There are many parallels between the work in the legal field and that in the realm of accounting. In both cases, time becomes one of your most precious resources, used as the measure by which all business is conducted, and billed.
Rutwind Brar understands the importance of efficient function and ensuring that our legal clients are able to allocate as many hours as possible to client service, while we tend to the financial administration.
When Is It Time To Incorporate?
Typically, the first opportunity for a lawyer to take advantage of structuring as a corporation is when they become an associate or principal in the firm and are elevated from the company payroll to a new income tier. With a significant increase in income, this is where you will want to ensure that you are fully familiar with the advantages of incorporating.
Four Benefits of Incorporation
Here are some reasons why you might want to consider incorporating as you advance in your legal career:
- There are tax advantages to altering your corporate fiscal year to a different schedule than a calendar year. We can show you how to take advantage of those opportunities.
- Once you have incorporated as an individual, you can now invoice your law firm for serviced rendered. In some jurisdictions, these invoices are exempt from sales tax, so there is no cost to you to set up an accounts receivable structure in this manner. As a corporation, you are not viewed under the law as a partner or an employee of any other entity. This means that your income is not subject to a limitation on the amount of low-rate tax you will pay per year. Even on an income of $500,000, you can still be taxed at 13.5%.
- Should a lawyer, practicing as a corporation, be made partner under the umbrella of the corporation, entitlement to the low-rate of tax is pro-rated, based on your individual percentage share of $500,000. In the case of a partner in a large firm, only a small sum of the lawyer’s income would be eligible at a low-rate based on the number of partners that are in the firm.
- You may, in some cases, modify your relationship with the firm as a partner. If you do so properly, you can secure unrestricted access to a low tax rate. If you’re interested to explore this, Rutwind Brar can help to identify the advantages, disadvantages as well as the financial implications of any decision you have in mind.
Management Fee Strategies
In some cases, lawyers have found solutions that create tax savings without the need for incorporation. Entering into relationships such as a limited partnership can create an indirect income stream that can address household expenses, even though the income doesn’t come to the individual directly. We can advise you on the best strategy based on your income and financial portfolio, often at a considerably lower cost than incorporation.
How to Plan Based on Contingency Arrangements
While potentially lucrative, lawyers who run litigation practices based on contingency fees can also carry significant risk and may experience financial issues while their case is awaiting trial or is in progress. Rutwind Brar can help bridge the relationship with lenders to create a greater comfort level that supports financing when required. In particular, we can assist with the valuation of “work in progress” in the case of contingent files. We can ensure an effective assessment to best help you when talking to lenders.
Managing Incoming and Outgoing Cash Flow
We can appreciate that the schedule of outgoing disbursements for payroll and office costs are distributed on a fixed schedule while client fees may observe a varied payment schedule. We can help with advice on how to best manage the disparity of these opposing schedules and offer strategies for credit management, review processes for all accounts on a regular basis as well as processes for receivables and (when needed) collections.
Human Resource Management
While your firm may have a department in place that deals with the human resource issues associated with personnel recruitment, management and departures, it is also important that your legal and accounting documentation is occurring in step with those processes. As a new partner is confirmed, addressing that change legally is important, as is when they leave the firm or retire. We can help to ensure that documentation keeps pace with the changes in your organization which affect partnership and payroll.
Rutwind Brar LLP have been our chartered accountants for more than 20 years, representing me, my family and the various iterations of my law firm. Over that period, Rutwind Brar has consistently rendered professional accounting services to the highest standard of competence and professionalism. We have no doubt that Rutwind Brar's innovative and comprehensive “outside-the-box” thinking and advice to our firm and its partners over the years has been a major reason for our continuing success.