Partnership income, contingency-fee timing, entity design for a solo practice, and retirement plans built for a law firm's cash flow.
A lawyer’s income arrives in one of two shapes, and both are taxed badly by default. Partners receive allocations and guaranteed payments with self-employment tax on the whole amount and a retirement plan designed around the firm’s youngest associate. Solo practitioners and contingency-fee litigators see income land in lumps, sometimes years apart, with nothing done to smooth it.
Planning starts with the shape. For partners it is the mix of guaranteed payments and profit share, the firm’s plan design and what can be added on top of it, and whether the qualified business income deduction survives the specified-service phase-out at your level. For solo and small-firm owners it is the entity election, reasonable compensation, a defined benefit plan sized to the practice, and case-by-case timing for contingency fees, including structured settlements where they fit.
We review three years of returns and the partnership or practice agreements, model each lever in your bracket, and write the plan with the documentation the Service expects from a professional service firm.
What we typically see: Self-employment tax on every dollar of partnership income. A firm 401(k) treated as the ceiling. A seven-figure contingency fee landing in one year. An LLC that was never told what to elect.
Each one is modeled against your numbers and written into the blueprint with the documentation it needs.
Every partner distribution had self-employment tax on it and nobody had asked whether it should. The compensation model changed the answer.
Within limits. Guaranteed payments and allocations are treated differently, the firm's structure matters, and the answer depends on state professional-entity rules. It is modeled, not assumed.
Law is a specified service trade, so the deduction phases out above the income thresholds. Structure and income sourcing sometimes preserve part of it below the top of the range.
Ideally before the case settles. Structured attorney fees, the timing of the settlement and the retirement plan contribution it funds are planned together.
Often, once net income clears the point where the payroll cost is smaller than the self-employment tax saved. The model shows the crossover for your numbers.
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