TAX
Tax Strategies Every Solo Lawyer and Small Firm Should Know
Running a solo practice or small firm means wearing multiple hats and managing taxes effectively is one of them. With a bit of strategic planning, you can significantly reduce your tax burden while staying compliant. Here are key tax strategies every small legal practice should consider:
1. Choose the Right Business Structure
Operating as a professional corporation or an LLC can provide tax advantages over a sole proprietorship. Corporations, for instance, may allow you to retain earnings at a lower tax rate and take advantage of small business deductions.
2. Track Every Deductible Expense
From office rent and legal software to continuing education and marketing, keep detailed records. Don’t forget home office deductions if you work from home, and track mileage for client meetings.
3. Use Retirement Plans to Reduce Taxable Income
Solo 401(k)s, SEP IRAs, or defined benefit plans allow you to defer taxes while saving for retirement. Contributions are often tax-deductible and can significantly reduce your taxable income.
4. Hire Smart—Even Family Can Help
Hiring family members can be a legitimate way to shift income to lower tax brackets, and their wages are a deductible expense. Just ensure that roles and compensation are reasonable and well-documented.
5. Work with a Tax Pro Familiar with Legal Practices
A tax advisor who understands law firm finances can help you optimize your structure, identify missed deductions, and plan ahead for tax season—saving you time and money.
Final Thought
Taxes shouldn’t be an afterthought. Strategic planning now can free up cash flow, keep you compliant, and support your firm’s long-term growth.
Social Media Marketing for Lawyers: What Works and What Doesn’t
In today’s digital-first world, lawyers can no longer ignore the power of social media. But with so many platforms and strategies, it’s easy to waste time on what doesn’t work. Here’s a quick breakdown of what’s effective and what to avoid.
✅ What Works
1. Educational Content
Law is complex. Break it down. Sharing bite-sized legal tips, FAQs, or myth-busting posts can establish you as a trusted authority. Think: “What to do if you’re in a car accident” or “Top 3 things to include in your will.”
2. Client Testimonials & Case Studies
(With permission) Share client success stories or anonymized case wins. This builds credibility and humanizes your practice.
3. Consistent Branding
Use a professional photo, your logo, and a cohesive tone. Whether you’re on LinkedIn, Instagram, or Facebook, make sure your branding aligns across all channels.
4. Engagement > Promotion
Respond to comments. Join local discussions. Ask questions. Social media is about being social—not just selling your services.
❌ What Doesn’t Work
1. Legal Jargon Overload
Avoid sounding like a textbook. Most of your audience isn’t made up of lawyers. Keep it simple and relatable.
2. Infrequent Posting
If you post once every few months, people forget you. Use a content calendar to stay consistent—even if it’s just once a week.
3. Ignoring the Platform’s Strengths
LinkedIn is great for thought leadership. Instagram thrives on visuals. Facebook favors community-based content. Don’t post the same thing everywhere without adapting it.
4. Talking at People, Not to Them
Too much self-promotion feels cold. Instead of “We’re the best at X,” try “Here’s how we helped someone in your situation.”
Final Thought
Social media doesn’t have to be a full-time job. A clear strategy and a human touch it can be a powerful tool to grow your legal practice ethically and effectively.
Tax Strategies Every Solo Lawyer and Small Firm Should Know
For solo lawyers and small law firms, tax planning isn’t just about compliance—it’s about maximizing profits and minimizing liabilities. Here are key tax strategies that can help you keep more of what you earn while staying on the right side of the law.
1. Choose the Right Business Structure
Your business entity impacts how much you pay in taxes. Many solo lawyers operate as sole proprietors, but forming a Professional Corporation (PC), Limited Liability Company (LLC), or an S-Corporation can provide tax advantages. For instance, S-Corps allow you to split income between salary and dividends, potentially reducing self-employment taxes.
