The One Big Beautiful Bill: A Law Firm Partner's Guide to Proposed Tax Changes

The One Big Beautiful Bill, a comprehensive tax reform package currently under consideration, proposes significant changes that will affect Law Firm operations and Partner taxation. Understanding these proposed modifications now allows Firms to prepare for potential shifts in tax planning. This guide examines four key provisions that directly impact Law Firm accounting and tax planning.

As Law Firm Partners navigate an increasingly complex tax landscape, staying informed about proposed legislation becomes essential for strategic planning. The changes outlined in this bill would take effect in 2025 and beyond, giving Firms time to assess their current structures and consider adjustments. Whether these proposals become Law or not, understanding their implications helps Partners make more informed decisions about their Firm's financial future.

Note: This article reflects provisions in the House-passed bill and initial Senate proposals. As negotiations continue between chambers, specific provisions may change. Consult your tax advisor for the most current information.

1099 Reporting Changes: Administrative Relief for Law Firms

The proposed legislation includes two significant modifications to 1099 reporting requirements that will substantially reduce administrative burden for Law Firms. These changes address long-standing concerns about compliance costs and paperwork requirements that have particularly affected Legal practices.

Service Payment Threshold Increase

Under Section 111105, the threshold for reporting service payments would increase from $600 to $2,000, with automatic inflation adjustments going forward. For Law Firms that regularly engage contract attorneys, expert witnesses, court reporters, and specialized consultants, this represents a meaningful reduction in year-end reporting obligations.

Consider a typical mid-size Law Firm that processes payments to 50-75 independent contractors annually. Many of these payments fall between $600 and $2,000 for services like: → Document review attorneys for specific cases → Expert witness consultations → Freelance paralegals during busy periods → Specialty consultants for special projects

The increased threshold would eliminate reporting requirements for many of these routine engagements, potentially reducing a Firm's 1099 filing obligations by 40-60%. This translates to real savings in administrative time and Law Firm accounting costs during the busy tax season.

Third-Party Payment Platform Reporting

Section 111104 reverses recent changes to third-party payment platform reporting, returning to the previous threshold of $20,000 and 200 transactions. This reversal prevents the administrative burden that would have resulted from reporting smaller transactions processed through these platforms.

The reversal prevents the administrative nightmare that would have resulted from reporting every small transaction processed through these platforms, maintaining practical thresholds that capture significant business activity without overwhelming Firms with paperwork.

Planning Considerations for Your Firm:  → Review current vendor payment patterns to identify which relationships would fall below new thresholds → Assess whether payment consolidation strategies remain necessary → Evaluate systems and procedures that could be simplified → Consider the timing of implementation for accounting software updates

SALT Deduction Changes: A Major Shift for High-Tax States

The SALT deduction cap remains one of the most contentious provisions, with the House and Senate taking dramatically different approaches. The House proposes increasing the cap from $10,000 to $40,000 with a phase-down for high-income taxpayers, while the Senate maintains the current $10,000 limit. The Senate Finance Committee notes this remains 'the subject of continuing negotiations.'

Multi-State Considerations

Law Firms with offices in multiple states face additional complexity. The bill includes provisions to prevent SALT cap avoidance, requiring partnerships to treat state and local taxes as separately stated items.

This could affect: → Partnership allocation strategies → Multi-state tax planning → Partner compensation structures → State tax credit programs

The legislation also addresses entity-level state tax workarounds that many Firms have implemented, potentially requiring reassessment of these strategies.

This complexity requires specialized Legal accounting expertise, as traditional bookkeeping for Lawyers must now factor in multi-state allocation methods and their interaction with partnership tax elections.

Strategic Planning Questions: → Should the Firm reconsider entity-level tax elections? → What direct impact would this have on Partner recruitment and retention? → Are current multi-state allocation methods still optimal?

QBI Deduction Enhancement: Navigating Service Business Limitations

The Qualified Business Income (QBI) deduction, set to expire after 2025, would become permanent in both House and Senate versions. However, while the House proposes increasing the deduction from 20% to 23%, the Senate maintains the current 20% rate. Law Firms face unique challenges as specified service trades or businesses (SSTBs).

