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Florida IOLTA & Trust Accounting Guide for Small and Mid-Sized Law Firms Legal Billing Made Easy

Even a large law firm with a dedicated accounting team has to take deliberate steps to maintain IOLTA compliance. Having trouble keeping track of your clients’ retainers and detailed balance sheets? If you need any help with bookkeeping for IOLTAs, we recommend attorneys reach out to their accountant, a law practice management consulting firm or a knowledgeable, qualified bookkeeper like BudgetEase.

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• Incomplete reconciliation, missing documentation, and weak oversight of trust fund deposits and disbursements expose firms to major compliance risks.
• Failure to do so could result in penalties or additional scrutiny from tax authorities.
• If client trust funds are mixed with operating cash, your cash flow statement becomes unreliable, putting both financial reporting and IOLTA account compliance at risk.
• Unlike regular trust accounts, you use IOLTA accounts for client funds that are too small or held too briefly to justify setting up individual interest-bearing accounts.
• LawPay connects to both your trust and operating accounts, ensuring your earned and unearned funds remain separate.
• Attorneys struggle to find true experts in law firm finance, which leaves them with inaccurate books and no clear financial plan for the future.

Careful accounting must be practiced to ensure that each client’s money is accounted for appropriately. Never record client trust account deposits as income, even if that is the easiest way to do so with your accounting software. When a law firm opens and sets up an IOLTA account, many rules and regulations will have to be taken into account, depending on which state a law firm is located in. Understanding these rules along with the fundamentals of what is IOLTA accounting can help avoid mishandling client funds. But IOLTA programs changed all of this when they allowed law firms to place their client’s money into banking accounts that allow for net interest to be earned. For example, an attorney or law firm never wants to put client funds into their operating banking or financial account until that client has already been billed for the services rendered.

Opening a Designated Interest on Lawyer Trust Account (IOLTA)

It may seem excessive, but these records can be invaluable if a question arises. Also, consider storing documents (like scanned checks or deposit slips) as attachments in QuickBooks Online transactions – QBO allows you to attach files to any entry. This way, the proof is right there https://mkes.info/2025/04/22/the-path-to-finding-better-3/ in your ledger if you ever need to show it.

Securing Your IOLTA Trust Account Against Audit Risk

Suppose you have an invoice ready to bill the client – LeanLaw will tell you if that client has sufficient trust funds, and with one action, you can apply the trust money to the invoice. LeanLaw will then signal QuickBooks to record the payment and the trust withdrawal appropriately. An IOLTA account is a pooled, interest-bearing demand deposit account used by lawyers to hold client funds.

We’ll explain how IOLTA accounts differ from other common accounts below. If you’re just starting out and think you’ve set up your accounting the wrong way, talk to a professional accountant with experience dealing with IOLTA. If you’ve made the switch from paper checks to electronic billing (e-transfer, credit card payments, or other types of payments), you can’t pass along the payment fees to your client’s IOLTA. Get free guides, articles, tools and calculators to help https://www.licorsair.com/lincoln_corsair_description_and_operation_airbag_and_seatbelt_pretensioner_supplemental_restraint_system_srs_overview-2873.html you navigate the financial side of your business with ease.

• Reviewing these can ensure your firm’s internal records capture everything required.
• Attorneys should be aware of their reporting obligations and ensure that they meet all deadlines to maintain compliance.
• In the “Payor/Payee” column, enter the name of the payor when funds are received and the name of the payee when funds are disbursed.
• This distinction helps prevent law firms from accidentally misappropriating client funds for non-client expenses.
• Clients can also easily access account statements, invoices, and other information through our secure client portal.
• For small and mid-sized firms, understanding these requirements is critical to protecting your clients’ funds and your practice’s reputation.

You should record an expense for $15 from IOLTA categorized to “Firm Funds for Bank Fees” (a sub-account under trust liability for firm’s own funds). Then you transfer $15 of firm money into IOLTA and record that deposit to the same “Firm Funds for Bank Fees” sub-account, bringing it back to zero. The key is to ensure bank charges don’t eat into client balances – your bookkeeping should demonstrate that either interest or the firm’s funds covered those costs.

• The funds deposited in your client’s accounts don’t belong to you—in fact, they are funds you owe your clients.
• Interest generated by IOLTA accounts forms an important source of funding for civil legal aid in Illinois.
• However, with software tailored to your needs, managing retainers, IOLTA accounts, and other bookkeeping matters can be greatly simplified.
• Law firms may potentially choose to use non-IOLTA trust accounts if they’re holding a large sum of the client’s money or holding it for a long period.
• The interest generated helps fund legal services for individuals who might otherwise struggle to afford representation, strengthening the justice system.
• When the case is finished and the client no longer needs the services of the attorney, any money that remains from the original retainer will be given back to the client.

Firms should also implement internal controls with written procedures covering fund deposits, withdrawals, interest earned, and how to resolve errors or discrepancies. It’s an interest on lawyer trust account specifically used to hold retainers and settlement proceeds – where net interest supports your state’s IOLTA program and civil legal services. Not every financial institution understands trust accounts – and choosing the wrong one can compromise your entire system. Look for banks that regularly manage IOLTA accounts and provide detailed monthly bank statements with secure online access. Enable these so you have real-time awareness of trust account activity. It’s also wise to opt-out of overdraft protection on the trust account – you want any potential overdraft to be rejected rather https://e-xost.info/5-uses-for-7/ than covered by funds from another account (which would be commingling).