As another demanding year in the legal industry draws to a close, it is increasingly vital to conduct a thorough financial assessment of your firm. This review is instrumental in positioning organizations for a prosperous financial future. Now is an opportune moment for firms to systematically scrutinize their financial records, which should include reviewing and cleaning-up of aged work-in-processes, settling any outstanding receivables, and strategically planning budgets for the upcoming year. By doing so, firms can fortify themselves for a more robust and successful 2024.
Here are a few key areas that firms should prioritize:
- Billing and collections – It is imperative that the Q4 push for billing and collecting starts now instead of waiting until December. Communicate with partners the importance of speaking with clients now about any potential billing issues. If a partner must negotiate discounts, this should be done before billing so the firm can collect outstanding fees more efficiently.
- Year-end tax planning – Meetings should be scheduled with the firm’s accountants to discuss year-end projections so that estimated tax payments needed to be made prior to year-end, if applicable, are accurate. Firms should understand the impact of borrowing costs on any outstanding debt and consider repaying balances on revolving credit facilities if cash flow permits. Additionally, for cash basis taxpayers, prepayments of certain 2024 expenses should be considered to minimize 2023 tax liability.
- New York City Unincorporated Business Tax – Working remotely has remained popular for employees as well as for firms who are no longer limited to the talent pool in their geography. This creates an opportunity for New York City firms to lower their NYC allocation percentage and save significantly on Unincorporated Business Tax (UBT). NYC apportionment is based on place of performance, so if a firm’s employees have been providing legal services outside of the five boroughs, this should be tracked and provided to the firm’s tax accountant prior to the filing of the tax return.
- State and local tax planning – Over the past few years, there has been a significant increase in remote workers who have moved out of state or even out of the country. This can create a variety of nexus and apportionment issues and new state tax filings and withholding requirements. Firms need to be aware of where their employees are working and consult with their tax advisors to help reduce the impact the pandemic may have had on their overall state and local tax liability.
- Pass-Through Entity Tax – For the Partnerships and S corporations that have made either a New York State or New York City Pass-Through-Entity Tax (PTET) election for 2023, the Q4 2023 estimated tax payment is due by December 15th, 2023. It is important to note that the final PTET tax payment is due by March 15th, 2024.
- Budgeting and forecasting – Now is the opportune time for firms to examine their 2024 budget. Certain discretionary expenditures such as marketing, networking, travel, and firm events should be reviewed. Firms may be able to reduce these expenses and reallocate funds into initiatives that may offer short or long-term advantages, such as expanding the use of artificial intelligence (AI) or other technologies. The way people work and interact with clients has changed substantially in the last couple of years. To address this, it may be necessary to reallocate funds to support these changes.
- Cybersecurity – With many employees working from home and sharing information over unsecured connections, firms must be attentive to their information technology (IT) and cyber protection. Suspicious cyber activity over the past few years has surpassed every previous year’s benchmarks. As employees continue to work outside of the office, firms need to ensure that their clients’ confidential and privileged information is safe. It is strongly encouraged that firms hire an outside consultant to evaluate their IT policies and procedures. To learn more about the need for a more vigilant cybersecurity program, click here.
Vigilantly managing these aspects is imperative for ensuring a law firm's success not only at year-end, but also for the future. Citrin Cooperman’s dedicated Law Firm Industry Practice is well-equipped to help your organization find practical, effective solutions to support your strategic vision. For more information, please contact Chris Imperiale at email@example.com or your Citrin Cooperman advisor.
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