While the 2024 tax year may be complete, you still have time to significantly influence your tax situation and long-term financial health. The key is taking informed action before the April 15 deadline.
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As an attorney, you understand how deadlines work in legal proceedings. Financial planning operates on similar principles — there are critical deadlines that, when leveraged properly, can create significant financial advantages. Though the 2024 tax year has ended, the April 15 filing deadline offers a valuable window of opportunity that many legal professionals overlook.
In this article, I’ll walk you through why this matters, how it affects your unique position as a legal practice owner, and exactly what steps you can take before the deadline to potentially save thousands in taxes while strengthening your long-term financial position.
Please note: While this information is educational in nature, tax strategies should always be implemented with guidance from qualified tax and financial professionals familiar with your specific situation.
Why Many Attorneys Miss Tax Planning Opportunities
Think about how your clients sometimes come to you after waiting too long to address a legal issue. Similarly, many small law firm owners inadvertently miss valuable tax planning opportunities for understandable reasons:
- The daily demands of running a practice leave little time for deep financial planning.
- The tax code’s complexity makes it difficult to identify all available opportunities.
- There’s a common misconception that tax planning options end on December 31.
- The unique tax classification of law firms creates additional complexity.
When these opportunities are missed, the consequence isn’t just paying more in taxes for a single year. It has a compounding effect of lost dollars that could have been growing over time.
How Being an Attorney Creates Special Tax Considerations
The tax code classifies law firms as “Specified Service Trade or Businesses” (SSTBs), which creates challenges and opportunities.
First, the challenge:
As an SSTB, your ability to take advantage of certain tax benefits like the Qualified Business Income (QBI) deduction becomes limited as your income increases.
But here’s the opportunity:
This limitation makes other tax-advantaged strategies even more valuable for attorneys. In fact, implementing these strategies often creates a beneficial domino effect — lowering your taxable income might suddenly qualify you for deductions that were previously phased out due to income limitations.
Think of it like a legal strategy where one successful motion opens the door for additional favorable outcomes.
Key Strategies You Can Still Implement for 2024
Let’s examine the specific tools still available to you before the April 15 deadline.
1. Retirement Account Contributions
Even though 2024 has ended, you can still make contributions to various retirement accounts that count for the 2024 tax year. This is like being able to submit evidence after a trial date but before the judge issues a ruling—the window remains open.
These retirement contributions provide immediate tax benefits (potentially lowering your 2024 tax bill) while simultaneously building your long-term wealth. Options include:
- Traditional and Roth IRAs: You can contribute up to $7,000 (or $8,000 if you’re 50 or older).
- SEP IRAs: These allow contributions of up to 25% of your net self-employment income, with a maximum of $69,000 for 2024.
- Individual 401(k) employer contributions: While employee contributions had to be made by December 31, 2024, the employer portion can still be contributed.
For attorneys with high incomes who exceed Roth IRA direct contribution limits, “backdoor” Roth conversion strategies may still be available, allowing you to access tax-free growth potential despite income limitations.
2. Individual 401(k) Establishment Flexibility
Thanks to the SECURE Act 2.0, there’s a particularly valuable opportunity for attorneys who didn’t previously establish a retirement plan. You can now both establish and fund an Individual 401(k) retroactively for 2024, as long as you do so before your tax filing deadline.
This is significant because previously, the plan needed to be established by December 31 — only the funding could happen later. This change gives attorneys who didn’t set up plans last year a second chance to capture 2024 tax benefits.
3. Health Savings Account (HSA) Contributions
If you participated in a high-deductible health plan during 2024, you can still make HSA contributions that count for the 2024 tax year. HSAs offer a unique triple tax advantage:
- Tax-deductible contributions
- Tax-free growth
- Tax-free withdrawals when used for qualified medical expenses
For 2024, individuals can contribute up to $4,150, and families can contribute up to $8,300, with an additional $1,000 catch-up contribution for those 55 and older.
4. Qualified Business Income (QBI) Deduction Strategy
While the QBI deduction is limited for attorneys due to the SSTB designation, strategic planning around your taxable income thresholds can help preserve this valuable deduction.
For 2024, the phase-out range begins at taxable income of $383,900 for joint filers and $191,950 for single filers. If your income is near these thresholds, the retirement and HSA contributions discussed above might reduce your taxable income enough to preserve part or all of your QBI deduction eligibility.
This creates a multiplier effect — each dollar contributed to retirement accounts or HSAs might save you tax dollars both on the contribution itself and by preserving QBI deduction eligibility.
How to Implement These Strategies Before the Deadline
To maximize these opportunities before April 15th, follow this practical approach.
Step 1: Assess your current position. Review your estimated 2024 income and tax situation to identify which strategies offer the greatest benefit based on your specific circumstances.
Step 2: Calculate available contribution space. Determine how much you can still contribute to each type of account for the 2024 tax year, considering both legal limits and your available cash flow.
Step 3: Consider strategy interactions. Analyze how different strategies might work together to create enhanced benefits, particularly regarding income thresholds for the QBI deduction.
Step 4: Prioritize your actions. Based on your cash flow constraints and the relative tax benefits, decide which contributions to make first. Generally, accounts that offer both immediate tax benefits and long-term growth potential should be prioritized.
Step 5: Document properly. Ensure all contributions are properly documented and clearly designated as 2024 tax year contributions. Without proper designation, the IRS may apply the contribution to the current year instead.
The Value of Integrated Planning
Many attorneys find themselves in a challenging position: They’re experts in the law but not necessarily in the nuances of financial planning. This highlights the value of working with financial professionals who understand the unique challenges and opportunities that come with owning a law practice.
The most successful approach often combines tax planning with broader investment strategy. This ensures you’re not just saving on current taxes but also positioning those tax savings for optimal long-term growth.
Consider this analogy: Winning a favorable judgment for your client is important, but ensuring they use that victory to improve their overall position is a complete service. Similarly, proper financial planning isn’t just about reducing this year’s tax bill. It’s about redirecting those savings toward building lasting wealth.
Taking Action Now
Just as you advise clients not to wait until the last minute on important legal matters, consider addressing these tax opportunities well before the deadline to allow time for thoughtful implementation and potential adjustments.
Remember that each tax season presents a new opportunity to enhance your financial position. By understanding and utilizing these strategies now, you not only gain immediate tax benefits but also establish a foundation for more effective planning in future years.
Disclosure: The information within this article is intended for educational purposes only and should not be considered tax, accounting, or legal advice. This information should not be relied upon as the sole factor in any financial or tax planning decisions. Please consult with qualified professionals regarding your specific circumstances.
Read David Hunter’s article “Attorney Financial Planning Made Simple: 4 Vital Signs.”
Image © iStockPhoto.com.
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