Law firm bookkeepers need to know about 2026 tax changes: bonus depreciation is back at 100%, the 1099 reporting threshold jumps to $2,000, and onsite employee meals are no longer deductible. California raised C-corp rates to 1.5%-9.3%, and New York now requires annual beneficial-ownership filings with daily fines for missing them.
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Welcome back. So fellow law firm bookkeepers and accountants, this week's video is all about what you need to know for 2026 as you start to to do the books for 2026. Some things are good, some things are not so good, and some of the changes, but there's nothing really like life-changing here. But it's some things you should know as you start to do bookkeeping for 2026. I think the first thing you wanna know is, of course, we all were through the drama of the one big beautiful bill and all the drama that went around getting that passed through. One of the good things that Congress did pass it through. It permanently locked in some of the most client-friendly tax rules we've seen in years. So what are they? Uh, one thing that has been considered and is permanent now is that 100% bonus depreciation is back in permanent. Under the old law, it was phasing down, was going to be 40% in 2025, going down to 20% in 2026. The one big beautiful bill says, nope, it's 100% again. And anything placed in service, that's the key date, after January 19th, 2025, it never phases out. So some of the examples of things you might see that a law firm could write off: software, high expenditures on software subscriptions, software itself qualifies, computers, monitors, e-discovery servers. Office furniture, maybe they're doing an improvement and building out a new conference room that will be able to be written, written off in the year that the money was spent. I think that's really important, and I think that's one of the better things about the tax changes in 2026. Make sure you document that service date that the item was put into service. The IRS loves to challenge that in audits, so make sure you document it when it started to be put into service. And this also will stack with the increased Section 179 limit, which is another good one that is going to be— it's increased, so inflation adjusted to roughly $1.28 million in 2026, and the phase-out will start out at about $3.2 million. The 1099 thresholds— this is the one I want to see like fireworks and confetti coming down. The 1099 threshold for 2026 is going from $600 in 2025 to now $2,000. So that's going to be fabulous for us, especially because most of our bookkeeping firms, we process these 1099s. That includes 1099-NEC and miscellaneous. That'll be fewer forms to process. If you have freelance paralegals that you spend less than $2,000 with, you won't have to send them a 1099. And this also includes expert witnesses, court reporters. It's a huge admin relief. And I know for our firm, it's a big relief. Mm-hmm. Make sure though that you— we're probably, as it's January, we're in the thick of getting 1099s ready for 2025. That $600 rule still applies. So what are some of the bad things? One of the bad things is business meals and onsite snacks deduction's gone for 2026. That 50% deduction for onsite employee meals and snacks. Think about maybe late night trial prep pizzas that you may order or things that you'll see, conference room Keurig. Those are completely eliminated for 2026. Client entertainment meals offsite are still 50% deductible. So you can start taking those expert witnesses out for a steak dinner instead of DoorDashing with your office. That's the only way you're gonna get that expense. So make sure you know this ahead of time. So some of the state rules that have changed, and the typical states you would see, California C-corps, which isn't something we see much with law firms, but sometimes PI firms use them. They're gonna have a new tiered tax rate of 1.5% to 9.3%. Look, California is a very high tax state. New York. So there's an LLC Transparency Act that starts January 1st, 2026, and every New York LLC must file beneficial ownership annually or face a fine of $250 to $500 per day. Yeah. That's the penalty. So set up a calendar reminder right now to put that on your list of things to do. Illinois, Oregon, and Washington, of course, B&O and CAT taxes on services went up. Multi-state firms need to rerun apportionment. So some of the things you're going to have to look at. One of the things I've been seeing, some of the advertising that CLE deductions are going to change. I get that panicked email from an attorney. I heard they're no longer deductible. Oh, they still are 100% deductible. If you see that maybe you saw something that under Section 162 that you're not able to take that ordinary business expense for your bar dues or your malpractice insurance, none of that's changed. And if the CLE provider is telling you that there's a new special credit, they just want you to pay the $2,000 seminar fee. So watch out for that. So one of the things you want to do if you're in the midst of preparing the records for the tax person, from 2025 for the tax return to be done on 2025. You want to pull a fixed asset schedule, take a look at what you got, maybe take a look at what furniture purchases may be planned for 2026 and make sure it's placed in service in 2026 to grab that 100% bonus. Also review your vendor lists and your customer list, but look at your vendor list to see if any more 1099s need to be done. That's kind of part of the work we do in January. So look at that. If you're in New York, have New York clients, talk to them about filing the first Beneficial Ownership Report. It's due throughout 2026 based on your formation date. Update your chart of accounts too. That's another good little task to do right now as we're in the beginning of the year. Create new GL codes for any nondeductible meals and snacks so nothing accidentally gets deducted in 2026. Update the record so the client is aware, and that'll even maybe spark the conversation if you change that. Deduction and the amount of like the staff meals. Let them know that's no longer deductible. Subscribe your clients to State Bar email alerts. It'll take 2 minutes, but it'll keep you from missing any IOLTA or trust accounting changes. You can sign up right at the local bar, put it in for your client's email too, so they get the update as well. So you don't miss anything if something gets passed. Also, and the last thing that firms that will crush 2026 tax season are the ones that are using the right software. Law firm software, practice management specific, think Clio Manage, Cosmolex, maybe Centerbase, cloud accounting, bookkeeping, that you can tag those non-deductible meals, make sure that you have them in place so they understand when they get their tax return done that maybe the difference, their profit went up, is because that was deducted. They used firm funds to pay for that, but it wasn't a deduction with the tax return. So think Clio, LeanLaw, QBO, Xero, any of those that you use. If you're still on desktop QuickBooks or using Excel, why? In 2026, that's just— I just, we need to talk. If you're still doing that, we really need to talk. It's just not a good thing to do. So the bottom line is 2026 is actually a huge win for most law firms. That permanent 100% bonus, fewer 1099s. As long as their bookkeeper is on top of the new rules, this is where we wanna shine and be that bookkeeper that's proactive. Drop a comment and tell me which change you're most excited about. I bet it's the 1099s. And give this video a thumbs up if you're ready to take on 2026 as your most profitable year for your bookkeeping firm. And I'll see you on the next video. Bye now. Bye.
