A mid-sized law partnership discovers that a complex new structure is easy – and worthwhile – to implement in the hands of the right professionals
T & M were successful owners of a mid-sized personal injury law partnership.
Each year their personal income (which was quite substantial) was reported on their personal income tax return, which meant they were each losing roughly 44% of their income to taxes.
They knew something needed to change, but were worried about how complex that change could be.
We suggested a re-organization.
If done successfully, the partnership would be split into three corporations: one main corporation, and two smaller law corporations for each partner.
Each year, the company’s profits would be split between the two corporations. Each partner would draw a salary, and that remaining profit would only be subject to the small business taxation rate of 13.5%.
It took T & M almost two years – and hundreds of thousands of unnecessary dollars in taxes paid – to decide to give the proposed structure a try.
An additional tax expert was brought on to manage the complexity of the task. He was responsible for ensuring all the necessary paperwork and contracts were done.
The team worked diligently over a couple of months, and sorted out all the required changes, with very little work falling to T & M.
In the first year of the new structure, each partner paid almost 50% less in taxes than they had in the previous year.
The company was also structured to include the potential for two other law corporations, should T & M wish to bring on new partners
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