Starting a Law Practice in a Home Office

					practice tips                                                                                                                      BY KEN SWENSON




Starting a Law Practice in a Home Office

EVEN IN THE BEST OF TIMES there are good reasons to operate a solo malpractice insurance, marketing and advertising expenses, business
legal practice from a home office. But in a recessionary market, there development expenses (including lunches, so long as substantive busi-
may be an even better reason. By August 10, 2009, more than 10,000 ness discussion occurs), continuing legal education expenses, and oper-
lawyers had been laid off from large national firms nationwide.1 ating and technology expenses. A law firm employee, on the other hand,
The number is even higher when smaller firms and corporate law often pays some or many of these same costs but cannot take the
departments are considered, as well as job losses resulting from firm deduction unless the expenses are unreimbursed by the employer and
and corporate closures. With approximately 11 percent of California’s exceed 2 percent of the employee’s adjusted gross income.
labor market unemployed (defined as those filing claims for unem-                There are several providers of professional liability (or malpractice)
ployment benefits), there is no safe haven, as private practitioners, pub- coverage, and it pays to shop. Coverage is not cheap and will depend
lic interest lawyers, in-house lawyers, government lawyers, and even on the location of the practice, its type, and the age or experience of
legal educators are all at risk.
     However, setting up a solo practice from a
home office has its own share of burdens.
Among them:
                                                        One of the most significant areas of malpractice for sole
• Tax considerations, especially the home office
deduction and the self-employment tax.
• Professional insurance.
                                                        practitioners is missed deadlines or hearing dates.
• Business development.
• Operating practices (income and expense
tracking, billing, filing, conflicts checking, and tickler systems).         the practitioner. California lawyers are not required to carry malpractice
• Selecting and establishing a plethora of technology hardware and insurance, and some sole practitioners choose to go without. However,
services.                                                                  the practitioner who incorporates as a professional law corporation
     The home office deduction allows a taxpayer to deduct as an item- or forms a limited liability partnership must carry malpractice insur-
ized expense that portion of apartment rental or home mortgage costs ance or provide other financial responsibility arrangements.4 Providers
(and related utility costs and other verifiable upkeep and maintenance referred to lawyers through the California State Bar may offer a pro-
expenses) attributable to the amount of the home that is used regularly gram for part-time lawyers (generally based on total hours worked,
and exclusively (and the IRS pays attention to “exclusively”) as the prin- billed and unbilled). Since the home office solo may not generate a full-
cipal place of business, or for client meetings or business-related stor- time work load, the part-time program can save thousands of dollars.
age.2 The amount of space that may be calculated for purposes of the
deduction is not limited in size and may consist of the square footage Business Development
of a file cabinet to several rooms or a separate structure.                 Working from a home office offers many conveniences but also car-
     The self-employment tax can be a real surprise. This tax, required ries with it the possibility that clients or strangers will appear at one’s
under the Internal Revenue Code,3 is the part of the Social Security home for unscheduled meetings. In addition, mail services and private
and Medicare tax that an employer pays on behalf of its employees. delivery companies may appear at inconvenient times. Having a res-
The sole practitioner is employer and employee, and so must pay both idential address as a business address also may appear less professional
halves of the tax. It must be estimated for the year based on antici- and may lead to increased junk mail and invasions of privacy.
pated income and then paid in four quarterly installments with IRS             To create a separate business address without incurring the expense
Form Schedule SE. If the attorney is making less than expected, the of renting office space, the attorney can rent a private postal box. In
estimated amount can be reduced at the time of the next quarterly most cases, the address available through a private postal service is
payment, and the payment adjusted accordingly. Of course, in the the street address of the location plus a suite number. The private box
happy event that the attorney earns more than expected, the estimated approach offers advantages over the U.S. Postal Service, which
amount, and the quarterly payments, must be adjusted upward. At requires the use of the P.O. Box designation and does not accept pri-
the end of the year, when the attorney files his or her annual tax return, vate courier deliveries. Additionally, many subscription, online ser-
the final amount of self-employment tax is calculated based on actual vices, and delivery services (such as Federal Express) require registration
income earned, with overpayments being reimbursed or applied to the using a street address and not a U.S. Post Office box. The rental fee
next quarterly installment, and underpayments being made up or for these private boxes is generally low, and to save money, the attor-
included in the next quarterly installment.                                ney can rent the smallest box available, and the store will hold larger
     One benefit of being a sole practitioner is that virtually every busi-
ness-related expense is tax deductible from the income of the business.    Ken Swenson is in-house counsel with Bank of America in Los Angeles and
This includes half of the year’s total self-employment tax, premiums for   previously started and managed a solo practice in his home office.

