ABA Recommendations Included in the 'Tax Cuts and Jobs Act of 2017' - Articles

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Posted by: Barry Kolar on Dec 29, 2017

The American Bar Association won hard-fought victories on key tax issues affecting the legal profession in the “Tax Cuts and Jobs Act of 2017,” the comprehensive tax reform legislation that President Donald Trump recently signed.

While not all ABA recommendations were incorporated into the final legislation, these issues were favorable for lawyers and law firms:

  • Mandatory Accrual Accounting for Law Firms. Fortunately, ABA-opposed mandatory accrual accounting proposals were not included in the final bill. Had these proposals been included, they would have required many law firms to switch from cash to accrual accounting and pay taxes on “phantom income” long before it is received from clients. The ABA worked with 30 state and local bars, dozens of law firms, and other leaders for over four years to protect the legal profession from these harmful provisions.
  • Tax Relief for Pass-Through Entities. Individual owners of pass-through entities — including law firms and other professional service businesses, up to certain income thresholds — will be allowed to deduct 20 percent of the “qualified business income” they receive from the entity. Although the ABA did not endorse this or any other specific tax reductions contained in the bill, the ABA worked to ensure that law firms received the same benefits as other pass-through businesses.
  • Student Loan Interest Tax Deduction. The existing deduction is retained in the final legislation, as requested by the ABA in a letter to House and Senate leaders.
  • Deduction of Upfront Litigation Expenses. In an important victory for lawyers who handle contingency fee lawsuits in the 9th Circuit, the final legislation confirms the cash accounting system for plaintiff firms by allowing lawsuit-related expenses to be deducted when they are incurred. In addition to protecting the legal profession from adverse legislation, advocacy on the tax reform bill also helped build stronger ties with the American Institute of Certified Public Accountants and other professional associations, which can now carry over to other issues of mutual interest.

The ABA will continue to fight for the legal profession and lawyers around the country.