Tax Myths Law Firm Owners Believe with Megan Robin

Most law firm owners don't realize how much bad tax advice they've absorbed over the years and how it could be costing them thousands. In this episode, we bust the five biggest tax myths most law firm owners believe, and you'll walk away knowing what's true, what's not, and how to use smart, legitimate tax strategy to build long-term wealth without chasing loopholes.

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Melissa Shanahan: Hi everyone, and welcome back to The Law Firm Owner Podcast. I am thrilled that Megan Robin is joining us once again. Hello.

Megan Robin: Hi. It's good to be here.

Melissa: I'm so thrilled that you are here again. For everyone tuning in, you should go back to watch or listen to the episode prior to this one because that was Megan's first appearance on our podcast. We talked about some great things there, and we're going to continue the conversation with a little bit of a different topic today.

So, Megan, before we dive in, in case someone didn't watch the first episode, can you just give everybody a brief intro to you, who you are, and what you do?

Megan: Yes, so I'm a California-based attorney. I've been an attorney for 13 years. I help law firm owners optimize their personal and business finances through tax strategy, which is a long way of saying that I help my clients keep more of what they earn.

Melissa: Okay. I like the sound of that. Today, everyone, we are going to be talking about the biggest tax myths and many of those tax myths which lawyers or law firm owners tend to believe, just like the rest of us. And so I wanted to go through some of the biggest ones today with you and have you give your thoughts or opinions or explanation on them.

Megan: Yeah, great. Let's do it.

Melissa: All right. So myth number one that I have down here, my CPA or accountant is making sure I am not overpaying in taxes.

Megan: Yes, this is a super common misconception, and it's rooted in the fact that the CPA often knows the most about what's going on with your income each year because at the end of the year, at the filing deadline, you're dropping your QuickBooks, all your receipts, everything. But the thing about what accountants do is they're historians. They're reactive. They look at what's already happened.

So at the end of the year, what money did you make, etc? However, a lot of times they're not doing proactive strategy that's forward thinking. So a lot of times it's too late. By the time you get to April or whenever your filing deadline is for your entity, it's too late. You can't make a lot of moves that would really change your overall tax burden.

A lot of the things that affect your tax liability are big changes like, how is your business structured? How and when are you paying yourself? What are you doing for retirement? What are you doing for your investment strategy? All of this big picture stuff. And by the time you're a few weeks before your filing deadline, making big changes, it's a little bit too late for that.

Melissa: Yeah.

Megan: I think that this misconception is really common as well because people don't understand how context-driven tax strategy is. So a lot of times your accountant will see one small sliver of your financial life, so they'll see your income, but they may not know that you have a new business starting next year, or you're about to have kids, or you have specific goals, you're retiring soon. They may not know if you have an estate plan in place or life insurance.

There's so many pieces of the puzzle, and they're not mind readers. They don't know what's going on in other parts of your life if you don't talk to them. And usually, if you're just paying a one-time fee for some tax filing, they're not going to get into advanced tax strategy for you.

Melissa: Mhm. Yeah, okay. The other thing that comes up for me as we're talking about this is I think some of my clients, and myself included, identify with having a proactive accountant. But I think even if accountants are proactive, to your point about context, it's really difficult for them to do what you're talking about. Would you say that's true?

Megan: Yeah, unless they're working with you, usually quarterly or very often, and you're filling in all the gaps, you're giving them all the information that they need, and you're paying them to do a specific service of tax strategy. If you're not doing all of that, if you're just paying this one-time fee for filing, you're not going to get all these other services. Especially a lot of people wait till the last minute to get stuff to their accountant, and so you're hitting them in busy season with a ton of work, you're not going to get that one-on-one proactive tax strategy, even though a lot of accountants are great. They work, I love accountants.

I work with them a ton in my business. What they do is amazing. It takes an incredible amount of expertise and knowledge, but a lot of times, they can't read your mind. A lot of them don't have the education or background to do some of the bigger tax strategies. They're more focused on compliance and the basic returns.