18 Los Angeles Lawyer October 2009
packages and put a note in the box.                 include prospective clients or prospective         marketed for legal practice, expense and
     A Web site may seem unnecessary, but           referrals. For attorneys with children, chil-      income tracking and legal invoicing are com-
potential clients—even those who are cost           dren’s events and school activities also offer     bined in an integrated suite. Before spending
conscious—want a lawyer who appears savvy           opportunities to meet new people and create        money on these programs, however, make
and professional, and the lack of a Web site        new relationships. Sports activities have long     sure they are compatible with any electronic
may be enough to send the prospective client        been recognized as a way to create new busi-       invoicing programs that clients may be using.
elsewhere. A Web site does not have to be an        ness opportunities.                                Electronic invoicing requires that billing infor-
award winner, but it should be uncluttered and          To network is to plant seeds. Although the     mation be prepared in a specified format and
layered—which is to say, it should have easy-       lawyer may get lucky and attract immediate         uploaded to the electronic system,5 and these
to-find information that invites the user to         business, most networking requires time and        electronic systems sometimes are limited in
navigate deeper into the site. There are numer-     nurturing to pay off. But it is usually well       the technologies with which they are compat-
ous companies that offer Web hosting ser-           worth the effort, since the business it devel-     ible. Also, it pays to shop around for these
vices. Some offer assistance with setting up        ops is founded on personal relationships,          invoicing programs, as many are very sophis-
sites. Alternatives for site creation are private   respect, and mutual cooperation.                   ticated and include features the home office
Web development professionals and do-it-                There is nothing wrong with business           practitioner would probably rather pay an
yourself books and software.                        development or even client meetings that           accountant to perform.
     Other Internet alternatives are social net-    include entertaining at home. However, for             Even though electronic storage may limit
working site or sites. MySpace and Facebook         most business meetings the sole practitioner       the need for paper storage, even digital files
have gained acceptance, particularly among          working from a home office is just as interested   need a system of labeling. It is advised to use
younger users, and LinkedIn was created to          in creating a professional environment as the      a uniform system of creating and naming
appeal specifically to professionals. The attor-     practitioner working from offices outside of       digital file folders. Although over the course
ney should craft a Web presence with an             the home. Fortunately, around Los Angeles it       of a few months it may seem a simple case to
appearance on each site that is appropriate to      is possible to rent flexible-space meeting rooms    remember where various documents or com-
the clients the attorney represents.                and offices. These facilities are equipped with    munications are stored, over many months or
     Similarly, an electronic mail group in         parking and communications services and            even years, it will be vastly more difficult to
which a member may post a question or               will usually be disability accessible, have        find randomly named or filed items.
comment and receive feedback—frequently             audiovisual capability, provide some degree of         It may be impossible to completely avoid
referred to by the brand name listserv—offers       food and beverage service, and include access      paper files, although scanners today—either
an excellent way to communicate with attor-         to a receptionist. This allows a practitioner of   for home purchase or available for per page
neys in the same practice area. Those prac-         any specialty to host meetings, negotiations,      use at copy services—make it at least feasible,
ticing from home cannot walk down the hall          closings, depositions, and other functions in      although potentially time-consuming. If paper
and get a second opinion from a coworker, so        a fully professional environment.                  files are retained, the home office practitioner
a listserv offers a valuable alternative. The Los                                                      will need to allocate accessible space for the
Angeles County Bar Association offers list-         Operating Practices                                files, use the same uniform system of file
servs for a variety of practice areas, and most     A disadvantage of the home office is the lack      naming as is used for digital files, and develop
professional organizations also have listservs      of staff to tend to mundane tasks. Managing        a policy for file retention. To avoid too much
available for their members.                        paper flow, invoicing, and accounting all          paper, request those transmitting informa-
     Almost any law practice is heavily depen-      become the responsibilty of the attorney. If       tion to do so in PDF or another digital for-
dent on networking to generate business, and        one has family members—especially those            mat rather than in paper copy.
this goes double for an attorney practicing         in adolescence—at home, then a ready labor             Checking conflicts is another function
from home. Networking can take many forms,          pool may be available for nonlegal work at         that the sole practitioner will have to manage
and the best way to approach networking is to       an agreeable price that, if managed properly,      on his or her own that may have previously
view every chance at interaction as a chance to     can also offset funding the extracurricular        been the province of a law firm employee.
develop business. The pitch in networking is        activities of those same adolescents. Also,        Many sole practitioners either formally or
not so much “I want your legal work” as it is       technology can come to the rescue once again,      informally cocounsel with other sole practi-
“This is what I do and how I can help you.”         reducing the need for filing and for significant     tioners or small firms. Prevailing wisdom is
Remember that networking is a two-way street.       paper invoicing, among other things.               that when an attorney works of counsel with
     Networking opportunities arise in pro-             Nevertheless, the home office sole practi-     another lawyer or firm, even while main-
fessional associations, such as state and local     tioner will need to develop a few systems. For     taining his or her separate solo practice,
bar associations and trade groups, many of          one thing, the attorney will need to track         clients of the other lawyer or firm can create
which offer associate memberships for attor-        income, expenses, billings, and reimburse-         conflicts for the solo practitioner.6 Thus, the
neys. Speaking opportunities are almost             ments. Most unreimbursed business-related          solo should also check conflicts with his or her
always available through these associations         expenses will be tax deductions, and credit        of-counsel relationships. The same may be
or groups. There are also groups that form          providers will want to see well-organized          true for attorneys who maintain a solo prac-
specifically to network. The best of these          financial reporting, so the attorney will want      tice but also perform temporary or contract
limit the number of professionals of different      to keep careful records. A simple Excel            legal work for firms or corporations through
business types and focus on developing rela-        spreadsheet can be created to track financial       a temporary services provider or through
tionships more than bringing leads to every         matters for recurring and nonrecurring cat-        their own contacts. In fact, sole practitioners
meeting. There will be a fee to support the         egories on a monthly basis. Retail programs        may find conflicts arising from a variety of
infrastructure that organizes the groups and        can also be purchased to accomplish this           other activities, such as engaging in business
keeps control over the membership. Char-            task. Remember, though, that time will be          with clients or nonclients; engaging in non-
itable activities, particularly board or regular    spent installing, learning to use, and trou-       legal services for family, clients, or others, such
committee positions, are yet another way to         bleshooting the retail program.                    as real estate sales or purchases, investment
meet a diverse group of people that can                 In most commercially available programs        advising, accounting services, providing medi-

