Law Firm Accounting Basics: Understanding Client Costs

Law Firm Accounting Basics: Client Costs

When law firms perform certain tasks on behalf of clients, they may incur costs associated with those tasks. Often, these costs are reimbursable. Correctly managing and tracking client costs is critical.

The Internal Revenue Service (IRS) recognizes that law firm client costs present a unique situation for law firm accounting professionals. They published the “Attorneys Audit Technique Guide” as an educational resource for auditors on the nuances of legal financial management.

Before you understand the importance of correctly tracking client costs, it’s important to understand the two types of law firm client costs: hard costs and soft costs.

Hard Costs or Advanced Client Costs

Hard costs or advanced client costs are costs that are directly tied to a case or client matter and can be reimbursed. The firm typically assumes the costs up front and passes them directly to the client.

Examples of hard costs include deposition feeds, expert witness fees, filing fees, travel expenses, and medical records requests.

Soft Costs

Soft costs are office-related expenses a law firm incurs in connection with a case. These may include in-house copying, phone, postage via a prepaid meter, parking, and mileage.

Understanding the distinctions between hard costs and soft costs and what is reimbursable is critical to effective law firm management.

Law firm financial professionals need to be aware of potential pitfalls and actively work to avoid them when managing client costs. In upcoming posts, we’ll explore common pitfalls associated with incorrectly tracking client costs and provide actionable insights to steer clear of them.

About SurePoint Technologies

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