2. Maximize Deductions
Ensure you claim all eligible business expenses, including:
- Home office deduction (if you have a dedicated workspace at home)
- Legal research and software subscriptions
- Marketing and advertising costs
- Professional development and bar association fees
- Office rent and utilities
3. Leverage Retirement Contributions
Contributing to a Solo 401(k) or SEP-IRA not only helps you save for retirement but also provides significant tax deductions. These plans allow you to contribute as both an employer and employee, maximizing your savings.
4. Plan for Quarterly Taxes
Avoid penalties by staying ahead of your estimated quarterly tax payments. Solo practitioners often underestimate their tax obligations, leading to unnecessary fines. Work with an accountant to project your tax liability and set aside funds accordingly.
5. Take Advantage of Tax Credits
Tax credits reduce your tax bill dollar-for-dollar. Look for credits such as the Self-Employed Health Insurance Deduction or Work Opportunity Tax Credit (WOTC) if you hire employees.
6. Keep Impeccable Records
Good record-keeping is essential for claiming deductions and surviving an audit. Use accounting software like QuickBooks or Xero to track expenses, invoices, and receipts efficiently.
7. Consult a Tax Professional
Tax laws change frequently, and an experienced tax professional can help you optimize your strategy, ensuring you benefit from the latest legal deductions and credits.
By implementing these strategies, solo lawyers and small firms can reduce tax burdens and focus on growing their practice. What tax strategies have worked best for you? Share your insights in the comments! #TaxTips #LawFirmSuccess #SoloLawyer
Billing Best Practices: How to Get Paid on Time
In the fast-paced business world, timely payments are crucial to maintaining healthy cash flow. For service-based industries and businesses that rely on regular billing, establishing effective billing practices is essential. Below are some billing best practices to ensure that you get paid on time, helping to streamline your financial processes and reduce stress.
1. Set Clear Payment Terms from the Start
When entering into a new business relationship, setting clear and transparent payment terms is key. Outline when payment is due, the accepted payment methods, and any late fees or penalties. Whether it’s Net 30, Net 60, or another arrangement, make sure both parties are on the same page from the get-go. Having a written agreement that covers all payment details helps avoid misunderstandings later.
2. Invoice Promptly
Don’t wait too long to send invoices. The sooner you send them, the sooner you can expect payment. Aim to send invoices immediately after providing your service or delivering goods. This will also help maintain a steady cash flow and ensure that you don’t forget any details about the project. Use invoicing software to speed up this process, which also allows you to track sent invoices.
3. Make Invoices Clear and Easy to Read
A complicated invoice can confuse your clients and delay payment. Be sure to provide a detailed breakdown of the services rendered or products sold, along with pricing, taxes, and the total due. Include your payment terms and due date, and provide your payment details clearly. The simpler and more professional your invoices, the less likely there will be delays in payment.
4. Leverage Technology
Automating invoicing through cloud-based software can save you time and reduce the risk of errors. Many tools allow you to set up recurring billing, automate payment reminders, and even send overdue notices. Some platforms also integrate with payment gateways to make it easier for clients to pay online, speeding up the entire process.
5. Offer Multiple Payment Options
Providing your clients with several payment options can improve your chances of receiving payments on time. Whether it’s credit card payments, bank transfers, PayPal, or even ACH payments, make it as easy as possible for them to settle their invoices. The more convenient you make the payment process, the quicker you’ll get paid.
6. Follow Up on Overdue Invoices
Sometimes, clients may forget or delay payments, so it’s crucial to have a system in place to follow up on overdue invoices. A friendly but firm reminder a few days after the due date can prompt them to make the payment. Be consistent in your follow-ups but remain professional and respectful in your communication.
7. Offer Early Payment Discounts
Incentivizing your clients to pay earlier than the due date can be a powerful motivator. Offering a small discount, such as 2% off the total if paid within 10 days, can encourage early payment and improve your cash flow. This is a win-win for both parties: you get paid quicker, and the client gets a discount.