                                                                                                                         Los Angeles Lawyer October 2009 19
ation, or other services; or engaging in legal      size for reading documents, and bigger really
services for nonprofit entities.                     is better, at least to a point. Of course, for the    ARBITRATOR AND MEDIATOR
    One of the most significant areas of mal-        attorney who wants to take monitor size to               Is this your client...
practice for sole practitioners is missed dead-     the extreme, most of today’s wide-screen tele-       • In the entertainment or related
                                                                                                          industry?
lines or hearing dates. Therefore, the attorney     visions also come with computer monitor              • Prefers a solution to a dispute
also needs to set up a calendaring and tickler      connections—in case anyone really wants to            rather than litigation?
                                                                                                         •Willing to arbitrate or mediate
system. Computer-based calendaring systems          see an employment agreement on a 60-inch              the dispute, but wants a neutral
include an early reminder function for impor-       television.                                           person who knows the industry
                                                                                                          and understands it?
tant deadlines or dates that can be set hours           Disk space will be of enormous impor-
or days in advance. Calendaring the same            tance for storage of documents, reports, cor-                      Dixon Q. Dern
item as a reminder over successive days or          respondence, and other client and adminis-            310.275.2003 www.dixlaw.com
weeks is also a useful tool. Finally, it is help-   trative materials, as there is little need today                          Over 25 years
ful to determine if a calendar function, online     for a sole practitioner to keep many paper           Arbitration and mediation experience for the entertainment
                                                                                                                         industry and other disputes.
or otherwise, coordinates with other personal       files. Inexpensive external hard drives of phe-
                                                                                                             Experience + Knowledge = “DERN” good results!
devices. Before paying for a calendaring func-      nomenal capacity are preferable over the
tion, consider whether it is really any improve-    built-in hard disk drive for storage of files that
ment over the available free services.              do not need to be accessed regularly. It is

