All law firms incur expenses on behalf of their clients. Depending on the law firm's agreement with their client, many of these expenses can be billed back to the client for reimbursement as can other expenses that are considered to be more of an overhead cost. These client expenses are either considered to be hard costs or soft costs.
Hard costs, which are also known as direct costs, are expenses that are paid directly to a vendor on behalf of the client for services provided in connection with a specific matter. Hard costs may include advance payment for items such as transcription fees, expert fees, filing fees, court reporting expenses, etc. Generally, hard costs are considered to be a "loan" to the client and are not deductible as a business expense.
Soft costs, also known as indirect costs, are generally overhead expenses that can be attributed to a specific client matter but are not paid directly to the vendor on behalf of the client. Soft costs typically include items such as long distance, word processing or other clerical services, online legal research costs, postage, copy costs, etc. These expenses would be paid by the firm whether or not they are being reimbursed by the client. Many firms choose not to bill these expenses back to the client.