So it really runs the gamut as well. And I think one area that's really tricky is because most people don't have a background in tax law and accounting, and all of this is they don't know how sophisticated their accountant is because they don't have an ability to check their work. So, you know, when they get it back, they assume, okay, this is the best that it can be, or you know, but they have no way to know really. I mean, sometimes if you switch accountants, you may see some changes, etc. But it's really difficult for just a regular person without a background in this to know where they stand.

Melissa: Right, right. I mean, you and I were talking off camera after the last episode that we recorded about how it's so easy to… this is different a little bit because we're talking about financial advisors and it's really easy for because you don't know what you don't know and so when you think of and I don't mean this as an insult, but I mean I think probably, you don't know what you don't know.

And so what I was going to say was a someone who's just not sophisticated with their understanding of a lot of the things that these professionals handle, it's very easy to be just kind of along for the ride and you think you trust the people that you pay and even if they're well intentioned, it doesn't necessarily mean that it's always the best thing for you, but you don't have the ability or the knowledge to spot that. And so having I think a team, like professionals in your corner that do different things, is so smart to protect yourself against things that might work against you as you move forward.

Megan: Absolutely. And I think the biggest thing is ask really good questions. I don't expect anyone to become a tax expert overnight or a financial expert, but if something doesn't feel right or doesn't make sense or you're unsure of it, ask a lot of good questions. I know this can be hard in finance, especially because there's a money can be very vulnerable for people.

Melissa: Yeah.

Megan: And it can be hard to talk about. People's ego can get in the way. So I see this sometimes where people don't want to admit that they don't understand what's going on. That's really hard. So money's tricky. There's a lot of cultural and kind of nature, what is it? Nature versus nurture, you know, like you're raised with certain ideas, is what I'm trying to say. So it's Uncle John always invested in Ford stock. That's what we do in our family or whatever. You know, with this, you grow up with certain things and ideas that are so ingrained in you that you don't even question them.

Melissa: Yep.

Megan: So, you know, also Aunt Martha uses a financial advisor, and she's really wealthy. If I want to be wealthy like Aunt Martha, I need to have a financial advisor. You know, but a lot of times there's a lot of logical flaws in those assumptions.

So I see a lot of people this is a very common one where a mentor, they'll, someone will have a mentor, and they'll say, you know, John uses this guy, and that's his real estate guy, and you know, and they use their accountant, etc. But the secret to John's success, say the mentor's name is John, we'll just give him a name. The secret to his success is he's really good at making money, and that can cover a lot of what's soaking out or siphoning out on the back end.

So you don't see that, you know, it's like actually John probably could be a lot more wealthy than he is now if he had his act together, his accountant was better, his tax strategy was better, etc. But from the outside in, you don't see that. You know, you just see someone who's a really good income earner, but that doesn't mean they're great with money.

Melissa: That's exactly right. That's true, you know, I'm helping people with business health, and they compare themselves to other businesses. I'm like, you have you have no idea what is under the hood of that business. It may be great, but most businesses are a little messy in certain corners of the business, like they aren't perfect. And the way that they've created their success is not your path to creating success.

Be inspired, but I think a lot of times people want to follow the same footsteps and you just don't know the full picture there and you really have to learn to trust that you will be your own best advocate for you will get the answers, you will find the right team members to help you put into place so that you can be as successful as John we're talking about. Yeah.

Megan: Yeah, especially now with AI where you can take, you know, I don't know if you remember these like YouTube videos where people would pose in front of like a yacht or an airplane and they would sell like these usually it would be selling some kind of like real estate investment course or like one of those MLM schemes, you know, multi-level market, you know. But that was really big, but they would rent these. They would rent the fancy car or the plane, but now you can just do it with AI, and you pose in front of a plane and say like, “I've figured all this out,” you know.

Melissa: Right, right.

Megan: Yeah, you like really have to have your guard up and don't assume.

Melissa: The other thing you touched on, which I think is especially true with an, you know, the legal community, is that you know, you don't necessarily feel vulnerable enough or you're not going to get vulnerable enough to ask the questions you don't have the answers to. I think you're sort of raised in law school and out in the world that you need to be able to have all the answers, and you need to be able to at least act like you have all the answers in certain scenarios.