8. Implement Late Fees
Including late fees for overdue payments is one of the most effective ways to motivate clients to pay on time. Make sure your clients are aware of this policy from the beginning, and apply it consistently. Late fees should be clearly stated in your contract and invoices, but avoid being overly punitive.
9. Build Relationships with Clients
Having a strong, positive relationship with your clients increases the likelihood of them prioritizing your invoices. Open, honest, and professional communication fosters trust and can prevent payment delays. If there is an issue with payment, a conversation can help resolve it before it becomes a major problem.
10. Know When to Outsource Collections
If your invoices remain unpaid despite your efforts, it may be time to consider outsourcing collections. Working with a collections agency or legal professional can help recover overdue payments while keeping your relationship with the client intact.
The Advantages of Incorporating your Professional Practice
Since November 1st, 2001, professionals have been entitled to incorporating their practice under the Business Corporations Act as provincial governments changed their incorporation laws to include professionals [1]. Incorporating a professional practice is a pivotal step forward in securing financial advantages. Whether it be through tax deferrals, individual pension plans, health and welfare trusts, the lifetime capital gains exemption, and/or limited shareholder liability, incorporating enables professionals to benefit from potential advantages that would not be available if they operated under sole proprietorship.
Tax Deferral
Tax legislation makes a corporation a separate taxpayer and its own legal entity [1]. Deferring taxes may single handedly be the most beneficial aspect of incorporating your legal practice. The income earned within a corporation is taxed at two separate levels: at the corporate level and then again at the personal level when the income gets distributed [2]. Once you incorporate, tax rates for the corporation become significantly lower than personal tax rates. There is flexibility that lies in deferring personal taxation as corporate surplus inside the corporation. This can defer one’s personal income taxes and although these tax-deferred funds will be withdrawn at some point in time, it is clear that the compounding effect can be very beneficial over long periods of time [3].
Income earned from operating your professional practice within a corporation is taxed at a lower corporate tax rate than the income you may earn under sole proprietorship. Sole proprietors are taxed at an individual marginal tax rate, for which the highest marginal tax rate for individuals in some provinces and territories was higher than 50% for 2018 [4]. The marginal income tax rate will increase for an individual as income increases. On the contrary, professional income earned within a corporation is subject to being taxed at a lower corporate tax rate. In 2018, this rate ranged from 26.5% – 31%, which is significantly lower than the former figure [5]. Lower corporate tax rates for active business income leaves professionals with more after tax income within the corporation to invest at their discretion.
Furthermore, corporations that are legally defined as a Canadian controlled private corporation (CCPC), can benefit from the federal small business deduction. This benefit lowers the tax rate even further on the first $500,000 of active business income [4]. This figure is known as the ‘business limit’ and it varies by province/territory. The small business deduction rate also varies by province and territory, and the combined federal and provincial tax on income subject to the small business rate ranged from 12% to 22% in 2018 [5]. That is definitely not bad a tax rate that would otherwise be 38%, which is what the corporate would have to pay according to Part I of the Income Tax Act [2].
| Small Business Deduction Limits/Rates (2019) | Small Business Limit | Rate % | Combined Fed/Prov. Rate% |
| Federal | $500,000 | 9.00 | |
| Provincial: | |||
| Alberta | $500,000 | 3.00 | 12.00 |
| British Columbia | $500,000 | 2.00 | 11.00 |
| Manitoba | $425,000 | 0.00 | 9.00 |
| New Brunswick | $500,000 | 2.50 | 11.50 |
| Newfoundland and Labrador | $500,000 | 3.00 | 12.00 |
| Northwest Territories | $500,000 | 4.00 | 13.00 |
| Nova Scotia | $350,000 | 3.00 | 12.00 |
| Nunavut | $500,000 | 4.00 | 13.00 |
| Ontario | $500,000 | 3.50 | 12.50 |
| Prince Edward Island | $500,000 | 3.50 | 12.50 |
| Quebec | $500,000 | ||
| Without MPP* | 8.00 | 17.00 | |
| MPP* | 4.00 | 13.00 | |
| Saskatchewan | $500,000 | 2.00 | 11.00 |
| Yukon | $500,000 | ||
| Without MPP* | 2.00 | 11.00 | |
| MPP* | 1.50 | 10.50 |
*Manufacturing and Processing Profits Tax Credit
IPP’s
An individual pension plan (IPP) is specifically designed for an incorporated professional and/or business owner of an incorporated company, age 40 or over [1]. With that said, it is not to say that someone under 40 cannot contribute to an IPP. An IPP is funded by corporate assets with the intention of providing post-career income to the contributor. IPP investments grow on a tax-deferred basis and usually provide higher contributions than those permitted by Registered Retirement Savings Plans (RRSP’s) [1]. Additionally, fees incurred from setting up and administering an IPP are tax deductible by the employer [1].
