Page 30 - Pierce County Lawyer - March April 2025

TAX TIPS FOR
SOLO PRACTITIONERS
By David Shelvey
It's that time of year when solo practicing attorneys must
assemble our client's paid invoices (income) and receipts
for expenses needed to operate our law practice to either
file our taxes for ourselves or hire a tax preparer to file our
return. I’ve put together some tips that might help you along
the way to "Return accepted" and to avoid receiving a dreaded
IRS letter, "We have disallowed an expense and adjusted your
return." By the way, you now owe.
It goes without saying that everything you report on your tax
return is on the honor system. If the IRS concludes you have
not been honest on your tax return or signed under perjury,
both the IRS and the WSBA may seek further clarification.
ONE OF THE FIRST THINGS I HIGHLY RECOMMEND
YOU DO IS GO ON THE IRS WEBSITE AND SIGN UP
FOR AN ID.ME ACCOUNT. This verifies your identity, and
you can log on to the IRS website and review your account.
You can use the ID.ME account to pay your tax bill, check on
a refund, and see other account details. I also recommend you
obtain a free identity protection PIN to prevent a thief filing a
fraudulent return with your name. The IRS website has more
information about this.
If you are filing a 'Schedule C (Form 1040), Profit or Loss from
Business (Sole Proprietorship)', this year it is due Tuesday,
April 15, 2025. You can file for an extension, 'Form 4868,
Application for Automatic Extension of Time To File U.S.
Individual Income Tax Return'. That form needs to be filed by
April 15, 2025, and gets you until October 15 to file your tax
return. You need to estimate how much tax you owe for the
year on the extension form and then subtract the quarterly
taxes you already paid for the filing year. If you do not send any
money with the extension, and you owe the IRS, you may be
subject to an under-payment penalty because your extension to
file is not an extension on the late payment penalty and interest
on the balance owing on April15th.
SOME SCHEDULE C THOUGHTS...
On 1040 Schedule C, Line A, enter Lawyer and for Line B it
asks your Principal Business or Professional Activity Code
which is: 541100 Legal services. 541100 encompasses a broad
range of professional services provided by lawyers, attorneys,
3 0 P I E R C E C O U N T Y L A W Y E R | M a r c h /A p r i l 2 0 2 5
and related legal professionals. Line D asks for your Employer
Identification Number. This is a free IRS number, and I highly
recommend you get an EIN, rather than use your personal
Social Security number. I also recommend you get a separate
business bank account that is linked to your IOLTA and not
your personal account. Line G asks, ‘Did you “materially
participate’ in the operation of this business during 2024?" The
answer is "yes," unless you took the year off from practicing.
In Part 1, Line 4, asks for the cost of goods sold. Lawyers
offer legal services, and not tangible goods. If you purchase a
transcript or CD of a hearing, and mark the price up to your
client, make sure you collect sales tax. If the Washington
Department of Revenue audits you and notices you're marking
up goods like transcripts, CDs, working copies, etc., they will
expect you to collect sales tax. To correct this, charge the client
your cost and add any reasonable shipping and handling fees.
Regarding Line 5, Gross Profit, if after a certain amount of
years you continually report a net loss, the IRS may write you a
letter pointing out that you are operating as a hobby and limit
your expenses to be no more than your income. While the IRS
has "form over substance," the WSBA has the standard of "the
appearance of " what is professional conduct, and what is not.
For example, the Bar isn't concerned if you make a profit. If
they were, no pro bono.
To claim your home as an office expense to get the tax
deduction, your home needs to truly be your primary place
of business. Additionally, a portion of your home needs to be
exclusively and regularly used for business. That means if you
work from home only occasionally and work elsewhere, that
likely doesn’t count. If you have been renting an office, you
cannot double dip (claim home office expense and office rental
expense).
THE MAIN THING TO KEEP IN MIND IS THAT THE
IRS ASKS ONE QUESTION FOR MOST EXPENSES,
"IS IT ORDINARY OR NECESSARY?" Is it something
that is expected and allowable? An example is work-related
education expenses like legal education costs including CLE
fees, lawyer books, training materials, education costs, car
rental, traveling costs for attending a CLE in this state, or
in a different state, country, or attendance at a conference.