CPA Services for Law Firms

What sits in the trust account belongs to clients. Income is what the firm has earned and moved to the operating account, and the two accounts should never be reasoned about together. The bookkeeping that supports this is a ledger per client, a ledger for the account as a whole, and a reconciliation that ties both to the bank — performed on a schedule rather than when something looks wrong.

An advance on fees held for future work is not income until it is earned. A true retainer paid to secure availability can be income on receipt. Which one you have is decided by the fee agreement, and the bookkeeping should follow the agreement rather than the agreement being rationalized to match the bookkeeping.

The trust accounting requirements themselves come from the bar, not from us, and we do not interpret them for you. We build and maintain records that sit comfortably inside them and reconcile. If a rule or a lender requires an audited or reviewed financial statement, that is an attest engagement and we do not perform them — you would need another firm for that piece.

Filing fees, experts, depositions and records advanced on a case the client is expected to repay out of a recovery are advances, not expenses, and deducting them in the year they are paid is one of the most common and most expensive errors in plaintiff-side practices. Where the fee agreement makes repayment genuinely contingent on the outcome, the analysis is different — the agreement decides, which is why it is worth reading before the accounting method is set. Once returns have been filed on the wrong basis, the correction is a change of accounting method rather than a single amended year.

Estimated payments calculated from last year's income do not fit a year shaped like that, and the annualized installment method lets the payments follow the money instead. The levers that reduce the bill — the choice of retirement plan, the timing of deductible spending, sometimes the entity itself — only work while the year is still open, and a settlement that lands in November leaves very little room. A call when a case looks like it will resolve is worth more than a call in March.

Guaranteed payments and distributive shares are generally subject to self-employment tax and are paid in through the partner's own quarterly estimates, not through firm payroll. Health insurance and retirement contributions run through a different route than they would for staff. A solo practitioner in an S corporation is on the other model entirely, taking reasonable wages before distributions — and the professional entity rules in South Carolina constrain who may own the firm in either case.

Classification questions are the same as anywhere else and the answer is factual, not contractual. Reporting, though, is not the same as anywhere else: payments to a law firm are reportable even when the firm is a corporation, which is an exception to the general rule, and settlement money passing through to an attorney is reported differently from a fee paid for services. Missed forms here are penalised per form and per year, and they compound quietly.