Management matters: Get ahead of the game — a year-end accounting checklist for law firms

Jeff Schoenberger is a business coach for Lawyerist and a senior consultant for Affinity Consulting.

Year-end accounting is a little like a dental appointment. Putting it off does not make it go away, and waiting usually makes the eventual experience more unpleasant.

December will be busy, but it does not have to be chaotic. Do not wait until Dec. 31 to start preparing your law firm’s year-end accounting. A little work now means cleaner books, better information, and fewer surprises later, giving you space to focus on other year-end tasks and your clients, while also helping you remain in compliance with Missouri’s Rules of Professional Conduct.

Get your books up to date

Start with the obvious: Ensure your accounting records reflect reality.

Confirm checks, deposits, credit card transactions, electronic payments, and other activities have been entered and your bank and credit card accounts are reconciled. If your accountant provided adjusting entries after preparing last year’s tax return, confirm someone posted them.

Then, look for repeat offenders. If your accountant corrected something last year, see whether you are making the same mistake again. Accounting errors, like weeds, have an irritating habit of returning.

Pay particular attention to:

• Payroll: Confirm that payroll, payroll taxes, benefits, and related expenses are going to the appropriate accounts.
• Loans and lines of credit: Ensure principal and interest are recorded correctly.
• Credit cards: Do not let a payment to the credit card company obscure what you bought. Verify the underlying transactions are allocated to the appropriate expense or asset accounts.
• Owner transactions: Ask your accountant to review distributions, contributions, draws, reimbursements, and other owner-related transactions if you are unsure how they should appear on the books.

Do this while transactions are fresh. “I think that $487 charge was for the office” becomes considerably less persuasive months later.

Reconcile your trust accounts

Make sure every trust transaction has been entered and attributed to the correct client or matter. Review individual client ledgers for unusual balances, including negative balances and money sitting in trust after a matter concluded.

Then, reconcile the trust account. A three-way reconciliation compares: (1) the adjusted bank balance; (2) the trust account’s book or register balance; and (3) the total of the individual client ledger balances. Those numbers should agree. If they do not, find the discrepancy rather than treating “close enough” as an accounting principle.

Rule 4-1.15(a)(7) requires lawyers to reconcile client trust accounts “reasonably promptly each time an official statement from the financial institution is provided or available.” If your bank provides statements monthly, make reconciliation part of your monthly routine, not a December cleanup project.

While you are reviewing trust balances, pay particular attention to old funds. Money remaining after a matter closes may signal an uncashed check, an overlooked refund, an earned but untransferred fee, or another issue requiring investigation.

Turn work into money

Run an accounts receivable report. Identify invoices that are 30-, 60-, or 90-plus days old and clients who need a reminder, payment plan, or more direct conversation.

Then, look at unbilled work in progress. Time sitting in your billing system ages like milk, not wine. Ensure timekeepers have entered their time and expenses, review draft bills, and send invoices promptly.

If your firm uses evergreen retainers, review client balances against your replenishment policies and engagement agreements. Make sure clients who need to replenish funds are doing so.

Clean up vendor records

Collecting W-9s from vendors remains good advice, although the federal reporting rules changed for 2026.

For nonemployee compensation paid in 2026, the general Form 1099-NEC reporting threshold increased from $600 to $2,000. Different rules and exceptions apply to some payments — including certain payments involving lawyers — so work with your tax professional to determine which information your firm must file.

Regardless of the threshold, collecting a W-9 when you establish a vendor relationship is considerably easier than determining in January that you need one.

Review your vendor list now for missing tax identification information and inconsistent names or addresses. Going forward, make collecting a W-9 part of your vendor-onboarding process.

Review major purchases

If you purchased computers, furniture, equipment, or other significant assets during 2026 — or plan to before year-end — talk with your accountant about how those purchases should be treated.

Current federal tax law allows some qualifying business property to be deducted immediately or depreciated more quickly. Eligibility, timing, and state tax treatment can complicate matters, so this is an excellent place to let your accountant earn their keep.

Give your accountant better expense categories

Many qualifying business meals remain subject to a 50% federal deduction limitation. Beginning in 2026, however, employers generally can no longer deduct certain employer-provided meals that were previously deductible, including some meals provided for the employer’s convenience. Other expenses, including qualifying employee recreational or social events, may receive different treatment.

Give your accountant enough information to apply the rules. Ask how they want client meals, employee meals, office food, holiday parties, and similar transactions categorized. Do not dump everything into one giant “Meals” bucket and wish your accountant good luck.

Apply the same thinking to other expenses that regularly require reclassification at year-end.

Look beyond the tax return

Use year-end preparation to examine how the firm performed in 2026. Consider reviewing:

• revenue and collections
• accounts receivable and aging
• realization and collection rates
• unbilled work in progress
• expenses
• profitability
• timekeeper performance
• performance by practice area
• progress toward the firm’s annual goals

Pick a handful of numbers that tell you whether the firm is healthy and moving in the right direction.

Give people information while they can still act on it. “You missed your annual goal by 100 hours” is history in January. “You are 40 hours behind pace with three months remaining” is management information.

Use 2026 to plan 2027

Once the books are current, turn around and look forward.

Use actual 2026 results to begin a 2027 budget. Consider anticipated changes in staffing, compensation, rent, insurance, software, marketing, equipment, and other significant expenses. Discuss expected owner compensation and tax-planning issues with your accountant.

Then look at cash flow.

Estimate when significant expenses will occur and when revenue is likely to arrive. If January and February are traditionally slow collection months, knowing that before year-end gives you time to build an appropriate reserve.

Give your accountant a head start

Finally, ask your accountant what they want from you. Every accountant has a slightly different preferred process. They may want particular reports, reconciliations, loan statements, payroll information, asset-purchase documentation, or explanations of unusual transactions.

Your accountant may also identify tax-planning decisions that need to happen before Dec. 31. On Jan. 1, some planning opportunities become history. The specifics will depend on your firm’s entity structure, accounting method, jurisdiction, owners, and financial circumstances.

A better year-end starts before year-end

Good financial systems make a law firm easier to manage. Clean books help you understand what you earned, what you spent, what clients owe you, and where the business is headed. Regular trust-account reconciliation protects clients and the firm. Better processes also mean less time spent reconstructing the past at year-end.

Remember to utilize The Missouri Bar’s Law Practice Management Center for no-cost practice resources and member benefits to help law firms with end-of-year tasks. Access your member resources at MoBar.org/LPM.

Starting now will turn your year-end accounting from an emergency into a process.