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Will New Tax Laws Help or Hurt Your Small Law Firm?

By William Vogeler, Esq. on January 25, 2018 | Last updated on March 21, 2019

If a dog takes a smaller bite out of your leg, is that a benefit?

Didn't think so. Likewise, if the new tax laws take a smaller bite out of your business, it's still gonna hurt.

It is especially true for solo practitioners and small law firms. That's because a few new laws were made just for you -- woof, woof.


A professional service corporation, or PSC, provides primarily professional services. Many lawyers have created PSCs to run their practices and structure the tax bite.

Most solos and small firms use their corporations as pass-through entities, allowing their business income to pass through to them so they can pay at the personal income tax rate. Unfortunately, that's not going to work so well anymore.

"The net business income of PSCs are subject to a flat 35 percent tax rate," writes Shannon Achimable for Above the Law. "That's quite the buzz-killer."


C-corporations, which pay separate taxes, may benefit companies and law firms under the new 21-percent flat tax. However, it could be a problem for attorneys who retain earnings in their corporations to reduce their individual taxes.

Under the new laws, the IRS will have the power to determine whether retained earnings are excessive. If so, then the amount will be subject to an additional 20 percent tax.

"So don't set up a separate C-corporation on a whim," Achimable advises. "The top 1 percent will save 2 percent at most. For remaining 99 percent, the tax savings is LOL percent."


Business-related entertainment expenses have taken their last bow, but you can still write off 50 percent of business meals.

So here's a tip for the small firm: plan your business meeting at the sports bar or at a big screen venue. And make sure that pay-per-view event comes with a meal.

Have an open position at your law firm? Post the job for free on Indeed, or search local candidate resumes.

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