How to account for fees paid for professional help?

Barry1156 · #1 (**permalink**) 02-09-2014, 02:25 PM

I am a one person law firm, organized as an LLC. I pay the taxes on my personal 1040. Suppose I retain a client who pays me a fee to represent him. In the course of representing him, I need the help of another lawyer to answer questions, edit a brief, etc., and I pay my helper out of my pocket. I know that I cannot bill that expense to the client, but how do I account for the expense for tax purposes? Let's say the client pays me $1000; and I pay my helper lawyer $250.00. Can I claim only $750 as a fee (thus paying less tax) and account for the remainder as an amount advanced to the client? OR (and what I suspect is the correct answer) must I account for the $1000 as a fee (thus paying tax on the full amount of the fee negotiated with the client)? But what do I do with the $250?

Wnhough · #2 (**permalink**) 02-09-2014, 09:37 PM

Quote:

Originally Posted by Barry1156

#1;I am a one person law firm, organized as an LLC. I pay the taxes on my personal 1040. Suppose I retain a client who pays me a fee to represent him. In the course of representing him, I need the help of another lawyer to answer questions, edit a brief, etc., and I pay my helper out of my pocket. I know that I cannot bill that expense to the client, but how do I account for the expense for tax purposes?

#2; Let's say the client pays me $1000; and I pay my helper lawyer $250.00. Can I claim only $750 as a fee (thus paying less tax) and account for the remainder as an amount advanced to the client?

#3;OR (and what I suspect is the correct answer) must I account for the $1000 as a fee (thus paying tax on the full amount of the fee negotiated with the client)? But what do I do with the $250?

#1;you need to report $1k on your Sch C and deduct $250 that you pay the lawyer on Sch C line 11.aslongas the fee is less than $600, you do not need to issue a 1099 to the lawyer.you need to Issue 1099-MISCs only if you have or manage a trade or business and have paid $600 or more to an individual or partnership (or certain corps),i.e., med /accounting firm.

#2;as mentioned above. You report $1k on Sch C line 1 as a fee and deduct $250 on Sch c

#3;correct as mentioned above