199A phase-out planning
Law firms, accounting firms, consulting firms, and most professional services are SSTBs. The 20% QBI deduction fully phases out above the upper income thresholds, making income deferral and retirement plan contributions more valuable. For firm owners near the threshold, a well-timed retirement contribution can preserve a deduction the same dollars would otherwise erase.
Owner draws vs. guaranteed payments
Partnership structures use guaranteed payments (taxable as ordinary income) and regular distributions (capital account reductions). Mismatched compensation agreements create tax inefficiency across the partner group. The label on a payment changes self-employment tax, QBI math, and each partner's capital account, so the agreement should be written with the tax result in mind rather than patched at filing time.
Cash balance plans
High-income partners in small professional firms can contribute substantially to layered 401(k) + profit sharing + cash balance plans. The math often justifies the actuarial administration costs. Because contribution capacity climbs with age, these plans work especially well for senior partners within sight of transition, sheltering peak-earning years at the moment it matters most.
Cash vs accrual and unbilled work
Most professional firms under the gross-receipts threshold stay on the cash method, which keeps unbilled work-in-progress and accounts receivable out of taxable income until collected. Year-end billing decisions therefore move real tax dollars. Firms crossing the threshold need a managed method change rather than a surprise on next year's return.
Trust accounting for law firms
Client funds in a trust account are not firm income until earned, and the bar rules on IOLTA accounts leave no room for casual bookkeeping:
- Three-way reconciliation monthly: bank balance, trust ledger, and per-client ledgers
- Earned fees moved to operating promptly and recognized as income when moved
- Costs advanced for clients tracked as recoverable, not buried in expenses
Partner transitions and firm operations
Buy-ins, retirements, and lateral admissions each carry tax consequences for both the firm and the individual, from how the purchase price is characterized to how retiring-partner payments are treated. Day to day, Florida firms also budget for sales tax on the office lease and county tangible personal property tax on furnishings and equipment, two lines that out-of-state firms opening a Florida office rarely expect.
Common questions
- Is the QBI deduction really lost above the threshold for our firm?
- For SSTBs, yes, it fully phases out. Non-SSTB professionals (architects, engineers) keep the deduction with W-2 and UBIA limitations applied.
- Can our firm stay on the cash method?
- Most firms below the federal gross-receipts threshold can, and it's usually the right answer because unbilled work stays untaxed until collected. Firms growing past the threshold plan the method change in advance.
- How are partner buy-ins taxed?
- It depends on structure: buying a capital interest, receiving a profits interest, or purchasing from a retiring partner each produce different results for both sides. The characterization is negotiable before the deal and expensive to fix after.
- Who handles our trust account reconciliation, you or our bookkeeper?
- Either can, but someone must do it monthly and it has to be the three-way version the bar expects. We set up the ledgers and either maintain them or review your staff's reconciliation.
Related
Corporation & Partnership Tax Returns
Forms 1120, 1120-S, and 1065 preparation for corporations, S-corps, and partnerships, plus owner K-1s, shareholder basis tracking, and multi-state filings.
Business Tax Planning
S-corp reasonable salary analysis, entity elections, retirement plan structuring, and Section 179 and bonus depreciation planning for small business owners.
Small Business Payroll
Quarterly and annual payroll filings: Forms 940, 941, UCT-6, W-2, and 1099. We calculate, file, and make the tax deposits so owners can focus on growth.
More industries we serve
Tax & Accounting for Restaurants & Hospitality
Tip reporting, FICA tip credit, prime cost and food cost accounting, and Florida sales tax filing for restaurants, bars, and hotels from KG Tax & Consulting.
Tax & Accounting for Construction & Trades
Completed contract vs percentage of completion, 1099-NEC filing for subcontractors, Section 179 equipment depreciation, and worker classification reviews.
Tax & Accounting for Retail & E-commerce
Inventory accounting, multi-state sales tax nexus, Amazon 1099-K reporting, FBA state registration, and marketplace facilitator rules for online sellers.
Tax & Accounting for Medical Practices
S-corp and PLLC elections, Section 199A QBI phase-out planning, layered retirement plan design, and partner compensation structuring for medical practices.