Law firm books cleanup. Make the four papers agree.

An owner who arrived with a trust account that will not tie usually has one paper that will not match. We start on that paper. The four papers agree, the operating books close beside them, and the return is prepared from that month. Nothing else is offered from this home: not a software menu, and not a fee called earned before the four papers agree. The four papers still have to agree on the day we named, whichever town the office sits in.

A trust account page gives two tips that matter more than any software menu. Reconcile the trust account every month. Understand the difference between a true non-refundable retainer and an advanced fee. Trust account errors are a frequent path into a disciplinary system. This page does not add a scare on top of that. The monthly tie is the tip.

Excel is one program that can hold the reconciliation. Objects inside a software file belong to a different search, and they are not taught here. Send one month, or name the paper that is missing. The four documents can travel as a PDF.

We open the quiet matter before anyone calls the other three a finished month.

An advanced fee can sit in the trust account and move to the operating account only as it is earned. Unearned fees are returned when the representation ends. A contingent fee matter also needs a written accounting, whether or not the client asks for one. We read the ledger before anyone calls a fee earned.

The relief is ordinary. The fee that has been earned can move. The fee that has not been earned stays. Nobody has to guess which pile a deposit belongs in once the month is tied.

When a settlement check arrives, the whole check does not belong in fee income. The duty is prompt notice and delivery of the funds the client or a third person is entitled to receive. A third person has an interest only when that person has a matured legal or equitable interest.

The claims with a shape are a statutory lien, a judgment, a court order, a written assignment, a subrogation right, or a signed letter of protection. A hope, a phone call, or a percentage somebody mentioned in the hallway is not on that list.

IRS Publication 5602, the Attorneys Audit Technique Guide, tells examiners that most legal practices use a general operating account and one or more trust accounts. The balance sheet should carry a liability for client trust accounts equal to the client schedules and the trust account balances. The guide says on its cover that it is not an official pronouncement of the law and cannot be cited as the position of the Service. It was revised 11 January 2022.

The same guide says an advance payment may be deposited to the trust account and transferred to the general account as it is earned, and that a cash basis retainer is generally taxable when received. The trust books and the return can tell two stories about one deposit. We read both before anyone picks a number.

An IOLTA account is one kind of trust account. All IOLTA accounts are trust accounts, and not every trust account is an IOLTA account. Client funds that are nominal in amount, or that the lawyer reasonably expects to hold for a short time, go into an IOLTA account because they cannot reasonably earn interest for that client. The interest is paid to the justice program that jurisdiction named for this purpose.

Closing the account is not only a bank form. The program that received the interest has its own notice, and that notice is a different act from the five year keep. Client money and any third person's share leave first. The bank balance can reach nothing only after those amounts are gone, and an unearned fee is part of that departure. We read the close steps beside the ledger before anyone calls the account shut.

A fee for legal services and a settlement are not the same line on an information return. For payments made in 2026, the IRS reporting threshold for Form 1099-NEC is 2,000 dollars, and that form is where payments to attorneys are listed. Gross proceeds paid to an attorney, such as in a settlement, are called out on Form 1099-MISC. A firm that also receives a payment that is not a fee has to name that payment before a form is chosen.

Payments made before 2026 used a 600 dollar threshold. Backup withholding is reported regardless of the amount. Cash over 10,000 dollars raises the Form 8300 question the attorney guide already tells examiners to ask. Publication 5602 says on its cover that it is not an official pronouncement of the law. The log should say which kind of payment it was before anyone reaches for a form. We read that log beside the return so a settlement is not quietly folded into fee income.

A lawyer who never formed a company files as an individual. Forming a limited liability company with a single owner can leave that company disregarded for federal income tax, so the activity can land on the owner's return. An S corporation election is a different federal choice, made on Form 2553, and it changes whose return carries the profit. Being disregarded for federal income tax does not, by itself, tell you which information return a payment used.

Estimated tax is how an owner pays tax that was not withheld. When wages were not withheld, the owner still pays on the April fifteenth, the June fifteenth, the September fifteenth, and the January fifteenth of the following year. A late form still belongs to the calendar year the money was paid in. Name the entity type before the return is prepared, and bring the payment log while that year is still open. We set payday up with a provider the firm already uses. Those wages do not travel through this practice. The return waits for a month whose four papers already agree.

Clio's 2025 benchmarks, taken from firms on its practice management system, are national averages, and they are not a client of this practice. Average utilization is 38 percent of an eight hour day. Average realization is 88 percent. Average collection is 93 percent. The published example on that page is about 3.0 billable hours recorded, about 2.6 hours invoiced, and about 2.4 hours collected.

The same page puts median realization lockup at 43 days, median collection lockup at 32 days, and median total lockup at 93 days. Clio defines lockup as the days of annual revenue tied up as unbilled work or unpaid invoices. The page did not split the figures by state. October is the month unbilled work can still be invoiced, while the trust liability stays off operating income.