Lynda ArtesaniLegal Accountant and Data Migration Specialist at The Proper Trust

What are advanced client costs and how to you treat them?

12 Apr 2024 · 1 min

Watch on YouTube

0:47

In this brief presentation, the speaker defines advanced client costs as expenses a law firm fronts for a client—such as medical filing fees—effectively providing a short‑term microloan that is later recouped separately from legal fees on the client’s bill. The discussion highlights the practical billing approach (separating these costs from legal fees) and raises a key accounting issue: while some firms simply record the amounts on their profit‑and‑loss statement, this treatment may conflict with IRS coding requirements, creating uncertainty about the correct tax treatment of these advanced costs.

Chapters

Advanced client costs, the simple way to say it is when you're advancing costs ahead of being able to charge for it. So for, you have a case where you have medical filing fees, those sorts of things. And so you're giving a microloan essentially to your client for a moment of time. And, and then you will be able to recoup that, those expenses separate from your legal fees on your billing. The thing I think that becomes a bit challenging is how do we treat those? So some clients have it all on their P&L. Essentially, it's fine per se, but not really, because really through the lens of when you read the coding from the IRS, that, that is actually not the treatment for it.