So, really giving yourself the opportunity to have a beginner's mind with it and ask all the questions, even if they feel like low-level questions, but they are things that you don't understand, it's really important. So I hope that… I feel lucky enough that a lot of the law firm owners I get to work with, they recognize that, and they can set that to the side in order to put their best foot forward.

But it's worth mentioning here because our listeners are lawyers, and I think that there's sort of some praise as you are raised up in the in, as you become a lawyer and as you get into the world for not showing any um lack of knowledge around something.

Megan: Oh, that's huge. I remember this personally, that when I first came out of law school, how I wanted to know like be a know-it-all. I wanted to have all the answers. And as attorneys, we are people who people come to us for answers for certainty, for clarity around their situation, for risk assessments, things like this. And that was one of the hardest things, and an older attorney said it's okay to say I need to research this further, I need to look into this, you know, this is something I haven't worked on before, let's look, you know, whatever it is.

And that was the first couple times, I was like, no. And then I realized, like, they don't expect you to be a walking encyclopedia. And so, but getting there, I think, especially when you're really new, and you know, fresh out of law school, it's a real, it's a real thing. But I joke with clients, like you can say anything to me, attorney-client privilege. I will never tell anybody that you said you didn't know what a bond was, or you know.

Melissa: Yeah, yeah, exactly.

Megan: Our secret, I'll go to the deathbed with it.

Melissa: Yeah. That's such a great example. Those are the kinds of questions that I think people feel silly maybe asking, but you need to ask. You should feel comfortable enough to ask someone who can get the...

Megan: Or at least if you're going to put your money in that. That's my number one thing. Don't invest in anything you don't understand. So you don't have to know about it if you're not investing in it.

Melissa: Yes, yes, yes, yes. The other thing that struck me as this, I know we should move on to the next myth, but you know, you're talking about the different roles that people on your team play, right? And the role that you play versus an accountant versus an advisor.

And it almost feels very similar to, you know, when you own a business, there's someone over here that has this specific set of responsibilities, and there's this person over here that has a specific set of responsibilities. And how beautifully things work when people are clear or when you are clear on who is responsible for what.

And it seems like the work that you do is pretty high level from like a strategic standpoint, where by nature, an accountant's job tends to be a little bit more into the weeds of the numbers, and so it makes sense to split out those responsibilities. It's not that the accountant can't have an opinion or can't flag something, but really having someone be that partner for the strategy and that's their job, that's their sole job, seems really smart to me.

Megan: Yeah, totally. It's great to be able to bounce ideas off each other, bring different levels of expertise, different perspectives, because it really is an art, at the end of the day. Every time you make a financial decision, you're funneling money towards one objective as opposed to another. You have a choice. You're opening some doors, closing others.

So if you put, I don't know, $50,000 towards your retirement plan, that's a choice where instead of investing it into your business, you're going to go this direction. You know, every money, often you're looking at finite amounts at certain points in time and deciding where do I want to plow this and how does that serve the goals that I want to seek? So if you're in expansion mode, maybe you are pushing it back into your business. If you're heading towards retirement, maybe you're pushing it the other way, or maybe you're splitting. It's such an art. It's such an… there's never one answer.

Melissa: Okay, let's move to myth number two. Myth number two is LLCs save you taxes by default. And so I'd love to hear what you have to say about entity structures. You know, can you explain what an LLC does and doesn't do for taxes?

Megan: Yeah, so this is a really common myth, especially as a lot of real estate investing kind of gurus came on the market. There was a lot of pop culture books about making money in real estate. Some of the popular ones are like Rich Dad, Poor Dad, um, goodness, who else? There's several all over a lot of YouTube kind of people, people doing seminars, etc.

So LLCs got really popular and with good reason. LLCs are great, but they're great for asset protection. That's their number one role in your portfolio. If you're using an LLC, it's asset protection to separate your personal from your business, or people put properties in them to keep that line separate.

