Guide · 6 min read
Sloppy books are a bar complaint waiting to happen. Here's a bookkeeping system tight enough for IOLTA compliance and simple enough to actually maintain in solo practice.
Operating checking, IOLTA trust, and a savings/tax-reserve account. Never deposit a retainer into operating. Never pay personal expenses from IOLTA. Every state bar enforces this.
Every IOLTA dollar must be traceable to a specific client. Maintain a sub-ledger per matter showing deposits, fees earned (transferred to operating), and balance. Audit-ready at all times.
Filing fees, court reporters, expert witnesses. Tag each per matter as a recoverable cost. At billing, add to invoice. At case close, write off any unrecovered amounts as a deductible expense.
Use a time-tracking tool that exports to your invoices. Reconcile operating and IOLTA against bank statements monthly — many state bars require a written reconciliation.
Separate IOLTA from operating, track advanced costs per matter, and reconcile in minutes.
Start freeYes. Bar associations require separation of operating and IOLTA trust funds. Mixing them — even by accident — can trigger disciplinary action. A simple bookkeeping system enforces the separation and gives you defensible records.
Interest on Lawyer Trust Accounts hold client retainers and settlement funds. They must be kept completely separate from operating funds. Every deposit and withdrawal needs a per-client ledger; commingling, even briefly, is a serious ethics violation in every US state.
Most solo and small firms use cash basis (simpler and allowed under most state rules). Larger firms often use modified cash or accrual. If you carry significant unbilled WIP, talk to a CPA about how to present those numbers.
Bar dues, malpractice (E&O) insurance, CLE courses, legal research subscriptions (Westlaw, Lexis), case management software (Clio, MyCase, PracticePanther), court filing fees you advance for clients, expert witness fees, paralegal/contract attorney payments, and office expenses.
Filing fees, depositions, and expert costs paid on behalf of a client are advanced costs, not your expense. Track them per matter and add to the invoice as recoverable costs. If unrecovered at case close, write them off — at that point they become a deductible expense.