Being a high-income lawyer in Texas brings both financial opportunity and tax responsibility. While Texas offers the advantage of no state income tax, federal liabilities remain substantial—especially for legal professionals earning in the top brackets.

This guide outlines how to reduce taxable income legally through retirement accounts, business entity structures, capital gains planning, and IRS-compliant deductions tailored to legal professionals practicing in Texas.

How Texas Tax Law Affects High-Income Lawyers

Texas doesn’t tax personal income, but federal taxes still apply—up to 37% in the highest bracket. Many attorneys also owe self-employment tax, which adds 15.3% on top of income tax if they operate as sole proprietors or single-member LLCs.

State-specific obligations include:

• Franchise tax: Law firms structured as LLCs or PLLCs with more than $1.23 million in gross receipts must file and potentially pay a Texas franchise tax.
• High property tax: Especially in metro areas like Dallas or Austin, property tax can exceed 2% annually.
• Sales tax: Texas imposes a 6.25% state sales tax, with local add-ons up to 2%.

Texas law affects tax planning by shifting emphasis toward federal deduction optimization and entity structuring.

What Are the Best Retirement Accounts for High-Income Legal Professionals?

Retirement accounts are among the most powerful tools to defer or reduce federal taxes. High-income lawyers can take advantage of multiple plan types depending on their practice structure.

Top Options:

1. Solo 401(k)

• Allows employee + employer contributions up to $66,000 (2023).
• Ideal for solo lawyers or small firm owners with no full-time staff.
• Can include Roth and traditional portions.

2. SEP IRA

• Contribute up to 25% of compensation (max $66,000)
• Easier to set up than a 401(k), but doesn’t allow catch-up or Roth contributions.

3. Backdoor Roth IRA

• High earners can convert after-tax traditional IRA contributions into Roth IRAs.
• No income limits on conversions, making this legal workaround very effective.

4. Defined Benefit Plan

• Suitable for lawyers earning >$250K+ with stable income
• Can allow $100K–$300K+ contributions annually
• Ideal for late-career high earners needing tax deferral

How to Use Business Write-Offs as a Solo Legal Practitioner

Solo attorneys can significantly reduce taxable income by deducting allowable business expenses under IRS Publication 535.

Deductible Expenses:

• Legal software: Clio, LexisNexis, Westlaw
• Continuing education: CLE courses and law conferences
• Professional dues: State bar, ABA, legal associations
• Malpractice insurance
• Home office: Actual expenses or simplified method
• Office equipment: Computers, printers, office chairs
• Client-related meals and travel (50% limit)

Compliance Note:

• Use Schedule C (Form 1040) for reporting
• Maintain receipts and logs for each category
• Apply de minimis safe harbor (items <$2,500 can be expensed directly)

Entity Structure Optimization: LLC, PLLC, or S-Corp?

Choosing the right business entity impacts how much tax you pay and what compliance requirements you face.

Common Structures:

1. LLC or PLLC

• Offers liability protection
• Default tax status: sole proprietorship or partnership
• Fully subject to self-employment tax on net income

2. S-Corporation Election

• Reduces self-employment tax through salary + distribution split
• Must pay a reasonable salary via payroll
• Lower audit risk when set up and maintained properly

Comparison:

How to Minimize Capital Gains Taxes as a Legal Professional

Capital gains taxes affect lawyers with investment portfolios, real estate holdings, or business equity.

Reduction Strategies:

• Tax loss harvesting: Sell losing assets to offset gains
• Hold investments for >12 months to get long-term capital gains rates (15% or 20%)
• Donate appreciated securities to reduce both income and capital gains taxes
• Invest in municipal bonds: Interest income is tax-exempt federally
• Use opportunity zones or 1031 exchanges for real estate

Smart Tax-Saving Strategies for Texas Attorneys With W-2 Income

Not all high-income attorneys are firm owners. For those employed by a firm and receiving W-2 income, above-the-line and pre-tax strategies still apply.

Key Tactics:

• Max out 401(k) and Backdoor Roth IRA contributions
• Utilize Health Savings Accounts (HSA): $3,850 (individual), $7,750 (family)
• Use Flexible Spending Accounts (FSA) for dependent care or medical costs
• Apply for spousal IRAs if one spouse doesn’t earn income
• Reimburse unreimbursed work expenses using accountable plans if firm allows

Combining Legal Income with Real Estate or Passive Investments

High-income lawyers often invest in real estate or limited partnerships to create diversified income streams and apply depreciation against earned income.

Real Estate Advantages:

• Use cost segregation to front-load depreciation
• Offset rental income with mortgage interest, insurance, maintenance
• LLCs for each property shield liability and improve recordkeeping
• Consider REITs or syndications for hands-off investment with flow-through tax benefits

Year-End Tax Checklist for High-Earning Texas Lawyers

Frequently Asked Questions

Final Thought

High-income lawyers in Texas must focus tax strategy on federal tax reduction, given the absence of state income tax. By using retirement accounts, choosing the right entity structure, maximizing deductions, and minimizing capital gains, attorneys can legally reduce their tax burden while building long-term financial stability.Working with a qualified CPA or tax attorney who understands legal professionals and Texas compliance is critical for maximizing your savings and staying compliant with the IRS.