And so they're great for that, but by default, they're actually taxed as pass-through entities, meaning that the money that you make in your LLC passes through onto your tax return as a sole proprietorship or if you're with others as a partnership.

So if you want to do any fancy footwork with your LLC, you have to make affirmative tax elections and take action tax strategy action. It's not just by default going to save you money, which is funny because a client came to me, he had an S corporation, actually, not an LLC, but he had started his own business. He was about a year in when he came to me, and he said I was expecting to save a lot more in taxes, and everyone told me start your own business. This is… You know, and even I tell people, starting your business is something that is tax advantaged. The tax code rewards this and incentivizes it by giving us things like deductions, etc. But all of these are proactive.

So if you don't save, you know, save your deductions, like track your mileage or keep your receipt from the computer you bought, or all of these things, and, you know, may for him, we thought, okay, maybe a solo 401k or structuring his health insurance. If you don't take any proactive action, then an entity all by itself isn't going to do a whole lot. You have to use that entity and all of the tax code sections applicable and use those to your advantage, the ones that apply.

The other issue that I see is not respecting your LLC. So some people get especially the people who love real estate, a lot of times will have a ton of LLCs because they have a lot of properties, which is great. I love the idea of keeping each one in its own little liability bucket, you know, they're keeping them separate from each other.

But a lot of times things can get really messy, and so they're not respecting a lot of people, I don't know, listening may remember from law school the term piercing the corporate veil. This is a term that means you need to respect your entity, and if you don't, the court will pierce the veil and see your entity as just an extension of you. You're not really treating it like a real business, your things like commingling funds, not maintaining corporate formalities. And a lot of this people associate because of that term corporate veil and corporate formalities, they assume that those rules only apply for corporations, but the piercing the corporate veil also applies to LLCs.

So if you form an LLC, you're expected to treat it like a business and have separate bank accounts and maintain, you know, an operating agreement, things like that to show that you're treating it like a real business. And so I think things can get a little fast and loose in the world of LLCs, and the tax outcomes are not always what people expect because they are not taking proactive action to see the tax results that they want to see.

Melissa: I mean, in the real estate example, what's the alternative if you don't have an LLC? Just put a batch in an LLC so that it keeps it less sloppy. That's probably not the answer, but what is the answer then, or a possible answer?

Megan: I mean, realistically, for really busy people is get help. Have your business attorney or your tax attorney or someone paying attention, or even your accountant, if it's if it makes sense, paying attention. So making sure that you have those separate bank accounts, that the, your bookkeeper even, is making sure you're designating which expenses are going to the right property so that the funds are not being commingled, having a separate credit card.

So it's not bad to have a lot of LLCs. It's nice from an asset protection perspective to keep them separate so that they don't, you know, issues on one property don't affect another property or lawsuits on one property don't affect another. So I'm not against having a lot...

Melissa: But you need to be organized. 

Megan: You need to be organized. Get a great bookkeeper, get a great business attorney, make sure because business attorneys a lot of times will handle your operating agreements and your state filings, the bookkeepers can make sure that your books are correct and you personally have to open bank accounts for them, but you can have separate cards and make sure you're charging, you know, on each property correctly. Any business attorneys listening right now are probably just nodding along like yes, preach it.

Melissa: Yeah, yeah, totally, totally. I mean, that's, you know, sometimes too when you start to accumulate assets and as you grow, it's not your first thought on, oh, I need to be very organized with this. I mean, it's a lot of work to actually acquire an asset, you know? And so it feels like a big lift, and if you put it in LLC, you feel really proud of yourself, and then you go to the next deal, and then before you know it, it's a mess. So it's really nice to just get a partner early that can help you stay really organized as you grow, as you grow your wealth.

Megan: Yeah, and a big benefit of real estate, why a lot of people invest in it is they want to make money off it, they want to use the depreciation deductions, things like that. So if you're not using it to its full potential, then you're not squeezing it for all it's worth, which was the point. It's an investment. You know, these rental properties, like, make it work for you. Take the time to get the benefits.

Melissa: Okay, my secondary question was what structures or elections really impact tax treatment, and how should a lawyer decide? 

