Tax Tips for Attorneys with Jayden Doye, CPA

Feb 15, 2023

Patrick Carver

Hi, I’m Patrick Carver / CEO, Constellation Marketing

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tax tips for attorneys 1

Is your law firm’s financial health as robust as it could be?

Imagine a world where tax season brings opportunities, not stress.

With the right strategies, that world is within your reach. We’re diving deep into tax tips that promise not just savings but a stronger, more profitable practice.

From ensuring compliance to unlocking hidden deductions, every piece of advice is tailored to the unique needs of attorneys.

Ready to transform your approach to taxes? Let’s embark on this journey together.

Welcome to The Optimized Law Firm Podcast, where we chat with legal pros who can help you run a more profitable and enjoyable business.

In episode number 9,  of The Optimized Law Firm podcast, we are covering some Tax Tips for Attorneys with CPA, T Jayden Doye, Founder and CEO of Prestige Accounting.

As Jayden Doye says, “Tax Season is All Year.”  Tune in to learn all the Tips for Attorneys.

What’s in This Episode?

  • Jayden’s Secret Tax-Saving Strategies
  • Why your Law Firm needs a Specialized CPA
  • Don’t Lose Your License Due to Poor Planning

 

Episode 9 | Tax Tips for Attorneys with Jayden Doye, CPA

Patrick: 
Welcome to the Optimize Law Firm podcast. I’m Patrick Carver with Constellation Marketing, and I’m thrilled to have Jadyn Doy on today. He’s the founder and CEO of Prestige Accounting. They specialize in helping law firm owners increase their profits and run a more enjoyable practice. I instantly connected with Jadyn over a couple of things that I think we share in our philosophy with our business businesses. First, he provides specialized guidance just for law firms. Very similar to what we do in that we really want to focus on just law firms and be the best at it. He’s the same. He’s also not just a regular CPA. What I mean by that is he thinks about his client’s business success as opposed to just filing their taxes and doing their books. Welcome, and really excited to have you. Tell us a little bit more about Prestige and how you got started working with attorneys.

Jayden:
Absolutely. Prestige Accounting Solutions, we started back in 2019. I started Prestige because I saw that the market definitely was calling for more than what most CPAs offer. Most CPAs just talk to their clients around tax time. Unfortunately, especially lawyers need much more assistance throughout the year with things such as hire, how to hire profitably, and how to make sure that you even have a project for cash flow so you can verify that you will have enough money to pay this person over the next 90 days as they’re getting acclimated to your system before they really start generating a profit in your firm. How do we measure profitability as it pertains to marketing efforts? So many different things that lawyers need throughout the year in addition to Iota accounting because, as many know, Iota accounting is probably the number two thing that gets lawyers disbarred or complaints to the bar. And thousands of lawyers lose their licenses every year due to not properly managing their Iota fund. So, we make sure that they can keep their license because we believe that lawyers are like superheroes. They help citizens be protected in relation to the government, police force, and, many times, insurance companies. So, we have a soft spot for attorneys, and that’s one of the main reasons why we love working with them.

Patrick:
That’s great. I really like your story about getting started just in the business and how you got to Atlanta because I think it resonates with law firm owners, a lot of law firm owners because they’re leaving a firm, starting their own, going out, taking on a lot of risks. And so I think someone like yourself really understands their journey and can help them plan appropriately when it comes to financial matters.

Jayden: 
Yeah. The Drake song started from the bottom. Now we hear that the song was specifically about me. When I moved to Atlanta, I moved to Atlanta many years ago, maybe eight years ago at this point, but I moved to Atlanta two weeks after graduating from College with no family, no friends, and no job. I was just determined to make it work, and I figured out where I would live during my 13-hour drive down from Maryland. When it came to starting my CPA firm, I really didn’t have much assistance. I didn’t have any mentors. I didn’t have a lot of startup capital. All I had was the last paycheck for my job, honestly. Three years later, having a million-dollar firm just goes to show that when you are very particular and determined to live a life of abundance, you can have that. And having humble beginnings is okay. There’s nothing wrong with not having the Donald Trump story of having a million dollars loan from your father. That’s okay. But just because you start at one place doesn’t mean you have to stay at that one place.

Patrick:
Absolutely. So we’re coming up on the really important time of the year: tax time. What would you say as to why lawyers need to care about tax planning? Because I think for not only a lot of lawyers but a lot of business owners, and I see it with marketing agencies, there’s just really not a lot of thought put into tax planning. Besides, I know I have to pay taxes, and so I’m going to get somebody to help me with it. But I don’t hear a lot of proactive activity throughout the year and think of it really from a strategic perspective that can affect what your take-home is. What would you say to lawyers about why they should be caring about tax planning?

