W-2 to 1099 income Attorney in Law Firm

[notmilesdavis69420]

Hi all,

I have a tax strategy question

Right now I am an associate attorney in a law firm with a salary of W-2 $150,000. I want to start my own LLC and become “of counsel” to the same firm (a sort of contract attorney) and have them pay my S-Corp instead of me, hopefully this way I can take some good legal deductions. A few thoughts:

1. Will it look suspicious to the IRS if they see I worked at “Law Firm A” for 5 years, now all of a sudden am on my own but am still getting checks for payment from “Law Firm A”.

2. I had a 401k with the firm, and want to roll it out into a self-directed IRA will there be any problems here?

2a. I have a 401k with company A and my own Roth IRA with Fidelity. Does opening a “checkbook IRA” have any implications with this? Do I need to merge the Fidelity IRA with my checkbook IRA or can I have both a ROTH IRA and checkbook IRA that runs my 401k.

3. I heard somewhere that the max deductions for an S-Corp contributing to their 401k is 50k a year is that true? That seems like a ton of money to put in a retirement account.

4. I anticipate a large business expenditure for my S-Corp will be on the purchase of Bitcoin for research and development purposes (lots of lawyers don’t know how bitcoin works and I need to figure out how it works.) Will the IRS laugh at me for this expenditure and audit me, or will receipts from cryptocurrency platforms such as Coinbase, Binance, Jemini crypto exchange be enough to demonstrate tax deductible expenditures.

5. What other tax deductions can my S-Corp legally make a few thoughts below

•   I need to rent a space to run my law firm if I use my own home I can deduct the rent payments I made
•   If I have clients that do not pay their bill and large accounts receivable can I deduct this?
•   I often need to buy things from Amazon and eBay for litigation research (computer chips, instrument parts, clothing). Are these deductions valid?
•   I travel and take clients out to lunch a lot for business development what is the best way to catalog these receipts for tax purposes.

6. What are other good deductions most law firms should be making?

Thanks a lot!!!

[Sibley]

1. Possibly, but more importantly the IRS has rules about W-2 vs 1099. If you fall under the W-2 side, attempting to do otherwise can get you in trouble.

2. This is a standard rollover from 401k to IRA. Depending on who's custodian for the money now, some of them make it more or less easy to do the rollover.

2a. I'm not an expert in the checkbook IRA, but also am not sure why you'd want one. Seems like way too much work. Anyway, I don't know why you couldn't have 2 trad IRA accounts. You might want to keep them at separate institutions if accidental comingling is a concern.

3. don't know, sorry. should be a quick google search though

4. Buying an investment is not a business expense. Actual expenses MAY be deductible, but would be the same as if you bought stocks or bonds. (Think fees.) I don't remember the details on this, again google is your friend.

5.
Rent - if you rent an office, yep. If you use your home, that's called a home office and those requirements are well documented.
Bad debt - only if you're accrual basis. Cash basis is easier and more expected for something like what you're thinking.
research items - If you can support why these are needed for research, yes they're deductible. Frankly, your specific examples sound more like you're trying to deduct your personal expenses, so make sure you can convince a dour faced IRS agent with no sense of humor who has the power to bury you in fines and penalties, if not criminal charges.
What you're looking for is called meals and entertainment, and is also covered explicitly by the IRS. Again, you need to make sure that you can convince the dour IRS agent who really thinks you're full of BS.

6. I'm more familiar with accounting firms but they're similar in many respects. In general: payroll, office space/furnishings, utilities, office supplies, professional memberships/licenses, continuing ED costs, subscription costs (legal library, etc), etc. You should be able to figure it out by what your current firm pays for.

However. Unless you're in some really weird area of law, you seem to be playing fast and loose with the concept of what's deductible. You don't get to indulge your hobbies, you don't get to expense your entire wardrobe, and you don't get to call everything a business expense just because you want to. I presume you've been at your current firm for several years at least. You should therefore have a decent idea of what they're paying for. Not because you've seen the books, but because you kinda absorb this stuff. And if you do this, you'll want a decent CPA or similiar to help get everything setup. Also ask them to give you the run down of what can/can not be deducted. Then believe them.

IRS.gov will also be of help. They are the source.

[LightStache]

1. Just make sure you're truly independent. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

2. Shouldn't be a problem.

2a. I don't understand a "checkbook IRA that runs my 401k."

3. Small business owners sometimes contribute hundreds of thousands of dollars per year into defined benefit plans. The limits for 401k generally go up every year. It's $58K in 2021 if you're under 50. But the profit sharing component is capped at 25% of your W2 income, so set your S-Corp salary with that in mind.

4. Wow this just went off the rails. You figuring out how something works is not research and development. As a separate issue, buying crypto is not an expense. If you want to take "legal" deductions, this is wayyyyy off the mark, not even in the grey zone.

5&6. This is too broad of a topic to address every possible deduction. Being an S-Corp owner is going to majorly reduce your taxes and open up very high retirement plan contributions. Generally speaking, expense deductions are bad because they mean you're spending money, lowering your net income (profit). You want high net income. So I agree with @Sibley that your ideas on deductibility are pretty out of line with what's "legal," but I also suggest that you shouldn't be so focused on maximizing them anyway.