Law Firm Tax Prep: 6 Things to Gather Before Your CPA Asks

Law Firm Tax Prep: 6 Things to Gather Before Your CPA Asks

Law firm tax prep slows down for one reason: the records show up in pieces, and each piece triggers another question. Your CPA asks for a bank reconciliation, then for contractor details, then for the loan statement, and a two-week job becomes six.

The six items below are what to have in hand before the first request arrives. They are a checklist, not a ranking.

Legal Ease, a Fort Worth bookkeeping firm that specializes in law firms, is the one firm written up here. Legal Ease is a vetted Sam's List member and a paying member of our featured program; payment does not buy the language we use or its reviews. The full method is in how we picked this firm at the end.

1. Reconciled Operating Books for Law Firm Year-End Bookkeeping

Start with books that tie to the bank. Every operating account and credit card should be reconciled through the last day of the year, with no old uncleared items and no uncategorized transactions left in a catch-all account. This is the core of law firm year-end bookkeeping, and everything else rests on it.

Trust accounts are separate. Reconcile each one on its own, and keep trust money out of the firm's income. Client funds held in trust are generally not firm revenue until they are earned and moved to operating, so your CPA should not see trust deposits in the income total.

Hand over the trust reconciliation as a separate document so no one confuses the two.

The limitation: clean books make the return easier to prepare but do not make it correct. A reconciled account can still hold a miscategorized expense.

2. A Summary of Partner and Owner Pay Records

How you are paid depends on how the firm is organized, and your CPA needs the year's total in the right form. Generally, a sole proprietor and a partner or LLC member taxed as a partnership take draws and sometimes guaranteed payments, while an S corporation owner who works in the firm is paid wages through payroll.

Pull together a one-page summary: every draw, distribution, guaranteed payment or paycheck, by date and by owner. Include any personal expenses paid from the firm's account and any estimated tax payments made from it. Partner and owner pay records are where books and returns most often disagree.

The limitation: the treatment of each payment depends on your entity type and the tax year. This summary lets your CPA decide; it does not decide for you.

3. 1099s for Contract Attorneys and Vendor Data

Firms that pay contract attorneys, experts or other vendors may need to report those payments on Forms 1099. To prepare 1099s for contract attorneys, you need each person's legal name, address, taxpayer identification number and total paid for the year, which is why a Form W-9 should be collected before the first payment.

List who was paid, how much and from which account. Include payments made by card or through a payment platform and ask your bookkeeper whether those are reported by someone else, since the rules on who files can differ.

Do not rely on a remembered filing threshold. Check the current IRS figures and instructions for the tax year, because thresholds and forms change.

The limitation: whether a payee gets a 1099 depends on the type of payment and who the payee is. Your CPA makes the final call.

4. Payroll Reports Matched to W-2s for Law Firm Tax Prep

If the firm has employees, the payroll records have to agree with each other. Gather the year-end payroll summary, the quarterly federal payroll returns and the state returns, plus proof the deposits were made. The totals should match the wages shown on the W-2s you are about to issue.

Compare the payroll register to your books. Wages, employer payroll taxes and withholding liabilities in the ledger should tie to the reports. A gap usually means an entry was missed or entered twice, and January is a cheaper time to find it than April.

The limitation: matching totals shows the reports are consistent. It does not show that the right people were treated as employees. That is a separate question for your tax preparer.

5. Fixed Asset Purchases and Loan Statements

Collect receipts or invoices for equipment, furniture, computers, software or build-out purchased during the year, with the date and the price. Your CPA decides how each is treated for tax, including whether it is deducted now or spread over several years, so give the full list rather than only the large items.

For loans and lines of credit, gather the year-end statement showing the balance and the interest paid. Separate the interest from the principal, since only one of them is generally an expense. If a loan was used for both firm and personal purposes, say so.

The limitation: tax treatment of assets and interest depends on current rules and your facts. A complete list lets your CPA apply the rules; it does not guarantee a deduction.

6. A Dated Law Firm Tax Prep Package and One Named Sender

The last item is about how it all arrives. Put the items above in one folder or one email thread, with a short cover note listing what is in it, the date it was assembled and anything you are unsure about. A dated package lets everyone know which version is current.

Name one person who sends it and who answers follow-up questions. When three people send documents separately, versions collide, and the CPA ends up asking which one is right.

The limitation: a tidy package speeds up preparation but cannot fix a late start. If the books are behind, tell your CPA early rather than sending a partial set without a note.

Where Legal Ease Fits

Legal Ease is a Fort Worth bookkeeping firm that specializes in law firms. It was founded in 2016, has 12 employees and serves clients nationwide. Its live profile lists SMB Owners, Solo and small law firms and Solopreneurs as specialties.

Legal Ease has 9 verified client reviews on Sam's List. Each review is submitted by an individual who identifies as a client of the firm and rates it on communication, subject-matter knowledge, and overall satisfaction. Reviews reflect those individual experiences and do not represent an endorsement by Sam's List. Legal Ease is a paying member of our featured program, and payment does not buy its reviews. Ratings and rankings are not indicative of future performance or results.

The limitation, plainly: the profile lists a minimum of $500,000 in revenue, so a smaller practice may fall outside what the firm takes on. It also does not describe tax preparation support, 1099 preparation or year-end packages as services, so ask whether the firm assembles records for your CPA and what it would hand over.

Frequently Asked Questions

What should a law firm give its CPA for tax prep?

Reconciled operating books, a separate trust reconciliation, a summary of owner pay, contractor and vendor payment data, payroll reports, fixed asset and loan records, all in one dated package. Your CPA may ask for more depending on your entity type and state.

Does trust account money count as law firm income?

Generally no. Client funds held in trust belong to clients until they are earned and moved to the operating account. Keep trust accounts reconciled separately and out of the firm's income. Ask your CPA how earned fees are reported.

Do I need 1099s for contract attorneys?

Possibly. Firms that pay contract attorneys or other vendors may need to file Forms 1099, depending on the payee and the type of payment. Collect a W-9 up front and check the current IRS instructions for the filing threshold.

When should law firm year-end bookkeeping start?

Before the year ends. Reconcile accounts monthly, collect W-9s as contractors start and review owner pay in the fall. Waiting until the CPA asks turns routine tasks into a scramble.

Before your CPA's first request, write down who sends the package and by what date. You can browse bookkeepers on Sam's List, including Legal Ease, and ask each one what it hands over at year end.

How We Picked This Firm

You should be able to check our work, so here is how this post was built.

The pool. The pool is the vetted Sam's List members in our featured program with live public profiles that describe law firm bookkeeping. This is not a survey of every bookkeeper that works with law firms, and many Sam's List members and other firms not written up here could fit.

How it is organized. The six items are things to gather, not a ranking. Legal Ease is the only firm written up, so there is no order of firms.

What review counts mean here. We cite Legal Ease's verified review count and its date from its profile. A count shows how many clients wrote something down. It does not measure technical quality.

What payment does and does not buy. Listing on Sam's List is free, and so is being named in this article. The firm written up here is a paying member of our featured program, which is why it gets a write-up. What payment does not buy is the language we use about a firm, its review count, or a promise that it fits you.

---

About the author: Kimberly Green is the cofounder of Sam's List, where business owners and high earners find vetted CPAs, financial advisors, and fractional CFOs. She's met one-on-one with 400+ financial professionals and writes from the real data behind thousands of client-advisor matches. Ask her anything about finding an accountant - she's heard it all, including the questions people are afraid to ask.