Your billable hour is not your margin.

We keep the books in QuickBooks Online with a chart of accounts built around how you actually bill — by matter, by project, or by engagement — so billed revenue and direct costs line up with the way you quote work instead of arriving as one undifferentiated number.

Work in progress and unbilled time live in your practice management system, not in your accounting file, and we will not pretend otherwise. What we do is reconcile what that system says you billed and collected against the general ledger, so the two agree rather than drifting apart across the year. Where you want realization reported alongside the financials, we build it from your export rather than from an estimate.

Retainers and client advances are tracked as liabilities until earned, because they are not revenue when they land in the account. A firm that books them as revenue looks profitable in the month it gets paid and unprofitable in the months it does the work, which is the opposite of what happened.

In a partnership, a partner's distributive share and guaranteed payments under section 707(c) are treated differently for self-employment tax and for the qualified business income calculation, and the difference is real money.

In an S corporation, the shareholder-employee's wage has to be reasonable compensation for services actually rendered (IRS: S corporation compensation). Set it too low and you invite an examination; too high and you overpay payroll tax and can shrink the deduction. We model the split rather than guessing at it, and we document the basis for the number we land on. Capital accounts are maintained through the year, so K-1s reflect what actually happened rather than a year-end scramble to make the balance sheet agree.

Many firms are better off on the cash method for tax while running accrual internally to see true performance. Eligibility runs through the section 448(c) gross receipts test and the threshold is indexed annually, so we check it each year rather than assuming last year's answer still holds, and we handle the book-to-tax reconciliation so both sets of numbers are defensible.

Law is a specified service trade or business, so the qualified business income deduction phases down and then out once taxable income passes the threshold (IRS: Qualified business income deduction). Law is named in the rules, so the levers are income timing and entity structure rather than the classification itself — and both are decided during the year, not at filing.

Client money is the other thing that makes a law firm different. A retainer trust or an escrow is not your money and it does not belong in operating income. We reconcile trust and operating accounts separately and produce the three-way reconciliation your bar expects. Trust accounting rules are set by your state bar, not the federal code: we will follow the rules you are subject to, and we will tell you when a question needs your bar's ethics guidance rather than your accountant's.

You are the exception, and it is a valuable one. The regulations state plainly that services in the fields of architecture and engineering are not treated as consulting, so an architecture or engineering firm can qualify for the qualified business income deduction at income levels where a law firm next door cannot.

If you have been told you are phased out, that advice may have been wrong. It is worth checking against the returns already filed rather than only going forward, because the position on a filed return can sometimes still be revisited. Whether it can on your facts is exactly the kind of question to bring to a consultation.

Consulting is a specified service field, and so is any business whose principal asset is the reputation or skill of its owners or employees. That second limb is the one agencies miss: a firm that has never called itself a consultancy can still land inside the rules on that basis, and the answer depends on what you actually sell rather than on what is written on the door.

Project economics are the other half. Retainers earned over months, subcontractors and freelancers who need 1099s or a second look at their classification, and pass-through costs billed to clients that are not margin — each of those changes the picture your statements show, and each is a bookkeeping decision before it is a tax one.

This page is about whether we recognize your firm. The full list of specified service fields, the reputation-or-skill limb and the phase-out arithmetic sit in the regulations under section 199A, and the thresholds move with inflation — so we work your firm's position out in a planning engagement, against the year being filed, rather than restating numbers on a web page that will be wrong by next spring.