A professional retainer is a prepaid fee paid to an attorney, CPA, or consultant that funds future services — the professional draws against the retainer as hours are billed, replenishing it when depleted, ensuring guaranteed access and priority service.
Retainers in professional services have two distinct forms. A 'general retainer' (also called an availability retainer) compensates a professional for being available exclusively or preferentially to the client — not for specific deliverables. An 'earned retainer' is a fixed fee paid in advance for a defined project that the professional earns upon completion. A 'security retainer' (the most common for small businesses) is a deposit held in the professional's trust account, drawn against as hourly work is performed, with the client replenishing when the balance falls below a minimum. For small businesses: the retainer system appears most often in attorney and CPA engagements. A business attorney on retainer typically holds $2,000-$10,000 in trust, billing at $300-$600/hour and requesting replenishment when the balance drops below a threshold. A CPA on retainer may offer a monthly flat fee for ongoing bookkeeping, payroll, and tax advisory access — common for businesses with $500K-$5M revenue. From a lender's perspective, retainers paid to professionals are ordinary business expenses (IRC §162) deductible in the year incurred (for non-refundable retainers) or when the services are performed (for refundable security retainers held in trust). The IRS has ruled that a refundable security retainer is not income to the attorney until actually earned — it remains the client's property until drawn down (Rev. Rul. 80-52). Retainer fees to CPAs and attorneys appear on Schedule C under 'professional fees' and are fully deductible as ordinary business expenses.
It depends on the type. A security retainer (held in trust) is refundable — any unearned balance is returned when the engagement ends. A general availability retainer (paid to reserve access, not for deliverables) is typically non-refundable and earned upon payment. Clarify which type applies before paying, and confirm the professional holds security retainers in a separate trust account — required by state bar rules for attorneys. IRS guidance on deductibility varies by retainer type.
A retainer is paid to a professional services provider for future services within an ongoing relationship. A deposit is a payment securing a future transaction (contractor, vendor, event venue) that may be fully or partially refundable if the transaction doesn't occur. Retainers are typically industry-specific to attorneys, CPAs, and consultants; deposits are used across industries. Both are held in separate accounts until earned.
Yes, if the services are ordinary and necessary business expenses under IRC §162. A non-refundable retainer paid to retain a business attorney's availability is deductible when paid. A refundable security retainer held in trust is deductible only as the professional draws against it — the unearned portion in trust is your asset, not an expense. IRS Publication 334 (irs.gov/publications/p334) and Rev. Rul. 80-52 govern the deductibility timing.