Why Your Law Firm Isn’t Anywhere Near As Profitable As You Think

, The Am Law Daily

   | 4 Comments

Conventional metrics significantly overstate law firm profitability.

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  • Bruce C. Lyon

    While not a measure of profitability per se, I favor gross revenue per full time equivalent attorney as least susceptible to differing interpretations.

  • WALTER LEE DAVIS JR

    As an Attorney and CPA (now retired), I enjoyed your article and agree that changes should be made as you suggest. It would be hard to get firms to agree on exactly how it should be done since it is really no one‘s business except each firm‘s with respect to its own accounting. Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership‘s income. A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. This treatment is for purposes of determining gross income and deductible business expenses only. For other tax purposes, guaranteed payments are treated as a partner‘s distributive share of ordinary income. Guaranteed payments are not subject to income tax withholding. The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. They are also listed on Schedules K and K-1 of the partnership return. The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership‘s other ordinary income.

  • WALTER LEE DAVIS JR

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