MML #012: The Domino Effect: How Smart Planning Unlocks QBI Tax Savings for Your Law Firm

I recently sat down with Beth, a successful family law attorney who had resigned herself to missing out on the Qualified Business Income (QBI) deduction. "My income is way too high," she sighed, sliding her tax documents across my desk. "I've just accepted that some tax benefits aren't meant for attorneys like me."

Sound familiar? Many of you have likely come to the same conclusion. But here's what I told Beth – and what I want to share with you today: The door to QBI benefits isn't as firmly closed as you might think.

QBI Deduction: The Opportunity You Might Be Missing

First, let's refresh our understanding. The QBI deduction allows eligible business owners to deduct up to 20% of their qualified business income. For law firm owners, this could mean substantial savings – but there's that pesky income threshold.

For 2025, the QBI deduction begins to phase out at taxable income of $191,950 for single filers and $383,900 for joint filers. Many successful attorneys see these numbers and immediately write off the possibility.

But here's where strategic financial planning creates a cascade of benefits.

The Planning Cascade: How One Move Creates Multiple Benefits

When Beth and I looked at her complete financial picture, we found several opportunities to restructure her approach:

1. Retirement Plan Optimization: Beth had a SEP IRA but hadn't maximized her contributions. By switching to a Solo 401(k), she could contribute up to $69,000, immediately reducing her taxable income. "But that's just delaying taxes," she pointed out. "True," I replied, "but it's also creating immediate tax savings and helping position you for QBI eligibility today."
2. Health Benefits Structuring: We switched Beth to a High Deductible Health Plan (HDHP) paired with a Health Savings Account (HSA). This allowed her to contribute $4,150 pre-tax (the 2025 individual limit), creating immediate tax savings while building a tax-free fund for qualified medical expenses.
3. Timing Income and Expenses: By accelerating certain business expenses into the current year and deferring some billable hours to January, we further adjusted her taxable income.

The result? Beth's taxable income dropped below the threshold, opening the door to QBI benefits she thought were permanently closed.

Real Numbers, Real Savings

Let's look at Beth's transformation:

Before Planning:

• Taxable Income: $210,000
• QBI Deduction: $0 (over threshold)
• Tax Savings: $0

After Planning:

• Solo 401(k) Contribution: -$69,000
• HSA Contribution: -$4,150
• Strategic Expense Timing: -$8,000
• New Taxable Income: $128,850
• QBI Deduction (20% of QBI): $25,770
• Additional Tax Savings: Approximately $7,731 (assuming 30% effective tax rate)

Plus, Beth gained the advantage of tax-deferred retirement growth and better health coverage options.

Beyond the Numbers: What This Means for Your Practice

The most powerful aspect of this planning cascade isn't just the immediate tax savings—it's the long-term stability it creates for your practice.

Mark, another attorney who implemented similar strategies, put it this way: "For the first time, I feel like I'm working with the tax code instead of against it. I'm building my retirement and reducing my tax burden at the same time."

Your Next Steps

If you're thinking "this won't work for my situation," I encourage you to reconsider. Every law practice has unique opportunities for strategic planning. Here's how to start:

1. Take inventory of your current retirement savings strategy – Are you maximizing all available options?
2. Review your health benefits approach – Are you structuring these for maximum tax efficiency?
3. Look at your income timing – Are there legitimate ways to manage when income is recognized?
4. Consider entity structure – Sometimes, adjustments to your business structure can create new planning opportunities.

Remember, Beth initially believed she had no options. A comprehensive review revealed multiple pathways to savings that compounded upon each other.

The most successful attorneys I work with share one common trait: they apply the same analytical thinking to their financial planning that they bring to their legal cases. They question assumptions, look for creative solutions, and aren't afraid to restructure their approach when the evidence suggests a better way forward.

Your practice deserves that same level of care and strategic thinking. Let's make sure you're not leaving money on the table.

Looking for more?

After years of guiding attorneys through their financial journeys, I've distilled the essentials into my  "5 Step Guide to Financial Freedom for Small Law Firm Owners."

This free resource addresses the unique challenges you face—from managing irregular income streams to optimizing tax strategies specific to law practice owners—and provides a clear roadmap to build wealth while growing your firm.

Remember: every day you wait to implement a financial strategy is another day compound interest isn't working in your favor.

Download the guide today, and let's start making every minute count—both in your practice and in your portfolio.