Megan: Yes, so this is a good question. So most people will go to a business attorney and have an entity selected for them. A lot of accountants will actually provide this service. It's kind of a gray area. They're allowed to talk about it because it's related to tax, but they can't they can't veer into the un practice, unlicensed practice of law. So they can't draft your operating agreements or your bylaws for entities, etc.

But a lot of times they will give an opinion on what's entity type that they think might work for you. Some do, some don't. Sometimes, even financial advisors will do this. The issue here is if you look at the contract with any of these individuals, including business attorneys and most attorneys, they disclaim tax advice.

So if you look at your engagement agreement and almost every attorney in here probably has a clause in their engagement agreement that says this legal advice does not constitute tax advice, go to your tax advisor for if you have questions, etc. It's pretty standard. But the problem is, okay, so if no one's providing tax advice, who is, you know?

So, thinking about, you know, every attorney also has varying levels of tax knowledge. So some business attorneys are really amazing and well-versed in this, and even if they're still disclaiming tax advice to keep their malpractice insurance low or to like avoid liability, some of them have great knowledge, whereas others don't. There's places and certain firms that are kind of, they churn them out. They just do hundreds of them. They ask no questions. If you want an LLC, they make you an LLC. They don't ask why or what you're doing. It's just kind of a low-cost service, and they churn them out, and they're very template.

So, understanding the experience level of the person who's creating your formation documents and knowing whether or not they have your back, are they giving you tax advice? If so, what is it?

And the irony here, and I think where the confusion comes from, is almost every website that I've seen from business attorneys to accountants to even big companies like Vanguard or Schwab, I'm on like their email list, so I get them all the time, is they market around tax strategy. So I just got one this morning from Vanguard saying, lower, you know, pay attention to your taxes and do this, that, and the other. And yet they all disclaim that they're giving tax advice. accountants as well, saying this does not constitute tax advice, or you know, some version of that.

And so it's just understanding what you're getting and making sense of it because I think it is confusing when the marketing all says tax strategy. The financial advisors will have things on their website like tax-loss harvesting and backdoor Roths and things like that, but they're disclaiming any tax advice. The accountants, you know, will say maximize your deductions, put money in your retirement accounts, but again, disclaiming tax advice. So it's just knowing what you're getting and knowing the expertise of the person that's providing that to you.

Melissa: Will you speak a little bit to S corp elections, and I don't know, just that's a whole world as well with the um… most clients that I talk to, not most, maybe half, have an S corp election, which I know is different than being an S corp. So I don't know, I think there is a lot of confusion among law firm owners about out there about what are the options and I know you can't make a recommendation unless you really know what's going on under the hood of the business, but can you speak a little bit to some of the different common options for small to mid-sized firms?

Megan: Yeah, so I can tell you what the reasoning behind the S corp elections are. So if you're taxed as a sole proprietorship and you're not an entity, or say you're an LLC and it's just passing through to you onto your return, that's a sole proprietorship. Then you have to pay self-employment taxes, and this can be really high.

Whereas if you make that S corp election, so even if you're an LLC, you make the election or in California where I practice attorneys are not allowed to practice as LLCs, they have to be a professional corporation, which is a special type of corporation, but even those which started as C corporations, you can make the S election as well. And so what they're doing with that is trying to lower their payroll taxes, so social security, FICA taxes, by playing with the salary that they're paying themselves.

So when you are an S corporation, you receive two types of income. It's still pass-through, so it's not trapped like in a C corporation. It's still pass-through income, but you get paid in salary, so you're W2 salary, you get your W2 as an employee of your business. And then anything left over flows through as a distribution. And so distributions don't, are not subject to payroll taxes, so FICA, Medicare, social security.

Melissa: Can I ask you something? You're saying flows through, even if they don't transfer it to themselves, it is still, it is still they are taxed on whatever's left, whether they move it to their personal account or not.

Megan: Exactly. It's taxed every single year. And that is a big point of confusion. People think, well, I didn't move it from my corporate account to my personal account. Why am I being taxed on it? But an S corporation and an LLC are what's called a pass-through entity. So everything that you earn by at the end of the year is taxed whether you use it or not.

