Part I: What to expect from the New Tax Laws


How your Law Firm Can Be Affected

The new tax laws will be greatly debated as they begin to take effect.  Consumers and corporations were both affected with the passage of the bill.  The corporate tax rate slash and elimination of certain personal itemized deductions stole the headlines, but the tax bill will affect everyone and every business in one form or another.  It is important that you understand the changes and how they will ultimately impact your firm.  The American tax system is a dense beast and the tax reform did not do much to ease the complexities.


To understand the changes we first need to address how most law firms are set up for tax purposes.  Most law firms are structured as sole proprietorships, partnerships such as an LLP, LLC or corporation (often an S-Corporation). [1]  It is strongly advised that you consult a licensed tax specialist when setting up your firm.  How you structure your business will determine how you are taxed.  For instance, if you have one of the above-mentioned structures then you are subject to self-employment tax since business income passes through to partners and members of partnerships.   One major part of the tax reform is the lower tax rate for C-Corporations.  The problem is that most law firms are not set up as C-Corporations and cannot be established as such since they are “Personal Service Corporations (PSC).”  A PSC is defined by the IRS by its principal activity and ownership.  Law falls into the category of a personal service along with accounting, consulting, architecture and a number of other fields. [2]  PSCs are not privy to the lower corporate tax rate and are taxed at 35%.  This is only the beginning.


Deductions for law firms and lawyers are stricter.  The 20% “Qualified Business Income” deduction is limited for attorneys who make over $157,500 filing as an individual or $315,000 filing jointly.  If income exceeds $207,500 for individuals and $415,000 for joint filers, the deduction starts to phase out.


If that wasn’t enough certain expenses are no longer tax-deductible.  For instance, the new tax reform eliminates business related entertainment expenses that are not ordinary and necessary to meet a directly related test or an associated test.  For instance, there cannot be a substantial distraction that would prevent you from actively conducting business such as a sporting event or a theater.  [3]


Tax laws are complicated and there is much more to the story.  Amicus Media Group and Amicus Capital Group are dedicated to bringing you more information on how the new tax reform will affect you in 2018.  Look for the 2nd Part in this series “Part 2: What to Expect from the New Tax Laws.”  We strongly recommend that you consult a licensed tax attorney prior to filing personal or business taxes.  This article does not contain legal or financial advice.  Author and publisher disclaim any and all warranties, liabilities, losses, costs, claims, demands, suits, or actions of any type or nature whatsoever, arising from or any way related to this blog, the use of this blog, and/or any claim that a particular technique or device described in this blog.