Lawsuits, Court Dates and Taxes, Oh My!
Whether you are a doctor, veterinarian, lawyer or restaurant owner, there is one thing we all have in common: taxes. Are taxes or laws your strong suit? Does the difference between a Schedule C and 1040 make your head spin? You are the expert in law and we are experts in law firm accounting and tax. This means we can help you differentiate which forms you need and how to get your tax return out the door, no problem! We want you to focus on your clients and their legal needs, not how to process the financial transactions that come with the law firm management aspects of your business. We take care of the numbers so you can take care of their case.
Many law firms are finding that they billed more hours than usual in 2020. Why? Over the course of the pandemic, people were panicking! Whether they needed advice on how to handle the state mandates of temporarily closing their company doors or preparing to bring their employees back to work, your clients were relying on your legal advice to choose what was best to do for themselves, their employees and their companies. While lunch meetings and in-person conversations with clients were scarce over the past year, your law firm was still having the same amount of interactions (if not more) over the phone with your clients, helping to ease their minds and advise them the best you could in a year unlike any other.
Now that we are a year into our “new normal” and most have adapted to a work-from-home or hybrid work environment, there are still questions to be answered and legal advice to be given as we move forward.
Find a Software That Meets Your Firm’s Needs
While an Excel sheet full of all of your records and financial data may seem like an efficient way to store all of your information, there are accounting software structured for law firms like yours. These law firm management software programs will better manage your data and allow you to run important reports and pull analytics.
Before selecting a software, make sure to do your homework and find the one that will best fit your firm’s needs. While there are a lot of things to look for in software, we recommend finding one with expense tracking, billing and invoicing functions, bookkeeping and payroll features. Here is a link to some of the top law firm management software and if you are looking for help to choose the right solution for your firm, our team is here to help.
Accounting Vs. Bookkeeping - The Difference You Need to Know
Accounting and bookkeeping are the same thing, right? Absolutely not. Bookkeeping is the physical process of keeping track of your financial transactions. It’s an administrative task of keeping track of the money coming in and out of your firm (a record that your accountant will be thrilled to have).
Accounting, on the other hand, is what you do with the information you collected during your bookkeeping. Once your law firm has accurate records, our accounting team can help you make informed, educated financial decisions such as opportunities for efficiencies, process improvements and expansion of your law firm. By keeping your bookkeeping as accurate as possible, you are also helping your firm to stay compliant while maintaining the professionalism your law firm is known for.
How to Prepare for Tax Season (This Year, and in the Future)
If the thought of tax season alone causes your heart to race, these best practices can help ease your mind and get your law firm’s return ready in no time:
Keep detailed and accurate records of the money your firm is spending and where (the more details you have, the better.) It is better to have too much information than holes in your records for your accountant to try and fill. Not only can this information be helpful at tax time, but your records can also help show which of your clients are bringing in the most revenue. This can help you make business decisions down the road to growing your firm.
Avoid losing money - make sure you stay on top of paying your invoices on time to avoid late fees. Also, make sure that your firm is billing your hours correctly and completely. These are two of the most common ways funds are misplaced or lost altogether (and no one wants to lose their hard-earned money.)
Stay on top of your tax deductions - professional fees (like your accountant), meals with clients, travel expenses and more can reduce your law firm's taxable income, which means you can end up owing less.
Differentiate between income and revenue - while both are finances coming through the door, it is important to know the difference. When you don’t separate the two in your records, your books will be inaccurate, which can be a headache to try and sort through to find the cause. Do your bookkeeping on a regular basis - the longer you put off doing your bookkeeping, the more likely mistakes will be made or information will be harder to find. The more often your law firm does it, the easier it will be to manage your firm.
When in doubt, don’t guess. If you are confused about what you are doing or if something isn’t adding up or making sense, the worst thing you can do is guess the solution or leave it be. Contact JLPs CPAs to help guide you back in the right direction and get you on track for a successful financial plan.
As you prepare your law firm's financial data or decide which practices you should put in place at your firm, consider consulting with one of our CPAs who specialize in law firm accounting to point you and your firm in the right financial direction. In addition to helping you file your yearly return, our team can assist you in understanding your financial data, investing and more.