And you still get kind of credit for it. So if you pay taxes on that amount, it won't be taxed again next year. So you can grow your savings account, and it's called your basis. So you get a higher basis. So money that you've paid tax on already, it's not like your whole savings account balance gets taxed at the end of each year. It's only new money coming in; new income will be taxed. 

So your overall, say you made a million, you paid, and you paid yourself $500,000, $500,000 would be subject to payroll taxes and FICA taxes because they're going on your W2. The other $500,000 you made would flow through to your tax return and avoid those payroll taxes. So that's what people are trying to do, is avoid those payroll taxes by allowing some of the money to just flow through onto their tax return as a distribution as opposed to as a W2 salary.

Melissa: And so I'm imagining, so most of our listeners, like what you just said, when you said you made a million, that's your profit was a million, right? That's what you mean? Okay. So most people who listen, their salary technically will be a lot lower than that, and then they would take distributions. It would be a reasonable whatever. So also their accountants help them decide what's reasonable. Is the accountant the right person to help them decide that?

Megan: They can be. There's a lot of ways to go about it. There's a multi-part test that the IRS sets out. Um, there's also a lot of case law on this. The frustrating thing is the IRS has been very silent about giving us exact, it would be great if there was a chart or something, you know, architects get this much, engineers, lawyers, this is, you know, salary range. Instead, we're left to guess. We have to look at past cases. So what did, what flew, and what didn't fly?

You know, when you look at a case, oh, someone tried to pull off only paying themself $10,000, and they got caugh,t and they lost their case. Well, okay, $10,000's not good. You know, and then you'll look at another one, oh, someone got away with paying $200,000, so maybe $200,000's fine. You're looking at case law, really. It's really tough.

There's companies that you can pay for reasonable comp studies, reasonable compensation studies. There's no guarantee that it will hold up in court. I think it shows a good faith effort so that if you were challenged on your reasonable compensation amount, you could say, I pulled this study, I did all this research, people attorneys in my area make this much. I'm contributing this much to the business, etc. So it's kind of back up essentially, but there's not a there's not a gold standard number.

Melissa: Yeah. And another question I have that's, I'm like, I'm keeping us from the myths, but this is all such good conversation, and I know listeners and viewers will appreciate this. Who does it make sense for, or what would be the um circumstances where it would make sense to be an LLC straight up and no S corp election? It's just an LLC. Like, who does that make sense for? And I know in California you can't be an LLC if you're a law firm owner, but do you see what I'm asking?

Megan: I think so. So LLCs with no elections are great for real estate. So S-corporation elections come with a lot of rules and you have to follow a lot of there's a lot more stringency on what you're doing. Being an S-corp in general. So I look at what are there partners, you know, what are they doing, what's their income level, etc., to look at everything.

So some, a lot of people actually default into the S corp, so in my state, you know, you have to be a corporation, they make the S election, so they're not a C corporation paying that double level tax. However, sometimes with multiple partners, especially if a partner is an investor, it doesn't always make sense.

So the way that corporations work, try to keep this high level is the allocation of profits and losses that you get is dictated by how many shares you have. So if I have, you know, 50 shares and there's a hundred total, I get 50% of all profit and losses, right? And there's not very much flexibility with that. It's very rigid, especially in S corporations, because they have a lot of rules. You can't have multiple levels, like you can't have more than one kind of stock, you can't have preferred stock, all these things. S corps come with a lot of rules.

Whereas sometimes, if I have a lot of partners in a law firm, it may make sense to be a partnership and not an S corp because they, we may want to play with the numbers. So partnerships are the wild West. You can do tons of stuff, really fun stuff from a tax perspective because there's, you're not tied to shares. You can do anything with economic substance. So you can't wildly make up numbers if you know, but it works the best if you have someone who's coming in with money and another person who's coming in with skill.

So, for example, say you and I are going into business together, you have the cash, I have the ability to boots on the ground. We could play with it. Maybe you're in a really high income tax bracket, I'm in a really low one. You see this a lot with people who have, you know, want to be a passive investor or things like this.