Jayden: 
Well, what you don’t want to do is be in a situation where you’re stuck with a large tax bill, and you have to take undesirable modes and methods in order to pay that tax bill. So let me give you an example. A lot of times, when people file their tax return and they have not made estimated tax payments, they’re stuck with a five-figure tax bill. In addition, they have to pay interest and penalties. So now you’re on the naughty list, as they say, with the IRS. So, it makes it more difficult to advocate on your behalf should you need to have some penalties and interest waived in the future because you’re not showing good faith in your payment history. The second one is the fact that you’re going to be charged penalties and interest. So, if you don’t make the required estimated tax payments or pay enough, then the government will actually penalize you for that. And we don’t want to have to pay the government any more than we should. In addition to that, now, let’s say you have a $10,000 $15,000 tax bill that you didn’t anticipate.

Now, if you have to pay that out of your operating account, that is going to really hold your cash flow for some time. You might even consider taking a loan. So, for people who… A lot of people go into business, unfortunately, because of money traumas that they’ve had in their personal lives before being entrepreneurs. So, instead of sitting down, pausing, and strategizing, they panic, and then they just act fast and don’t take the best action. So I’ve seen it where people will literally take out a predatory loan with a high interest rate to pay their taxes that have a low interest rate. It doesn’t make any sense. Now you’re paying more than you need to. And now you have this monthly payment going out that’s taking thousands of dollars out of your bank account each month because you just wanted to get it off. You just wanted to be done with it. Well, sometimes it’s worth having that liability last a little longer, and you slowly but surely get on a payment plan so that you can chip away at that balance and do better with strategizing in the future. Last but not least, if you’re not tax planning, if you’re not proactively working with your CPA or CPA that specializes in tax planning, you’re most likely paying the IRS because there are certain strategies and certain deductions that you can take in the tax year. If you wait until the year is over, there are many things that you’re going to be missing out on. Your CPA will only be able to assist you in a limited capacity.

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Patrick:
What do you think is the core reason why working with someone like yourself who specializes in law firms is better than, say, somebody down in that H&R block?

Jayden: 
So obviously, a lot of the H&R Block, Jackson Hewitt, are seasonal tax preparers, oftentimes even students. So you’re dealing with somebody with limited capacity. And outside of that spectrum, let’s say you’re going to, you know, your friend that does taxes for one quarter of the year, and then the rest of the year they’re working at KFC, that person most likely doesn’t have a licensure like a CPA. Therefore, that person doesn’t have to uphold and doesn’t feel the need to uphold certain types of rules. And those people are more likely to take unethical deductions and credits than a person who actually has a license to uphold them. So I’ve seen tax returns with kids that came out of nowhere don’t belong to the taxpayer. I’ve seen tax returns with solar panels, window credits, and stuff that just didn’t make sense. I’ve seen it where tax repairs just put 50,000 miles, even though the person works from home and never goes to meet with clients. They do these things because, in their mind, their incentive is to get you a large tax refund so that you can return it. For me, I want to reduce your tax liability as much as legally possible, but whatever you’re paying me is not worth me losing my license or going to jail.

Patrick:
Makes sense. Is it too late to do some of that tax cleaning this year? I know we’re getting late in the season. It’s one of the reasons I wanted to have this conversation with you so that, hopefully, could jump-start some people to take some steps. What do you think? Is it too late?

Jayden:
It’s not too late until 11:59 or 12:31.  I will say this. I will say don’t wait till the last minute. Most people are going to wait until the last two weeks of December. But guess what? Accounting professionals most likely will be on vacation. They’re going to be mentally preparing themselves for the tax season that awaits them, and they won’t have time to talk to you the last week of December. So the earlier, the better. With my firm, I believe that tax planning and tax season are all year long. So when people ask me in November, Oh, you guys must be slow right now. No, we’re always busy. It really speaks to the level of service that we give our clients. Every quarter, we redo their tax plan based on the numbers because income fluctuates. When you’re working with a CPA that specializes in your industry, they understand the ebbs and flows. They understand the difference between a retainer and a flat fee. I’m going to give you a quick example. I had a client whom I helped save over $100,000 in taxes, and I’m not exaggerating because this person was in the top tax bracket, and they had over $300,000 improperly coded to income, which was actually retainers.

And as you know, retainers are not classified as income until those legal fees are earned. You build the client and transfer that money from your IoT account to the operating account. So, this person, if they were being cheap and went to H&R Block, would have overpaid the IRS by over $100,000. And just by contacting us in the fourth quarter, we were able to clean up their books and give them a tax plan, and they’re still a client to this day.

