Law Firm Tax Deductions: Home Office, Mileage, and QBI

A law firm can deduct the ordinary and necessary costs of running a legal practice — rent, salaries, malpractice insurance, bar dues, legal research subscriptions, CLE, business mileage, marketing, and equipment — along with a handful of items unique to law firms, most notably advanced client costs and the qualified business income deduction available to pass-through owners. The tax code frames these law firm tax deductions under Section 162, which covers any expense that is common in legal practice and directly useful to the firm’s operations.¹ How the deductions land on a return depends on the firm’s structure: solos report on Schedule C of Form 1040, partnerships file Form 1065, and S-corporations file Form 1120-S, with the tax obligation passing through to individual owners.²

Office Space, Utilities, and Equipment

Rent is often the single largest overhead cost, and monthly lease payments are fully deductible. Firms that own their building deduct mortgage interest instead of the principal portion of a payment. Utilities, internet, paper, postage, and other routine supplies all count as standard operating costs.¹

For smaller purchases like a desk chair, monitor, or printer, the de minimis safe harbor election lets a firm expense items costing up to $2,500 each in the year they are bought rather than depreciate them. Firms with audited financial statements can use a $5,000 threshold.³

For bigger purchases, Section 179 lets a firm deduct the full cost of qualifying equipment in the year it enters service. The 2026 deduction limit is $2.56 million, with a phase-out beginning at $4.09 million in total equipment purchases.⁴ Computers, copiers, case management servers, and office furniture all qualify. Bonus depreciation is available in 2026 but has dropped to 20% of an asset’s cost, so Section 179 is usually the better tool.

Home Office for Solo Practitioners

A solo attorney working from home can deduct a portion of housing costs, but the space has to be used exclusively and regularly for legal work. A spare bedroom that doubles as a guest room does not qualify. Two calculation methods are available: the simplified method at $5 per square foot up to 300 square feet ($1,500), and the regular method, which applies the office’s share of your home to actual mortgage interest or rent, utilities, insurance, and maintenance.⁵

The regular method requires more recordkeeping but can produce a significantly larger deduction. Either way, the home office deduction cannot create a business loss; it is capped at your net business income for the year.

Car and Mileage Deductions

Driving to a courthouse, deposition, or client meeting generates deductible mileage. For 2026, the IRS standard rate is 72.5 cents per mile, up from 70 cents in 2025.⁶ The alternative is tracking actual costs — gas, insurance, repairs, depreciation — and deducting the business-use share. If you own the vehicle and want the standard rate, you must elect it in the first year the car is available for business use.

Watch the commuting rule. Driving from home to your regular office is a personal expense, no matter the distance. Travel from your office to a second work location, a client’s office, or a court appearance is deductible. If your home office qualifies as your principal place of business, drives from home to any other work location become deductible miles. Keep a log with date, destination, business purpose, and mileage for each trip.

Bar Dues, Malpractice Insurance, and Legal Research

Attorneys carry regulatory costs most businesses do not. Annual state bar dues, licensing renewal fees, and mandatory trust account assessments are all deductible as ordinary costs of maintaining the right to practice.¹ Professional liability insurance — malpractice or errors-and-omissions coverage — is deductible too, and for solos it often runs into the thousands each year.

Westlaw, LexisNexis, and practice management software qualify as deductible business tools. Physical law libraries, whether bought outright or maintained through update subscriptions, count as well. Court filing fees and notary costs the firm absorbs also reduce taxable income. The business share of accountant fees for preparing the firm’s return is deductible on Schedule C; if the invoice mixes business and personal work, only the business portion qualifies.

Marketing, Client Meals, and the Entertainment Rule

Advertising is fully deductible regardless of format. Websites, SEO, social media campaigns, print ads, and business cards all count as long as they promote the firm’s services.¹

Meals with clients or referral sources are deductible at 50%, provided the meal is not lavish and has a clear business purpose.⁷ The temporary 100% restaurant deduction expired at the end of 2022, so the 50% cap is back. You or an employee must be present, and your records should show the date, amount, location, who attended, and the business topic discussed.⁸

Entertainment expenses are not deductible at all. Sports tickets, concerts, and golf outings do not qualify, even if you discuss business during the event.⁷ Take a client to a ballgame and grab dinner afterward, and only the meal counts, at 50%.

Employee Wages, Benefits, and Contractors

Salaries paid to associates, paralegals, legal assistants, and other staff are fully deductible, and typically make up the largest expense category for any firm with employees.¹⁹¹⁰ Employee health insurance premiums, 401(k) contributions (the employee deferral cap is $24,500 for 2026), and other fringe benefits are deductible too.¹¹

Owner draws and profit distributions are not deductible. They are a return on equity, not a business expense, and calling them wages creates problems on payroll tax filings.

Independent Contractors and Form 1099-NEC

Payments to court reporters, process servers, expert witnesses, and contract attorneys are deductible. Starting in 2026, a firm must issue Form 1099-NEC to any non-employee it pays $2,000 or more during the year, up from the prior $600 threshold.¹² There is one exception that catches firms off guard: payments to attorneys for legal services must be reported on a 1099-NEC regardless of amount.¹³

Accountable Reimbursement Plans

When employees pay business costs out of pocket — travel, parking, filing fees — the firm can reimburse those costs tax-free through an accountable plan. The IRS requires three things: the expense has a business connection, the employee substantiates it with receipts, and any excess advance is returned within a reasonable period, generally 60 to 120 days.¹⁴ Reimbursements under a valid plan are deductible to the firm and non-taxable to the employee. Without all three requirements, the IRS treats reimbursements as additional wages subject to payroll tax.