We could play with it that where a lot of the losses are allocated to you and a lot of the profits allocated to me, because the losses are valuable to you because you're trying to lower your tax liability, you're in a high bracket. So you can play with that. You can play with who's getting profits, who's getting losses whereas if the profit's coming to me, if I'm at a low bracket, great, I'm paying less tax on it. You can do such interesting things with that.

Melissa: That sounds fun, from your perspective.

Megan: Yeah, it is really fun. And so a lot sometimes the rigid nature of S corp don't make sense, especially if we have partners coming in at different levels.

Melissa: What about a solo that's making between $500,000 and a million, which uh, as top line revenue. So maybe they're taking home, you know, I don't know, like something common I see is maybe they're taking home $150k, $200k. If they are a straight LLC, what are the things that you would look for to see if that is what they should be, versus doing some sort of S corp election or a different entity structure, for some reason?

Megan: A lot of times it comes down to just running the numbers. So I'll run it, you know, as a sole proprietorship or if they have partners as a partnership, and then I'll run it with the S Corp election, playing with different salary levels, etc and whatever has the best tax result, we do. So a lot of times, the numbers give you your answer. It doesn't have to be, you know, some crazy complicated thing. It's like, okay, if we run it this way, you pay less, let's do this.

Melissa: I mean, the reason I'm asking this is because I think people stay stuck in what they're in because they aren't getting that nobody's looking at this really. It's just kind of like, well, whatever. It's almost like hand-wavy for a lot of accountants that people will use. Some are great, and some are ahead of the game and say they'll run the numbers and say, hey, we should, you know, file for an S Corp election or whatever. And that's what my accountant did with me, which I'm very grateful. I was grateful for at the time that it made sense. But others aren't getting that advice.

So I will, I just, it's great to know you. I mean, that's I guess that's what I'm saying. People need a place they can turn where they can have someone who helps them decide what entity structure makes the most sense, along with other strategies, right? Tax strategies that might make the most sense.

And you know, I think I thought the accountant is the one that should be able to do that, but it feels like pulling teeth sometimes for the accountant to lift their head enough to spend whatever time it takes for them to figure out what might be the best. A lot of accountants are just a little like you're fine where you're at, you know, that's that's the kind of the conversation. I was like, okay, well, again, you're leaving the owner a little bit in the dark, and we're just supposed to trust what you're saying, but there's no real working with things here to see what makes the most sense.

I don't know if that makes sense. It just feels like there's a status quo that people just kind of get in a hum and a rhythm, and they do their taxes every year. No one's looking at any of this, and so I guess someone like you is the right move, maybe to, as a part of what you're going to look at, is their entity structure, and is, it does it make the most sense for them?

Megan: Yeah, absolutely. It's a very common frustration that I hear a lot.

Melissa: Yeah, yeah. I have a client right now who's, you know, they're about 5 million in top line revenue, and he's an LLC, and he's a solo, and I just have a hunch that's probably not the right entity structure, but I do not know. And when they ask this accountant, it feels like phone tag for a long time, and then it like drifts off, and the conversation doesn't happen. I'm like, okay, well, somebody needs, you guys need to figure this out. Like, what is the best route? Maybe they maybe you're in it, maybe you're not. But nobody really seems to have a definitive answer, and I think that's more common than people realize.

That's where we'll wrap part one of this episode. We've covered some of the most common misconceptions that keep law firm owners stuck in reactive tax habits, but there's more to unpack. In part two, we'll dig into the financial myths, share real examples of owners who turned things around with smart strategy, and talk about the simple steps you can take to start doing the same. 

This content is for informational purposes only, and does not constitute legal, tax, financial, or investment advice.

Hey, want to watch the video of this episode? Head over to Velocity Work’s YouTube channel. You’ll find the link in the show notes.

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Thank you for listening to The Law Firm Owner Podcast. If you're ready to get clearer on your vision, data, and mindset, then head over to VelocityWork.com where you can plug in to quarterly Strategic Planning, with accountability and coaching in between. This is the work that creates Velocity.