The SSTB Challenge for Law Firms

Legal services remain classified as SSTBs, meaning the QBI deduction phases out for high-income Partners. While both House and Senate versions make the deduction permanent, they maintain the existing phase-out thresholds for SSTBs (approximately $394,600 for married filing jointly in 2025, adjusted for inflation).

Income Planning Strategies: Partners near the phase-out threshold should consider: → Retirement plan contributions to manage taxable income → Timing of income recognition → Charitable giving strategies → Investment in qualifying business ventures

100% Bonus Depreciation: Capital Investment Planning

Both chambers propose extending 100% bonus depreciation, though the House limits it through January 1, 2030, while the Senate makes it permanent, for property acquired after January 19, 2025. This extension provides Law Firms with continued opportunities for immediate expensing of qualifying investments.

Qualifying Investments for Law Firms

The extension covers most tangible personal property with recovery periods of 20 years or less, including: → Computer systems and servers → Office furniture and fixtures → Telephone systems → Security equipment → Certain building improvements

Notably, the provision maintains immediate expensing for both new and used property, providing flexibility for Firms considering office relocations or expansions.

Technology Infrastructure Planning

With technology becoming increasingly essential to Law Firm operations, the extended depreciation period offers opportunities for major infrastructure investments.

Firms can write off these investments immediately rather than depreciating them over multiple years, improving cash flow and reducing current tax obligations.

When tracking these investments in QuickBooks for Lawyers, proper setup ensures Firms capture the full benefit of immediate expensing while maintaining compliance with Legal accounting standards.

Timing Considerations: The January 20, 2025, start date for newly acquired property creates specific planning opportunities: → Coordinate with lease expirations and office moves → Align technology refresh cycles with tax benefits

Additional Provisions Affecting Law Firms

Beyond the four major changes, the bill includes several other provisions relevant to Law Firm operations:

Enhanced Employee Benefits: → Paid family leave credit becomes permanent → Adoption credit includes $5,000 refundable portion → Child care credit increases vary between House ($500,000) and Senate versions

Estate Planning Opportunities - The estate tax exemption would increase substantially, affecting: → Partner succession planning → Buy-sell agreement valuations → Legal services demand

Research and Development - Immediate deduction for domestic R&D expenses could benefit Firms investing in: → Legal technology development → Process innovation → Client service improvements

Tax Credit Differences Between Chambers - The chambers differ on several key credits: → Child Tax Credit: House increases to $2,500 (2025-2028), Senate to $2,200 permanently → Senior Deduction: House provides $4,000 bonus, Senate offers $6,000 deduction (phasing out at $75,000/$150,000) → Standard Deduction: Senate adds extra $1,000 increase beyond House proposal

Preparing Your Firm for Potential Changes

Regardless of whether this legislation passes in its current form, Law Firms should use this opportunity to review their tax strategies and operational structures. The proposed changes highlight areas where Firms may have flexibility to reduce tax burdens and improve efficiency.

Immediate Actions to Take: → Schedule Partner meetings to discuss potential impacts → Review current entity structures and tax elections → Assess planned capital investments and timing → Evaluate vendor payment and reporting systems

Questions for Your CPA: → How will these changes affect each Partner's individual tax situation? → What entity structure modifications might make sense? → Should we accelerate or defer planned investments? → How can we best position the Firm for various legislative outcomes?

The One Big Beautiful Bill represents one of the most comprehensive tax reform proposals in recent years. While its ultimate fate remains uncertain, Law Firms that understand these provisions and plan accordingly will be better positioned to adapt to whatever changes emerge from the legislative process.

For Law Firms seeking guidance on these complex tax matters, working with CPAs who specialize in Legal industry accounting ensures you receive advice tailored to your unique challenges and opportunities. The intersection of tax Law and Law Firm operations requires expertise that goes beyond general business accounting.

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Ready to understand how these proposed tax changes will directly impact your Law Firm? Contact Counsel CPAs to schedule a strategic tax planning session. Our team specializes in Law Firm accounting and can help you navigate these potential changes while optimizing your current tax position.

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