Often, lawyers have little time to think about much else besides work.
Time flies by quickly, and it may come as a surprise that the end of the year is swiftly approaching. Aside from preparing for the holidays, there’s another important deadline to be aware of: tax season. While April 15th is still a few months away, there are many things lawyers can do before the end of the year to get ready for tax season and possibly lower their 2019 taxes. Although we can’t promise these tips will be as exciting as December festivities, if done correctly they may bring you a similarly joyful result.
Defer your Income
Depending on where you are in your legal career and the policies of your firm, it may be possible to defer additional income, such as bonuses, until January. If you work as a contract lawyer or are engaged in freelance legal consulting, deferring billing until late December so that you’re paid in January 2020 is another option. Doing so may help you lower your taxable income for 2019 and ultimately lower the amount of taxes you’ll pay in April.
Tax Deductions and Credits
Deductions and credits are a great way to minimize your tax burden, especially if you itemize your deductions. Itemizing your deductions is more time consuming than claiming standard deductions, and lawyers of all people have the least time to waste. However, if you begin organizing your documents and receipts now, you’ll find yourself ahead of the game on April 15th and you’ll ultimately save yourself both time and money. In the meantime, there are still numerous ways you can claim deductions and credits before the end of the year; you may be surprised by the types of tax deductions you qualify for, including:
- Mortgage interest, property taxes, state and local income taxes
- Law school expenses
- Tuition for courses
- Student loan interest
- Subscriptions to magazines or publications related to your work
- Charitable donations, especially if appreciated stock or property rather than cash
- Selling stocks at a loss to offset capital gains
In the case of charitable donations, it’s important to verify that the organization you donate to is tax exempt. If you choose to donate clothes, furniture, or other items, you’ll need to have an estimate of their current value determined either by a thrift store or an appraiser. Don’t forget to keep receipts for every contribution you make, no matter how small. You may also want to defer your deductions or tax credits if possible, particularly if you anticipate receiving a larger income in 2020 and entering a higher tax bracket. First-years who have transitioned from law students to working professionals in 2019 should consider if they’re eligible to forward deductions and credits, as doing so will likely help you save more when your income increases. Regardless of your situation, now is a good time to get a sense of what deductions or credits you may qualify for and take advantage of last-minute opportunities.
Contribute to a Tax-Deferred Retirement Account
Contributing to a 401(k), an IRA, or any tax-deferred retirement account is one of the best ways to reduce your tax burden while increasing your future savings. In many cases, firms will match your contributions. The maximum contribution you can make to a 401(k) for the 2019 tax year is $19,000 for individuals; $25,000 for those over the age of 50. Contributing to an IRA is also beneficial; however, you may face certain restrictions or disqualify for tax-exemptions if your income is above a certain threshold. Depending on your income level, contribution to either a Roth IRA or a traditional IRA may prove more beneficial.
Consult a Professional
Now for a big understatement: Taxes are complicated. It’s always best to consult a professional who can help you optimize your taxes according to your specific income level, location, and personal circumstances. A financial professional can help you understand the best way to take advantage of tax deductions and credits, as well as advise you on optimizing your retirement accounts while taking up the least amount of your time. In some cases, you may even be able to deduct their fees!