenses 
      • Marketing expenses 

      If you want to take some of the heavy lifting out of categorizing your receipts and keeping track of your expenditures, consider using accounting software that integrates with your practice management software to create a well-organized repository for easy access. 

      It’s also important to ensure all your receipts are legible and include necessary details like date, amount, vendor, and the purpose of the expense. 

      5. Double-check your travel expenses 

      Legal professionals can rack up substantial travel expenses during the course of their work. These expenses can be significant tax deductions, but they must be properly documented and classified to qualify. 

      As the end of the year draws near, pay close attention to your travel-related expenditures to ensure that they’re accurately recorded and comply with tax regulations. 

      Review expenses like transportation, accommodation, meals, and any other related costs. Ensure you have valid receipts for each expense and that they’re categorized correctly. 

      Note that deductible expenses can vary depending on the jurisdiction and the nature of your legal practice, so keep up to date with the specific rules that apply to your area. 


      Ultimate Guide to Law Firm Business Intelligence

      Are you sure about running a law firm without regularly analyzing performance data?

      There are just certain things in life that you wouldn’t, even couldn’t, do without a little research and background information. Running a legal practice is definitely one of those things.

      6. Consider tax-deductible expenses 

      Identifying and maximizing tax-deductible expenses is a no-brainer for legal professionals as these deductions can significantly reduce your taxable income and, consequently, your tax liability. 

      Take the time to explore potential deductions that may apply to your practice. Common tax-deductible expenses for legal professionals may include: 

      • Office rent or lease payments  
      • Legal research and subscription fees 
      • Professional development and continuing education expenses 
      • Bar association dues and membership fees 
      • Marketing and advertising expenses 
      • Depreciation of business assets 
      • Legal fees paid to other professionals 

      Keep in mind that tax laws change, and deductions may vary based on your location and specific circumstances. Consult with a tax professional or accountant to take full advantage of available deductions (while staying compliant with tax regulations). 

      7. Embrace charitable deductions 

      Law firms can also maximize their tax position by making charitable contributions. Philanthropic donations often qualify for tax deductions, reducing a firm's overall taxable income. However, it's crucial to ensure that these donations are made to eligible charitable organizations and are properly documented for compliance. 

      8. Make sure you’re paid up 

      Are you up to date with all your financial obligations? Now is the time to verify! Evaluate not just your income tax but also any outstanding payroll taxes, sales taxes, or any other tax liabilities related to your firm. 

      Review your financial records and consult with your accountant to identify unpaid taxes or discrepancies that need your attention. Failing to take care of these issues can lead to penalties, interest charges, and legal repercussions that could negatively impact the health of your firm. 

      By taking care of your outstanding tax liabilities promptly, you can avoid unnecessary financial stress and keep your firm on track for a successful new year. 

      9. Plan for the future 

      As you wrap everything up for the current tax year, it’s essential to look ahead and start planning for the next year. Legal professionals can benefit from setting clear financial and tax-related goals for the next year and implementing strategies to achieve them. 

      Follow these steps to get the ball rolling with mapping out the year ahead: 

      • Establish a budget for the upcoming year that accounts for expected expenses and revenue. 
      • Review your reports and financial statements to identify areas for improvement in your financial management and tax planning. 
      • Evaluate your business structure and determine if there are opportunities for tax savings through restructuring. 
      • Stay current concerning changes in tax laws and regulations that may affect your legal practice. 

      Finish the year strong with Rocket Matter 

      If you’re dreading dealing with all the hassle of year-end tax preparations, it’s time to find a solution that will keep you ahead of the curve when it’s time to file. 

      When you invest in practice management software like Rocket Matter, you’ll gain access to tools that allow you to: 

      … so you’ll never have to worry about whether or not your numbers are on the mark. 

      Ready to see what Rocket Matter can do for you? Sign up for a free demo today! 

      Ultimate Guide to Law Firm Business Intelligence

      Are you sure about running a law firm without regularly analyzing performance data?

      There are just certain things in life that you wouldn’t, even couldn’t, do without a little research and background information. Running a legal practice is definitely one of those things.

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