Health and Welfare Trusts
A health and welfare plan is a corporate arrangement set up by the employer and can provide employees compensation for medical and/or dental expenses. Coverage extends from the incorporated professionals to those employed by the corporation. This plan can provide coverage for medical expenses incurred outside of provincial or insurance plans. This tax-free benefit can make medical and dental expenses tax deductible for the corporation [5].
Lifetime Capital Gains Exemption
Each Canadian was entitled to a capital gains exemption of up to $848,252 in 2018 and this figure is indexed annually [4]. The Lifetime Capital Gains Exemption (LCGE) enables shareholders to reap the benefits of significant tax breaks on capital gained through the sale of private company shares. This is solely applicable to qualified small business corporation sales but is a benefit every Canadian is entitled to. Family members who own shares of a single professional corporation can multiply the LCGE available upon the sale of the qualified small business corporation, resulting in significant tax savings [3].
Limited Shareholder Liability
Incorporating your professional practice limits the liability of the corporation’s shareholders. Unless a shareholder has provided a personal guarantee, they are not subject to responsibility for the corporation’s liabilities. Nonetheless, a professional corporation does not protect individuals from personal liability for negligence [5].
Closing Remarks
Incorporating your professional practice provides endless potential for possible tax breaks, retirement savings, health benefits, minimizing capital gains on the disposition of private company shares, and protection from potential legal liabilities. With that said, professionals operating in different fields should definitely consider incorporating their practice as it is a simple process that presents an abundance of opportunity for one’s welfare. If you are still not sure about what incorporating can do for you, contact a professional who knows exactly how to help.
Greater Toronto Area based lawyer, Dezso Farkas, who operates under FARKAS LEGAL PROFESSIONAL CORPORATION, has helped many professionals incorporate their practice from start to finish. He has advised corporations and caters his services to their needs in order to maximize potential benefits. He believes in helping businesses grow and enabling business owners to benefit from the advantages that can be sought through incorporation. For professional advice please feel free to contact Mr. Farkas at (416) 735-6645.
-Narvir Goindi
[1] RBC. ‘Is incorporating your professional practice right for you?’ (2018) 6:2 Investment, tax and lifestyle perspectives from RBC Wealth Management Services. https://www.rbcwealthmanagement.com/ca/en/research-insights/is-incorporating-your-professional-practice-right-for-you/detail/ [2] Service Ontario. ‘Incorporating a business corporation’ (2019) Business and economy. https://www.ontario.ca/page/incorporating-business-corporation [3] Rotfleisch & Samulovitch P.C. ‘Lawyers Advantages of Incorporation – Ontario Tax Lawyer Comments’ (2019) Taxpage.com. https://taxpage.com/articles-and-tips/incorporation/lawyers-advantages/ [4] TurboTax Canada. ‘Lifetime Capital Gains Exemption’. (2019) SAVINGS & INVESTMENTS. https://turbotax.intuit.ca/tips/lifetime-capital-gains-exemption-6258 [5] Acton, Alan. ‘Should you incorporate your legal practice?’ (2010) CANADIAN LAWYER. https://www.canadianlawyermag.com/news/general/should-you-incorporate-your-legal-practice/267749