Business of Law

Fiscal Cliff Means New Strategies--and More Business--for Law Firms; Deferred Bonuses Help Partners


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There is a new reason why law firms want clients to quickly pay their bills before the end of the year.

The fear is that the fiscal cliff will result in higher tax rates next year, Reuters reports. Firms want to shift income to this year, and that means they are working hard to collect outstanding bills and asking some clients to pay retainers this year rather than next.

Firms are also deferring expenses until 2013 to help offset income that will be taxed at higher rates. One law firm—Weil, Gotshal & Manges—is breaking from recent tradition and paying associate bonuses in January rather than December, Reuters says, referring to an account by Above the Law.

According to Reuters, the change “exposes the associates to a bigger tax bite by shifting the income to next year, when tax rates are expected to be higher, but it reduces the potential tax liability for partners by allowing them to report higher income in 2012 before the more punitive rates kick in.”

Law firms are profiting, however, by new business being generated by possible tax changes, including reduced breaks for estate taxes and transfer taxes for gifts, the Wall Street Journal Law Blog (sub. req.) reports. Nixon Peabody CEO and managing partner Andrew Glincher tells the newspaper that lawyers are swamped. “They’re helping clients create dynasty and generation trusts, they’re helping clients sell securities. … This year it’s just been unbelievably busy.”

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