Advanced Client Costs

This is where law firm tax treatment departs from ordinary business rules. When a firm pays litigation costs on a client’s behalf — filing fees, expert witness fees, deposition transcripts, medical record requests — the IRS and courts generally treat those payments as loans to the client, not current business expenses. Because the firm expects repayment from the client or a future settlement, the money sits as accounts receivable on the balance sheet rather than getting deducted the year it is paid.

An exception applies to what tax professionals call “soft costs”: expenses the firm would incur regardless of any specific client, like in-house photocopying or postage. Those can be deducted as ordinary operating expenses when incurred. If a client later reimburses the firm for them, the reimbursement is income in the year received.

When a case is lost or a client cannot repay, the firm claims a bad debt deduction in the year the advanced costs become uncollectible. Reviewing outstanding client cost balances regularly matters here. Waiting years to write off costs that were clearly uncollectible earlier invites IRS scrutiny about whether the deduction is being taken in the correct year.

CLE and Business Travel

Continuing Legal Education courses, bar association conference fees, and legal seminar tuition are deductible as long as they maintain or improve skills relevant to your current practice.¹ Education that qualifies you for a new profession does not count. A practicing attorney cannot deduct an MBA program unless the degree directly maintains skills used in the current practice.

When CLE or a client matter requires travel, airfare, train tickets, rental cars, and lodging are deductible when the primary purpose of the trip is business. Meals on the road follow the same 50% rule as client meals.⁸ The IRS defines travel as costs incurred while away from your tax home, meaning far enough away that sleep or rest is required. A day trip to a nearby courthouse is not travel, though the mileage still counts.

Keep an itinerary and records of the specific business conducted during any trip. If a trip mixes business and personal days, only the expenses tied to business days are deductible. Lodging on personal days and sightseeing costs never qualify, even if the trip was primarily for business.

The Qualified Business Income Deduction

Section 199A lets owners of pass-through entities — sole proprietorships, partnerships, and S-corporations — deduct up to 20% of qualified business income.¹⁵ Originally set to expire after 2025, the provision was extended and remains available in 2026. Law firms face significant income-based restrictions because legal services are a specified service trade or business.

Solo practitioners and partners with taxable income below $201,750 (single) or $403,500 (married filing jointly) can claim the full 20% deduction. It phases out above those thresholds and disappears entirely at $276,750 (single) or $553,500 (joint). Many equity partners at mid-size and large firms earn above the phase-out, so this deduction is most valuable to solos and small-firm attorneys. Guaranteed payments to partners do not count as qualified business income even if overall income falls below the threshold.

Self-Employment Tax Deduction for Solos

Solo attorneys pay self-employment tax covering both the employer and employee shares of Social Security and Medicare, a combined 15.3% on net earnings. Half of that self-employment tax is deductible as an adjustment to gross income on your personal return.¹⁶ The calculation runs through Schedule SE and flows to Schedule 1 of Form 1040. It reduces your adjusted gross income, which can help you qualify for other tax benefits that phase out at higher income levels, and you do not need to itemize to claim it.

Startup Costs for a New Firm

Opening a practice means spending money before the first client walks in — lease deposits, initial marketing, furniture, technology setup. Under Section 195, a new firm can deduct up to $5,000 of these startup costs in its first year. That $5,000 allowance shrinks dollar-for-dollar once total startup costs exceed $50,000, and it disappears entirely above $55,000.¹⁷ Remaining startup costs above the first-year deduction get amortized over 15 years.

Recordkeeping That Holds Up in an Audit

Every deduction above shares one requirement: documentation. The IRS expects receipts for individual business expenses of $75 or more, with the exception of lodging, which needs a receipt regardless of amount. Below $75, a contemporaneous log or account statement showing the amount, date, and business purpose is enough. For meals, also record who attended and the business topic.

Mileage logs, credit card statements matched to business categories, and organized digital copies of invoices form the backbone of defensible records. Law firms have a built-in advantage: most already maintain detailed billing and timekeeping systems that can double as tax substantiation. The firms that run into trouble track client time meticulously but treat their own expenses as an afterthought. Keep business and personal accounts separate wherever possible, and retain records for at least three years after filing.

1
Office of the Law Revision Counsel. 26 U.S. Code 162 – Trade or Business Expenses
2
Internal Revenue Service. Instructions for Schedule C (Form 1040)
3
Internal Revenue Service. Tangible Property Final Regulations
4
Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
5
Internal Revenue Service. How Small Business Owners Can Deduct Their Home Office From Their Taxes
6
Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents per Mile, Up 2.5 Cents
7
Office of the Law Revision Counsel. 26 USC 274 – Disallowance of Certain Entertainment, Etc., Expenses
8
Internal Revenue Service. Topic No. 511, Business Travel Expenses
9
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
10
Social Security Administration. Contribution and Benefit Base
11
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
12
Internal Revenue Service. Publication 1099 (2026), General Instructions for Certain Information Returns
13
Internal Revenue Service. Form 1099 NEC and Independent Contractors
14
Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
15
Internal Revenue Service. Qualified Business Income Deduction
16
Internal Revenue Service. Topic No. 554, Self-Employment Tax
17
Office of the Law Revision Counsel. 26 USC 195 – Start-Up Expenditures