Patrick:
That’s awesome. I can speak from personal experience that having somebody who knows the intimate parts of the industry, of your workflow, your day-to-day is infinitely better because even if you’re not getting someone who works at H&R Block or you have somebody who is maybe a high-end accountant, but if they’re a generalist, they’re not going to know those little nuanced pieces of information that go to inform your tax preparation and your overall business success or business health. And we’ve talked about Iota, we’ve talked about some of this other stuff that I think average accountants may know a little bit about, but they don’t have a working practical knowledge of it. And by working with folks who specialize in agency taxes for myself, I mean, we’ve gone from paying way over probably what we needed to do $20,000, $30,000 in tax credits and different strategies that we’re doing. And so I can absolutely speak to the value of it. And now I want to transition to some of the, I think, the big benefit of part of this conversation, which is you’ve got a ton of tax strategies, business planning strategies that go into taxes.

I think you’re going to share a few with us, which I’m very excited about. I think everybody will be really thankful for it. Talk to us a little bit about some of these tax strategies that you recommend specifically for lawyers and what their value is.

Jayden:
Absolutely, go ahead. Okay, sure. So yeah, I could give you maybe four examples and also give a quick little story with them. So the first example is, let’s say you are a firm owner and you have not actually paid your estimated taxes throughout the year; you talk to your CPA in November or December, and they’d say, hey, guess what? You’re going to have a tax bill of $15,000 even after implementing these tax-saving strategies. We need to figure out a way to get an influx of cash flow in order to pay that bill before January 15 to make sure that you don’t get any type of underpayment penalties. So, what I actually had to do was help my IP attorney client develop a strategy, which was maybe two years ago when the USPTO fees were going to increase. So we developed the flat fee package so that people could lock in the rate for that current year, 2020, if they paid in full by the end of the month of December. This person was able to bring in an extra $20,000 that month so that they had the money to pay their estimated taxes and still have some money to flow through to the next month.

Another strategy would be hiring family members. Particularly hiring a spouse. Let’s start there. With a client of mine, their spouse worked in the school system. The school system job and the only reason why they were taking this underpaid job was because of the health care benefits. We developed a strategy where the spouse would quit working at the school system. They would work in the firm, and then we would get a salary of $100,000. Now, this is an additional $100,000 deduction on the business. Now, the other benefit is that this person now, both of them could contribute $25,000 to a SEP IRA because both of their salaries are $100,000. So that’s an additional $50,000 in deductions. And in the long term, it will help the firm grow because we developed a plan for where… They’re not getting paid $100,000 to answer the phones. They’re getting paid $100,000 to do development and cultivate referral relationships. That firm saw a six-time return on investment. They made an additional $600,000 the following year based on that one strategy that I had given them. In addition to that, when you hire family, remember that there are certain employee benefits that if you offer your other employees, you can also offer that spouse.

So let’s say you have a medical reimbursement plan, and let’s say that your spouse has very expensive health costs. Now, instead of personally paying $10,000 for these health benefits, you could possibly have that deducted on the business side as an employee deduction. I mean, as a tax deduction for the health reimbursement. Those are some strategies. Then the last one is hiring children. Depending on what state you’re in, please talk to an employment lawyer. I’m not an employment lawyer. Anything I say here today is only for education purposes. It’s not tax advice; please consult your CPA as well. Don’t try to sue me because you’ll lose.

Patrick: 
I feel like you’ve said that before. You know it.

Jayden: 
I have to say every single time, every single time. But hiring children. I have clients in whatever state, not just Georgia. I have a client in New Mexico, and we hire three of their children. Each one of them will be getting a salary of $12,000 for the year. That $12,000 times three children times their effective tax rate is going to save them an additional $11,520 in taxes. You’ll be teaching your children a reward system; teaching them hard work pays off. You’re showing them the behind-the-scenes and owning and running a business. Now, once they get on their own, they’ll have some hands-on experience in running a business and working with other people. So you’re getting them set up for success from day one. Those are just some of the strategies that I have implemented with my clients.

Patrick:
That’s awesome. And I feel like you’ve got a lot more in the that we’re only touching the tip of the iceberg with it. Absolutely. I think something that I didn’t know; maybe it’s just me, but I imagine others out there have a question about the difference between deductions and credits. Because something that I’ve pursued in our business pretty aggressively over the past two years is credits. Because there are some unique credits available in Georgia. We also use research and development credit, which is something that is specifically available to marketing agencies. But maybe you could just talk a little bit about that difference. If there are any specific examples you have in mind where somebody used credit for a law firm or something, that would be awesome to hear about.

