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.