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San Jose capital gain tax incentive lawyerA new federal initiative seeks to infuse low-income areas with investments for new projects and enterprises by offering tax breaks to investors. Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act in December 2017.

Under the new rules, Qualified Opportunity Zones are low-income census tracts selected by state governors and certified by the Department of the Treasury. A Qualified Opportunity Fund is an investment vehicle that invests at least 90 percent of its capital in Opportunity Zones. 

How Do Opportunity Zones Incentivize Investors?

When an investor makes a gain from selling a capital asset to an unrelated party, the investor can put the amount of the gain into a Qualified Opportunity Fund and defer payment of capital gain tax. This step must be taken within 180 days of the disposition of the sale or exchange.

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San Jose, CA tax lawyer property rentalWebsites such as Airbnb, VRBO, and HomeAway make it easier than ever to generate income by renting out a private residence, meeting the huge demand for home rentals, especially during the summer months when people go on vacation. However, the income collected from rental of a residence is typically subject to taxation, and there are special tax rules that must be followed. If you are a homeowner who plans to rent your property seasonally, you should be sure to understand whether your situation meets certain IRS requirements for taxation. 

Residential Rental Property Defined

The first step in determining how rental income will be taxed is understanding if the property you are renting is a residential rental property under the definition provided by the IRS. A dwelling will be classified as a residence if it is utilized for personal purposes during the tax year for 14 days, or for 10 percent of the total number of days the residence has been rented to tenants at its fair rental value, whichever is greater. Personal use could include the use of the dwelling by:

  • Anyone who owns a part of the dwelling;
  • Any family members of anyone who owns the property in whole or in part (unless the family member uses the dwelling as his or her primary residence and pays fair rental value to the owner);
  • Anyone who uses the property as part of an arrangement that allows the owner to use a different dwelling; or
  • Anyone who uses the property after receiving a discount that results in that person paying less than the property’s fair rental value.

Income, Deductions, and Other Considerations

According to the IRS, rental income includes regular and advance rent payments, penalties for lease cancellation, and expenses paid to the property owner by the renter. This income generally must be reported each year. 

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business formation, San Jose business formation attorney, business and tax attorney,  sole proprietorship, business corporationIf you are considering opening a business with your spouse, there are several important areas to consider. One such area is what type of business should be formed. There are different reasons why one would select a corporation, an LLC, or a partnership for his or her business. Additionally, there may be legal constraints on this decision. 

With regard to a business operated with a spouse, people may wonder if a partnership is the correct type of business to form given that the two people operating the business are married. While the IRS has given guidance on this issue, it is always best to contact a tax and business formation attorney to understand what is required under law based on the facts of your case.

According to the IRS, if the business is a sole proprietorship, it must be owned only by one spouse. The other spouse can work at the business as an employee. If the business is owned and operated by both spouses, the business must be a partnership. All partnerships must file IRS Form 1065, U.S. Return of Partnership Income.

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California offshore tax attorney, Offshore Voluntary Disclosure Program, report foreign assets, unreported foreign assets, avoid criminal prosecutionThe IRS will soon be ending its Offshore Voluntary Disclosure Program for undisclosed foreign assets. Failure to utilize this disclosure program by the date of its termination on September 28, 2018, means that taxpayers who have not reported foreign assets can no longer do so with assurance of avoiding criminal prosecution.

What is the Offshore Voluntary Disclosure Program?

The Offshore Voluntary Disclosure Program (OVDP) was developed as a way for taxpayers to come into compliance with fewer legal consequences in situations where the taxpayer had previously not disclosed foreign assets and the income generated on those assets. The OVDP has existed in some iteration since 2009.

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San Jose tax compliance attorney, transition taxes, repatriated earnings, transition tax rates,  Section 965The tax laws in the United States are complex and ever-changing. As the Internal Revenue Service (IRS) works to ensure that taxpayers are paying their fair share, the agency regularly announces compliance campaigns to address new issues that arise. Recently, the Large Business & International (LB&I) division of the IRS noted several areas it would be focusing on, and one notable compliance campaign involves taxes on foreign earnings under Code Section 965.

Transition Taxes on Repatriated Foreign Earnings

Section 965 of the Internal Revenue Code requires taxpayers who are shareholders in certain foreign corporations to pay a transition tax on foreign earnings when these earnings are repatriated to the United States. Depending on the profits and losses of the foreign corporations taxpayers hold shares in, they may be able to reduce the amount of these earnings that are included in their income. The transition tax rates are 15.5 percent for inclusions equal to the taxpayer’s aggregate foreign cash position and 8 percent for gross income above that amount.

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