Every December we get some version of the same call. An attorney has just had a strong year, the CPA has run a projection, and the number is ugly. “What can we do?”
By then, the answer is usually: not much. Most of the moves that actually lower a law firm owner’s tax bill have to be done, funded or placed in service by December 31. That’s eight weeks from today. Start this week and you have options. Start on December 20 and you have a scramble.
Here are Five things to put on your CPA’s agenda now. None of them is exotic. All of them work better with some lead time.
1. Look at December collections before you push them
Most small firms report on a cash basis, so income counts when you receive it. That makes December collections a real lever, with a catch. In its November 2 year-end guide for cash-basis law firms, the experts remind firms to weigh the “constructive receipt” rules. If money is made available to you, you generally can’t push it into next year just by leaving the check in a drawer. And funds sitting in trust or IOLTA aren’t yours until they’re earned and moved.
The practical step: have your bookkeeper pull an accounts receivable aging report this week. If you’re a PI firm expecting a large fee to disburse in late December, ask your CPA which year it falls in under the rules, and model both. A $300,000 fee landing on December 29 instead of January 3 changes the rest of your plan. You can only plan around it if you know it’s coming.
2. Pull forward expenses you’d pay anyway
Same logic in reverse: on a cash basis, an expense generally counts when you pay it. Our team’s tax expert lists insurance, software, professional fees, recruiting and marketing as common candidates, and notes that many prepaid expenses may qualify under the “12-month rule.”
The important word is anyway. Spending $20,000 on marketing you don’t need, to save maybe $7,000 in tax, still leaves you $13,000 poorer. Prepay the annual practice-management renewal you’re definitely keeping. Don’t buy a second one.
3. Equipment counts when it’s in service, not when it’s ordered
If you’re replacing laptops, phones or furniture, Section 179 and bonus depreciation may let you deduct much of the cost this year. But as the experts advise, property “generally must be placed in service, not merely ordered or paid for.” A new server still in its box in the supply closet on December 31 doesn’t count. With holiday shipping, that means ordering in November.
4. Max out the retirement plan, and know your real deadlines
For most profitable firm owners, this is the biggest lever. For 2026, the 401(k) employee deferral limit is $24,500, with an $8,000 catch-up at age 50 (or $11,250 at ages 60 to 63). Total contributions per person, employee plus employer, can reach $72,000 before catch-up.
Here’s what that can look like. Say you’re 52, your firm is an S corporation, and you pay yourself $250,000 in W-2 wages. You defer $24,500 plus the $8,000 catch-up. The firm adds a $47,500 profit-sharing contribution, which is under the 25%-of-pay cap on employer contributions. That’s $80,000 that isn’t taxed as income this year. If you’re in the 35% federal bracket, that’s roughly $28,000 of federal tax deferred. (Your staff’s contributions matter here too. Your plan’s rules decide what the firm owes them.)
Two timing details to watch:
Salary deferrals generally have to run through payroll. If you’ve under-deferred this year, tell your payroll provider now. Three paychecks is enough runway; one isn’t.
The Roth catch-up rule is new this year. Starting in 2026, if your prior-year wages were over $150,000, your catch-up contributions generally have to go in as Roth, which means after-tax. Make sure your payroll setup reflects that.
Looking ahead, Milliman and Marsh project the 2027 limits at $25,500 for deferrals and $75,000 total, according to 401(k) Specialist. As of late October, the IRS hadn’t confirmed them.
If you’re already maxing out a 401(k) and still writing big tax checks, a cash balance plan can allow much larger deductible contributions. Our Cash Balance Plan guide on the Insights blog walks through how they work. Setting one up takes an actuary and some lead time, so don’t leave this conversation for the week before Christmas.
5. Make a fresh decision on PTET
If your firm is a partnership or S corp in a state with a pass-through entity tax (PTET), paying state income tax at the firm level can work around the cap on deducting state and local taxes (SALT) on your personal return. The One Big Beautiful Bill Act raised that cap to $40,400 for 2026, but it phases down for higher earners. For many successful firm owners, that means the personal deduction shrinks back toward the old $10,000 floor, so the PTET often still matters.
We believe it’s best to re-evaluate the election every year rather than “automatically following the prior-year approach.” Payments generally have to be made by December 31 to support a deduction this year.
Your real deadline is earlier than you think
CPAs, payroll providers and retirement plan administrators get buried in December. Book your year-end projection meeting this month, and bring five things: your year-to-date P&L, your AR aging report, a list of large fees you expect, year-to-date payroll, and your retirement plan documents. An hour now beats a stressful phone call in April - and it will pay off BIGTIME
This article is general information, not individualized tax advice. Work with your CPA on decisions for your own situation.
Want a second set of eyes on your year-end plan - from a Law Firm Tax Expert? Book a strategy call with The Lawyer Millionaire team.