Written By Caitlin See
If you have your own law practice, the costs can quickly add up — everything from leasing your office to traveling to court to building your law reference library. But you can strategically use these expenses to your advantage by claiming available tax deductions for lawyers.
For example, depending on your taxable income, you may qualify for a relatively new tax deduction designed to benefit small business owners — the qualified business income (QBI) deduction. Otherwise, there are many tax deductions that you can write off as a business owner, some of which are often overlooked.
Here are some of the top tax deductions for lawyers and how to qualify for them.
How section 199A affects lawyers
The 2017 Tax Cuts and Jobs Act created a new tax deduction for qualified business income. Also referred to as the section 199A deduction or QBI deduction.
This deduction allows owners of pass-through businesses — like S corporations, partnerships and sole proprietorships — to deduct up to 20% of their business income with certain limitations.
The QBI deduction is subject to income thresholds and special definitions. Although this deduction can get tricky, you could qualify. Here’s the most basic breakdown of income limits by filing status for the QBI deduction for the 2023 tax year:
| Filing status | Full deduction income limit | Partial deduction income limit |
|---|---|---|
| Single, head of household | $182,100 | $182,100-$232,100 |
| Married, filing jointly | $364,200 | $364,200-$464,200 |
| Married, filing separately | $182,100 | $182,100 – $232,100 |
To receive the full deduction, your taxable income — including business income and all other forms of income — must be less than $364,200 for married couples filing joint returns and $182,100 for taxpayers filing as single or head of household.
But once you pass these thresholds, your potential deduction decreases until you reach the maximum threshold of $464,200 for married filing jointly or $232,100 for single and head of household statuses. At that point, you won’t qualify for the deduction at all.
If you fall within an income range that may be eligible for a partial deduction, it’s best to consult a tax professional for specific qualifications and tax calculations due to the complexity of the deduction.
Common tax deductions for lawyers
If you’re spending money on your business, you should be using those costs to claim deductions during tax season. Here are some of the most common tax deductions for attorneys:
1. Business expenses
There are many business-related expenses you can claim as part of operating your law firm. Examples of tax-deductible business expenses include:
- Marketing materials like business cards, print or web advertisements, billboards and costs associated with designing and maintaining a website.
- Accounting or billing software, or the costs associated with contracting these services out to other professionals
- Subscriptions to legal research services.
- Courier fees, filing fees, licensing fees and other relevant legal fees and expenses.
- Salaries and wages of employees (e.g., paralegals or secretaries).
- Tax preparation or tax advice expenses.
As with any business, it’s easy to overlook some of the smaller expenses. So, it’s important to keep detailed records and receipts of every transaction that is made on behalf of your law practice.
2. Office-related costs
You can deduct the costs associated with maintaining your office, such as the cost of your lease, utility bills and cleaning services. Office-related deductions can also include expenses for:
- Purchasing or repairing office furniture.
- Stocking office supplies (e.g., printer ink and paper, pens and highlighters, etc.).
- Paying for phone and internet plans.
If you run your business out of a home office, you can deduct a portion of your household expenses for the business use of your home. This includes expenses like mortgage interest, insurance, utilities, repairs and depreciation. Keep in mind that the IRS has strict requirements for what qualifies as a home office. For example, the space must be used exclusively for business purposes.
3. Retirement plan deductions
You can deduct the costs that you’ve set aside to fund employees’ retirement plans, including your own. And as the owner, you can choose which retirement plan is right for your business.
Here are a couple of popular retirement plans you can claim deductions for as the employer:
- Simple IRA. Small business owners with fewer than 100 employees can set up a Savings Incentive Match Plan for Employees (SIMPLE) IRA. Employers choose to make a 2% contribution to all employees or offer an optional matching contribution up to 3% of each employee’s compensation.
- 401(k) plan. A 401(k) retirement savings plan can give you and your employees more flexibility. You choose what percentage to offer as an employer matching contribution — let’s say 4% — and then claim a deduction for those contributions.
You’ll also be able to make contributions to and claim deductions for your own retirement account as the employee.
Related: Top 3 Lawyer Retirement Planning Strategies
4. Transportation and travel expenses
Some lawyers spend a great deal of time traveling. Whether it’s driving to the courthouse, visiting clients or attending legal conferences. The IRS allows you to deduct travel expenses to offset these necessary costs.
Common travel tax deductions for attorneys include:
- Tickets for flights, trains or bus rides for business purposes.
- Lodging, if your business trip requires staying overnight.
- 50% of the cost of your meals while traveling for business.
If you use your car for business, you may be able to deduct certain car expenses, such as mileage, parking and toll fees.
The standard mileage rate for 2023 is $0.655 per mile. For 2022, the rate was $0.585 per mile. If you opt out of the standard mileage rate, you may be able to deduct your actual car expenses, like registration fees, repairs, insurance and lease payments.
5. Education
You can deduct educational expenses, like online seminars and continuing legal education classes that are required to maintain your license or improve your skills. Additionally, you can claim deductions for course materials, practice manuals, and those expensive law books.
6. Professional organizations
You can write off any dues that you pay to your state bar and membership fees to optional professional organizations, like a local bar association or Chamber of Commerce. If you participate in professional organization events, like a seminar, you can deduct related travel and material costs.
Additional ways to lower your tax liability
If you’re unable to take advantage of the tax deductions for lawyers listed above, there’s still ways to maximize your tax savings. Here are additional strategies to lower your taxable income:
- Max out your personal retirement plans. If you have a Traditional IRA, you can contribute up to $7,500 for 2023. But if you have a 401(k), you can max out at $22,500 for 2023 to significantly lower your income tax bill.
- Take advantage of a Health Savings Account (HSA). This tax-deductible savings plan allows you to put pre-tax dollars toward future healthcare expenses. You need to be enrolled in a high deductible health plan (HDHP) to be eligible for an HSA. For 2023, you can contribute up to $3,850 if you have a self-only HDHP or up to $7,750 if you have a family HDHP.
- 529 college savings plan. Although contributions made to a 529 college savings plan aren’t tax-deductible on the federal level, you may be able to claim a deduction on your state tax return. Currently, 34 states and the District of Columbia offer state 529 deductions. Colorado, New Mexico and South Carolina offer a deduction for the full amount of your contribution.
How your taxable income relates to your student loan payment
The importance of maximizing these tax deductions for lawyers goes beyond just paying taxes. Reducing your tax liability may help lower your monthly student loan payment if you have federal student loans under an income-driven repayment (IDR) plan.
IDR plan student loan payments are calculated based on your income from your most recent tax return or other income documentation. In a nutshell, the lower your taxable income, the lower your student loan payment will be. With an IDR plan, your goal is to pay as little as possible each month in order to maximize IDR loan forgiveness. By the end of your IDR term, the outstanding balance at the end of your repayment period will be forgiven.
Sounds great, right? Reach out to us to book a one-on-one consultation if you’re interested in learning about strategizing both your tax liability and student loan repayment plan. We can help you sort through your finances and determine the best plan for tackling your law school loans.
