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San Jose, CA tax lawyer for innocent spouse relief

Married couples have the option to file a joint tax return instead of separate tax returns. There are often benefits to choosing this filing status, but there can also be drawbacks. Couples who file jointly are “jointly and severally” responsible for any tax liability, interest, or penalties due. The terms “jointly and severally” mean that each spouse is legally responsible for the entire tax debt. When one spouse does not adequately fulfill his or her tax obligations, this can leave the other spouse in serious trouble with the Internal Revenue Service (IRS). Fortunately, there are several ways that a spouse in this situation can be released from tax liability. One of these types of tax relief is called “innocent spouse relief.”

What Is Innocent Spouse Relief?

Imagine this scenario: your wife is a business owner who struggles to keep track of her profits and expenses. When you jointly file your tax returns, the IRS notices that there are inconsistencies with the business income, expenses, and/or deductions. You are audited. As a result, both of you now owe a significant amount of money in back taxes. In situations like this, innocent spouse relief, also called innocent spouse protection, may help a guiltless spouse avoid his or her spouse’s tax liability.

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Santa Clara County QBI tax deduction lawyer

The qualified business income (QBI) deduction was created by Section 199A of the Tax Cuts and Jobs Act of 2017 and since then, the IRS has issued additional rules and guidelines on how taxpayers can take this deduction. Because it could significantly reduce a person’s tax burden, qualifying taxpayers should understand how this deduction operates and the limitations of the deduction.

Details of the QBI Deduction

A Section 199A QBI deduction can be taken by owners of pass-through entities engaged in qualified businesses. Such taxpayers can claim up to a 20 percent deduction on all qualified business income.

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San Jose, CA quarterly tax payment attorneyIf you have to pay estimated quarterly taxes, it is critical to pay the correct amount. Underpaying can result in a penalty, and overpaying gives what is essentially an interest-free loan to the government that cannot be recouped until a return is filed.

This is especially true in light of the Tax Cuts and Jobs Act of 2017, which substantially changed income taxes. The law altered the tax brackets and tax rates for individual or married taxpayers, made changes to the allowable deductions for business expenses, increased the standard deduction and child tax credit, took away personal exemptions, and limited or ended other deductions. Because of this, many taxpayers will need to adjust the amount of the taxes they remit each quarter via estimated tax payments. 

Who Must Pay Estimated Quarterly Taxes?

Typically, taxpayers have to make estimated tax payments if they expect to owe tax of $1,000 or more when their returns are filed. One common category of taxpayers who should pay estimated quarterly taxes are people who are self-employed. In addition, investors and retirees often need to make these payments because they have a substantial portion of income that is not subject to withholding. Other income that is typically not subject to tax withholding includes interest, capital gains, stock dividends, alimony or spousal support, and income from rental property.

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San Jose retirement plan tax attorney self-correctionThe administration of retirement accounts is notoriously technical, and mistakes by plan sponsors can occur. Furthermore, since an account holder will be maintaining and contributing to a retirement account for many years, there are often changes that must be made. Tax issues may arise when 403(b) and 401(a) retirement plans need to be corrected, and the IRS must typically be notified of any corrections. Fortunately, the IRS has several self-correction mechanisms in place that allow plan sponsors to resolve errors or mistakes on their own.

The IRS has three correction programs:

  1. Self-Correction Program (SCP): Used to amend certain plan failures without communicating with the IRS or paying a user fee.
  2. Voluntary Correction Program (VCP): Used to rectify failures not eligible for the SCP or get the IRS’s statement in writing that specified failures were correctly resolved.
  3. Audit Closing Agreement Program (CAP): Used to correct failures found in the course of an IRS audit that cannot be self-corrected.  

The IRS recently announced an expansion of the self-correction program to allow additional types of failures to be remedied through the SCP instead of requiring parties to make a VCP submission to the IRS. The VCP process can often be expensive and lengthy.

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San Jose, CA estate tax lawyerThere are several ways the IRS will be involved in the estate of someone who has died (known as a “decedent”). The IRS is notorious for enforcing payment of the taxes it claims it is due, including in situations involving a deceased person’s estate. 

Tax issues will be important to a deceased person’s personal representative, executor, successor trustee, and heirs, because the estate must pay all taxes due before the estate’s assets can be distributed to the beneficiaries. The IRS can even audit the tax returns of a dead person.

The estate will have to pay any income taxes due for the year of the person’s death (as well as for any year that the decedent did not file). Just like a taxpayer filing his or her income taxes each year, the estate administrator will file a Form 1040 for the estate. Depending on how organized the estate is, the estate administrator may need to file a Request for Transcript of Tax Return in order to get needed documents related to the deceased person’s income and taxes.

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