Jayden: 
Absolutely. We actually had a client who took the strategy I gave them with hiring kids, and they also created a 529 plan. In Georgia, you can get a tax credit for contributing to a 529 plan. Let me explain the difference between a deduction and a credit. You start with your income. Deductions are things such as expenses that lower your gross income to get you to your taxable income. Your tax is actually determined from your taxable income. We have a tier tax system. Your first 12,000 may be taxed at this rate, 12 to 40 months, and things of that nature. Your tax is actually determined from your taxable income. Tax credits reduce your tax liability. A $10,000 tax credit, if you have a tax liability of 15,000, will result in you only owing $5,000. So, credits are definitely way better than deductions. Then, in Georgia, you have the 529 plan, and you also have the Georgia goal. I love the Georgia Gold because you are contributing to a fund to where children can get scholarships. I actually have a client whose children go to private school, and the goal scholarships make it so that they can actually go to that school because they don’t really have the income.

Many kids may not have the income to afford that private school tuition. But because of the Georgia Gold Scholarship Fund, they’re actually able to give back to the community so that these children can get a higher level of education.

Patrick:
What I’ve learned just with items like that, with the goal, is that we’re obviously in Georgia, but stuff like that exists in lots of states. It’s not widely known. One of the biggest lessons I’ve learned just goes out there and research talks with somebody like yourself who really understands the nuance of that specific location, not only location but also industry, because you’re getting the best of both worlds because I didn’t know about half the stuff that I do or any of the stuff that I know about now when I was talking with a generalist CPA. They just didn’t know what was going on in Georgia. They didn’t know what was going on with marketing agencies. So I think there’s a huge value in someone like yourself.

Cool. I don’t want to keep you too long, but this has been awesome. I think I picked up a lot of really good stuff. A couple of things that I’ve jotted down as takeaways for me for this is number 1: hire someone who understands law firms. One of maybe the biggest steps you can take is to get the right people in place, especially with your money. It should not be an afterthought; it should not be something that, on December 1, you’re going and hiring somebody at H&R Block. It really does pay in a big way to get somebody who understands IOTA, understands the retainer aspect, and all of that. The second is to plan year-round for tax season. I’m the number one guiltiest person about procrastinating, but the more you can put in time earlier in the year and think about it as an ongoing practice, the better off you’re going to be. Then, finally, don’t do the bare minimum as far as just hiring a CPA, not learning about the tax code, not learning about credits, not learning about these different things because ultimately, what I found is I was leaving a ton of money on the table.

Patrick:
Just I think by virtue of hiring someone who understands law firms, you’ll get a lot of that back. But I know, at least for me, taxes seem so difficult, and I would never understand the tax code. What I’ve found over time is that if I put in just a little bit of extra effort, helping myself learn about it and asking my CPA questions, it becomes a lot more valuable relationship where I can save a lot of money.

I don’t know if you had anything else that you feel like maybe we missed or if you would advise law firm owners as they come up on tax time this year.

Jayden: 
The only thing that I want people to understand is that tax planning is very, very valuable, especially once you get past six figures in your business, which is very easy to get, and $100,000 is not difficult. The more money you make, the more valuable it is. And understand, yes, it may come as a shocker as to how much it costs. Sometimes I’ve seen tax plans cost $5,000, $10,000, $20,000. But I’ve always seen where there’s a return on investment. So if you pay $5,000 but you save $30,000 in taxes, that sounds pretty good to me. I don’t know anywhere else where you can get a six-time return on your investment. If you know of any place where I could put $5,000 and get 30, please let me know. Please send me a direct message.

Patrick:
That’s what I’m saying because we deal with the exact same thing where we’re trying to communicate: hey, you put in $3,000, your payments $3,000 for a month. But guess what? We got you $25,000 back. That’s way better than the stock market, and you’re betting on yourself. So, I think we bonded over that idea of putting money into your business. It’s all about that return on investment, and utilizing a high-quality CPA is just one of those areas where you can get a return. And I’m living proof. I mean, we do it and get a lot of value out of it. Really appreciate you sharing some of your trade secrets. Did I hear whispers of a book coming out at some point, or what do you have going on coming up?

Jayden: Yes, depending on when people watch this video, my book Rise the Bar will be released on my birthday, December 16th. So I am super excited about that. It’s one of the many books that I plan to release. So definitely check it out, look for it, raise the bar. In the meantime, if you’re like me and you’re more of an auditory person, you can listen to my podcast, the Law & Order podcast, on all podcast streaming platforms.

Patrick:
Awesome. And what is your website address for folks?

Jayden:
They can visit accounting-atlanta.com 

Patrick:
Awesome. Well, I highly encourage them to do that. Thank you again for your time. Really appreciate it. And happy holidays.

Jayden:
All right. Thank you. Same to you.

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