Technology and Services
                                                    important to back up digital information.             CONSTRUCTION DEFECT CASES
                                                    Everything should be kept on at least two sep-
The good news for today’s home practitioner         arate drives. Brand name disk drives are gen-                On-Site Construction Support
is that amazingly powerful information proc-        erally of good quality, but they are not infal-                     for Your Experts
essing, data management, and communication          lible and do not last forever. In addition,
tools are as close at hand as the local office      online services are available at a modest cost         DESTRUCTIVE
supply store or the Internet. The large infra-      to store data on a remote server. It is recom-           TESTING
structure of technology equipment that a law        mended to utilize such a service to make sure
firm used to require, and many firms still          that critical information is not lost in the
maintain, can reasonably be contained today         event of a casualty or theft at the home office.
                                                                                                                  BRYAN CONSTRUCTION
                                                                                                                          LIC: 399041
in a personal computer, a four-in-one printing          Regarding software, at least the standard
                                                                                                                  bryanconstruction@gmail.com
device, a handheld personal communications          version of the Microsoft Office suite is rec-
device, and a regular land line telephone,
combined with use of services available from
                                                    ommended. Excel and Power Point are increas-
                                                    ingly useful for business, and the small busi-
                                                                                                                 310.645.0289
communications providers and Internet ser-          ness version of Publisher is also desired for
vices. While the up-front costs of the hardware     somewhat professional looking marketing
and services are relatively low, there will also    materials. Microsoft Works is not recom-
be monthly costs, and an attorney establish-        mended. It fulfills the adage that you get what
ing a new practice should be sure to budget the     you pay for, as it is a much less robust version
recurring costs and not just contemplate the        of Office, stripped of features seemingly at ran-
one-time acquisition or leasing costs.              dom, and it will in the long run cause more
    Selection of computer hardware, software,       frustration than the cost savings justify.
and peripherals has a significant component of           It would be nearly impossible to survive
personal preference. An attorney acquiring a        in business without electronic mail. Although
computer for the home office probably will not      Microsoft’s Outlook is a popular business
require either a gaming computer loaded with        program for managing e-mail, it is neither the
top-end graphics or a netbook computer that         most cost-effective nor simplest to manage for
maximizes the Internet experience but is light      the sole practitioner. The easiest e-mail access
on office functions and disk drive storage. A       to set up is arguably one provided by popu-
desktop or laptop with a desktop docking sta-       lar Internet portals, such as Gmail, America
tion and LCD monitor will likely serve the sole     Online, Yahoo, or Hot Mail. However, for a
practitioner better. A laptop is a good option      more professional address than name
because portability does not just mean taking       @aol.com, the sole home office practitioner
the computer outside the home to meetings,          should consider setting up an e-mail address
hearings, and other work events, but also to        through a Web hosting company that offers
conferences, while traveling, and even from         e-mail along with bandwidth and disk space.
room to room in the house. In addition to           Using a Web host as an e-mail address allows
considering the basic computing power of the        the practitioner to blend an e-mail address and
computer’s processor, the attorney also should      Web site, resulting in an address such as
check its capacity to drive more than one mon-      name@firmname.com.
itor so as to allow the use of a dual monitor.          Another consideration for the home-based
    Two monitors can reduce the time spent          solo when contracting with an Internet ser-
physically and mentally switching between           vice provider is to obtain the highest band-
windows, and a dual system can be had at a          width connection available. Some providers
price that will not break the bank. Also, do        are establishing fiber optic systems (FIOS)
not skimp on the size of the monitor. A 19-         in urban and suburban areas, which is a good
inch monitor is a minimum recommended               choice for connection speed because fiber

