It has long been a ruling of the IRS that costs paid on behalf of clients are considered a “receivable” for accounting and tax purposes as opposed to an expense item that can be deducted on a tax return. That means all the money trial lawyers have tied up in case costs are non-deductible for tax purposes. Advocate Capital, Inc. provides its clients with a solution, our Case Expense Funding product.
Through the Case Expense Funding program, Advocate Capital, Inc. clients can submit a funding request to reimburse their Firms for the cash tied up in case expenses. They can then use the non-deductible cash they just freed up to take advantage of year-end tax planning strategies by making tax deductible expenditures like the following to help minimize their Firm’s tax liability:
1) Create a Tax Deductible Payroll Expense.
a. The cash you have tied up in case costs could potentially be distributed to Partners and/or other employees via payroll (i.e. year-end bonuses) creating a tax deductible payroll expense.
2) Maximize Contributions to Retirement Accounts.
a. If you haven’t already made maximum contributions to your 401(K) or other retirement accounts, now is the time to make that happen.
b. 401(k) limits for 2013 $17,500.00 ($23,000.00 if age 50 or over).
3) Maximize Section 179 Expense Deduction for 2013
a. If you expect to purchase more than $25,000.00 of business use property in 2014, make those purchases now. The current section 179 Expense Deduction limit of $500,000.00 plunges to $25,000.00 in 2014 unless congress acts to extend it.
4) Pay State & Local Taxes Prior to Year End.
a. Payments made for state and local taxes are deductible on your federal return. Take advantage of those deductions by making the payments in 2013.
b. If you know you will have a State tax liability, make an estimated payment prior to year end to get the deduction on your Federal return.
Click here for more year-end tax planning tips and to learn more about 55 tax provisions set to expire in 2013.
These tips are provided as tools to encourage law firms to think strategically about achieving the best possible results for their practice. Individual tax situations can vary significantly so please consult with a professional advisor familiar with your individual situation for advice before making any decisions that might impact your individual tax situation.
Senior Vice President, Client Services
Photo Credit: 401(K) 2013 via Flickr