Nota by M&T Bank Banking built for law firms

If you’ve ever balanced your checkbook, or simply compared the balances in your bank account and your company books to make sure they match, you’ve already performed a two-way reconciliation. Because of poor training, lack of accounting help, or differing IOLTA rules across state lines, many attorneys are unfamiliar with what they are and aren’t allowed to put into an IOLTA account. IOLTA accounts are tricky, because they have very specific rules around what you can and can’t do with them, and the penalties for breaking these rules can be severe, including disbarment. Learn more about the legal chart of accounts and view examples of formatting.

• If your law firm doesn’t already have business bank accounts, it’s time to open them.
• Learn more about what billable hours are, how to track them, and what kinds of time you can and can’t charge.
• Sync your legal accounting software to apps that organize clients, billing, and documents in one place.
• The use of such M&T banking services is subject to certain terms, conditions, and agreements required by M&T.© 2023 M&T Bank.
• We know that legal matters can involve stacks upon stacks of documents.

Nexia International Limited does not deliver services in its own name or otherwise. Nexia International Limited and each of its member firms are separate legal entities and not part of a worldwide partnership. Nexia International Limited does not accept any responsibility for the commission of any act, or omission to act by, or the liabilities of, any of its members. Stop wasting time and money on marketing efforts, let CosmoLex CRM determine your most profitable marketing campaigns, and automate your outreach.

You want to know where your money is going

If you commingle your personal and business funds, you’re “piercing the veil,” and courts will ignore the legal protection that comes with incorporating. Plus, the more time and effort your accountant has to put into organizing your transactions, the more you pay them. The key to good accounting is keeping detailed records of every single transition coming in or going out of your IOLTA. It doesn’t belong to you, and if you claim it as such, you could face the consequences from regulators and have a more challenging tax season. We don’t recommend building your business off the back of your credit card. The interest rates are high, limits are often lower than other forms of credit, and they’re easily mismanaged.

But taking the time to properly set up your finances won’t just make it easier to file your taxes each year. It’ll save you time, money, stress, and potentially legal headaches. You’ll have accurate financial statements on hand, which can show you how your practice is performing at any given moment. And it will be a lot easier to work with bookkeepers, accountants, new partners, and buyers, if you ever decide to sell the business. Use software such as Clio Manage to help track your billable time, expenses and revenue. Additionally, keep your financial records in check by syncing to a system for accounting for law firms like QuickBooks Online.

CARET Legal Features

If you’re just starting out and think you’ve set up your accounting the wrong way, talk to a professional accountant or bookkeeper with experience dealing with IOLTA. Conversely, cash basis accounting recognizes revenue when you’re paid (i.e., when the cash is received) and expenses when they’re paid. The tax implications of this method also allow your firm to pay tax on income once it’s received and in the bank. When it comes to accounting for law firms, whether you handle it yourself or hire someone, your bookkeeping system must maintain a consistent schedule for carrying out bookkeeping tasks.

CosmoLex “knows” where & how funds need to be posted, and how expenses must be allocated. Even complex reports, like 3-way reconciliations, are a simple process. Time Matters delivers an adaptable solution that improves information-sharing, collaboration, and workflow processes by helping to automate repetitive tasks. This enhances matter, client, and document management, and increases your law firm’s operating efficiency. Xero is designed to provide small businesses and their advisors with an easy-to-use platform that offers real-time insights into a firm’s finances.

Thinking you can do everything without professional help

There are a few different ways to streamline time and mileage tracking, but the most important thing is to just get started. Tracking your time and mileage is essential for billing and managing a law firm’s expenses. How your business pays income tax is determined by your business’s legal structure. If you’re an attorney, you’ll probably set your firm up as a Limited Liability Partnership (LLP). Unless you elect to be taxed as a corporation, your LLP will be taxed like any other partnership.

Second, it can help to prevent personal funds from being used to pay for business expenses. For example, when a law firm pays its rent, the transaction would be recorded as a debit to the asset account for cash and a credit to the liability account for rent. Automated accounting software can help streamline the process, freeing up time for law firm bookkeeping other tasks. It is important to accurately record all transactions on a daily basis in order to avoid mistakes and maintain accuracy. If you’re not dealing with trust accounts, and just want to accept payments online or in-person, we recommend using Square. It’s intuitive, reliable, and the industry standard for accepting payments online.

Legal Case Management

When looking at the importance of solid accounting, you’re really talking about looking at financial data on a regular basis. And you can’t do that if you’re not gathering and sorting it on a regular basis. IOLTA accounts are designed to keep client funds separate from your typical business or operating account—where you are allowed to accrue interest. Many accountants and attorneys who go into private practice struggle until they build a client base, but they can be earning a six-figure salary within the first year. You can get an accounting job with a bachelor’s degree or even less, but the “Big Four” accounting firms (Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers) want one.