                                                                                                                              Los Angeles Lawyer October 2009 21
                                                                                              optics do not suffer from the transmission loss
   Would you risk eating a bad meal, risk seeing a bad show or risk reading a bad book?       over distance that electron-based systems do.
                                                                                              Digital subscriber lines (DSL) and regular
                             Why should your Practice be any different?                       cable (broadband) connections offer very
                                                                                              acceptable and widely available alternatives.
                                                                                              For those whose neighborhoods are not
      Minimizing Your Risk is Our Business...                                                 served by these technologies, satellite con-
                                                                                              nections offer the next best choice, but are not
                                                                                              in the same speed class. A dial-up connection
                                                                                              is not an acceptable alternative because it
                                                                                              lacks the bandwidth to manage today’s com-
                                                                                              munications.
    PRE-EMPLOYMENT | BACKGROUND INVESTIGATIONS | PROSPECTIVE CLIENT
                                                                                                  Home wireless systems are also available at
                                                                                              low cost, and these can make every room in a
               www.scherzer.com | http://Scherzerblog.com                                     house part of the home office. For attorneys
                                                                                              using laptops, a wireless connection and an
                                                                                              Internet access card may be a desirable expen-
                                                                                              diture. Most laptops come with wireless capa-
                                                                                              bility, but using them to access the Internet for
                                                                                              free is a hit-and-miss proposition. Access cards
                                                                                              are expensive but necessary for an attorney
                                                                                              who is often away from the home office and
                                                                                              wants reliable full computer access to e-mail,
                                                                                              research, the Internet, and other services.
                                                                                                  The telephone is now probably second
                                                                                              to digital transmission (e-mail and texting) in
                                                                                              communication popularity. However, it is
                                                                                              still an important tool and is not used as
             L I T I G AT I O N S E R V I C E S A N D E X P E R T T E S T I M O N Y
                                                                                              often as it should be. Unless the attorney’s
                                                                                              home is in an area with clear cell phone
                       Broad expertise in large-scale litigation involving:                   reception, relying solely on a mobile phone is
                                                                                              probably not a good idea. Land lines tend to
                       ✔ Construction Claims                ✔   Fraud
                                                                                              have better speaker clarity. Otherwise, extra
                       ✔ Securities Litigation              ✔   Contracts
                                                                                              features are generally not much different (call
                       ✔ Foreign Corrupt                    ✔   Real Estate
                                                                                              waiting, call forwarding, caller ID, and con-
                         Practices Act                      ✔   Class Action Litigation
                                                                                              ference calling).
                       ✔ Workouts                           ✔   Valuations
                                                                                                  The traditional phone company is not the
                       ✔ Internal Investigation             ✔   Royalty Audits                only option for land line phone service today,
                       ✔ Professional Liability
                                                                                              and where available, voice over Internet pro-
                                                                                              tocol (VoIP) can be an attractive option. VoIP
              JACK ABEL                    MONICA IP                      PAUL REGAN          services meld electronic mail and the tele-
              JOHN COSTELLO                COLIN JOHNS                    JODIE ROLIH         phone, allowing for calls to be routed through
              CHRISTINE DAVIS              MATTHEW LOMBARDI               SUSAN THOMPSON
                                                                                              other phones and sending voice messages to
                                                                                              electronic mail accounts or to phone text mes-
              DAVID GRISHAM                GREG MCKINNON                  CAROLINE VAN ALST
                                                                                              sages. These features assure that the home
              STUART HARDEN                DANIEL RAY                     JENNIFER ZIEGLER
                                                                                              office practitioner never misses an important
              VANESSA HILL                 GREG REGAN
                                                                                              call or message.
                                                                                                  Land lines may be useful, but no attorney
                                         LOS ANGELES OFFICE
                                                                                              today should go without the ubiquitous cel-
                                                                                              lular phone, or more likely a combination
                             CONTACT: Jennifer Ziegler, Director
                                                                                              device that along with voice telephony offers
                660 South Figueroa Street, Suite 1150, Los Angeles, CA 90017
                                                                                              e-mail access and various software for sched-
                             TEL 213.228.8180 • FAX 213.612.0132
                                                                                              uling, notes, Internet access, music, photog-
                                                                                              raphy, and myriad other features. The
                             SAN FRANCISCO | FRESNO | CHICO                                   Blackberry is still cited as among the more
                                                                                              business-friendly devices.
                                                                                                  Conference calling has gained popular-
                            Member of JHI, an association of Leading Independent              ity as a means of doing business while saving
                                    accounting firms located worldwide                         travel costs. Even many court hearings are
                                                                                              conducted by telephone. While there is still no
                          For additional information, please visit our website at:            substitute for face-to-face meetings to estab-
                                         www.hemming.com                                      lish a rapport and to pick up subtle cues,
                                                                                              telephone conferences are a fact of business
                                                                                              life. Phone companies and private providers

22 Los Angeles Lawyer October 2009
offer conference calling services on a variety      Note that a service plan is not the same thing      of a nonrefundable annual borrowing fee and
of plans. Similarly, Internet meetings are          as an extended warranty, which is generally         a refundable security deposit.
available through a variety of providers. Even      not recommended by anyone except the per-               There are myriad resources available to the
meeting schedulers can be obtained through          son selling the warranty.                           home office sole practitioner, who can be as
free online services.                                                                                   well connected as any lawyer in a firm, cor-
     The home office practitioner with a com-       Legal Research                                      poration, or other environment. However,
puter, land line, and cell phone does not yet       Once the technology is installed and run-           the sole practitioner working from home will
have all the communication devices he or she        ning, the home office attorney may finally           need to do some serious planning for the
may need. For home office purposes, a multi-        turn to the practice of law, which involves legal   diversity of activities that come from man-
function machine that provides printing, copy-      research. Every published case, statute, regu-      aging one’s own practice, and will benefit
ing, faxing, and scanning should also be con-       lation, draft law, rule, major treatise, journal,   from openness to alternatives and flexibility
sidered. Pay attention to the page-per-minute       news source, and reporting service is available     in problem solving.                          ■
speed of the printer and copier functions.          online, although on the Internet as elsewhere,
Scanning speed is usually less important for        you get what you pay for. Subscriptions to          1 Stephanie   Chen, For Jobless Lawyers, Plan B Includes
attorneys. Fax speeds are standardized and          Lexis or West will satisfy most research needs      Good Works, CNN.COM, Apr. 13, 2009, http://www
are less important when e-mail is the preferred     (although many secondary sources require            .cnn.com/2009/CRIME/03/16/lawyer.layoff.public
                                                                                                        /index.html#cnnSTCText; The Week in Law Firm
form of sending documents. A flatbed page            payment of an extra charge). But some pop-
                                                                                                        Layoffs, JDJOURNAL.COM, Aug. 24, 2009, http://www
feeder is desirable when copying projects           ular practice guides, such as California’s          .jdjournal .com/2009/08/24/the-week-in-law-firm
involving materials that cannot be fed through      Continuing Education of the Bar practice            -layoffs-24.
                                                                                                        2 26 U.S.C. §280A.
the feeder. Of course, copy service retailers       books, are only available from the publisher.
                                                                                                        3 26 U.S.C. §§1401-03.
still abound in most communities should a           Since these can be expensive (especially when
                                                                                                        4 See BUS. & PROF. CODE §6171 (professional law cor-
large copy job or other printing or photo ser-      the annual updates are factored in), it is wise
                                                                                                        porations); CORP. CODE §16956 (limited liability part-
vices be needed.                                    to select those in one’s practice area—although     nerships).
     Installing and servicing all this technology   attorneys admitted to practice less than five        5 See, e.g., Ken Swenson, Preparing Legal Departments

can bewilder anyone. Technology that comes          years can obtain free access to CEB’s OnLaw         for Electronic Invoice Review, LOS ANGELES LAWYER,
with 24-hour support available from multi-          legal research system. All CEB resource mate-       Mar. 2007, at 39.
                                                                                                        6 See L.A. County Bar Ass’n, Prof’l Responsibility and
ple sources (such as Internet, telephone, and       rials are also available on CD-ROM. Los
                                                                                                        Ethics Comm., Ethical Considerations Relating to an
on-site) is advisable. This will not solve every    Angeles County also maintains a substantial         Attorney Who Concurrently Serves in an Of Counsel
problem, as the responsibility for many tech-       law library at its Downtown branch, as well         Relationship with a Law Firm and Maintains a Separate
nology issues is often difficult to discern         as facilities at nine other courthouse loca-        Solo Practice, Op. No. 516, Mar. 20, 2006, available
between hardware and software makers.               tions. Use of these facilities requires payment     at http://www.lacba.org/showpage.cfm?pageid=427.




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                                                                                                                            Los Angeles Lawyer October 2009 23

				
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