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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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San Jose tax law attorney tax returnsIncome Tax Day--April 15, 2019--is just around the corner. This year, your taxes may be different from years past, thanks to the tax reform passed by the U.S. government. The Tax Cuts and Jobs Act (TCJA) has changed a wide variety of tax laws, and the IRS has stated that nearly every taxpayer will be impacted. 

These are some important ways taxes have changed that should be kept in mind when filing your 2018 taxes:

  • Tax rates changed. Taxes will be levied against taxpayers according to seven income tax brackets. These brackets range from 10 percent to 37 percent.
  • Higher standard deduction. The standard deduction has almost doubled. For 2018, it is $12,000 for singles, $18,000 for heads of household, and $24,000 for married couples filing together. There is a higher deduction available to the blind and those who are 65 and older. This means that many people will opt to take the standard deduction instead of itemizing deductions.
  • Certain deductions are limited or eliminated. One of the most common deductions that has been reduced is that for state and local tax. For 2018, the deduction is limited to $10,000 and to $5,000 for couples who are married and filing separate tax returns.
  • Child Tax Credit increased and expanded. The credit tops out at $2,000 for each qualifying child age 17 years old and under. Also, the income restriction for receiving full credit has been bumped up to $400,000 for joint filers and $200,000 for other taxpayers.

tFinally, it should be noted that the deadline by which you must file your tax return along with payment of any taxes owed has not been changed. While you can file for an extension, you must do so before Tax Day. Note: As in prior years, although an extension to file may be obtained, there is no extension to pay taxes due. Failure to timely file (in April or on extension) can mean an assessment of penalties and interest. Failure to timely pay (in April) can also mean an assessment of penalties and interest.

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San Jose tax penalty relief attorneyIf you have been hit with a penalty by the IRS, you might believe that you have no other choice than to pay. This is an incorrect assumption, as there are numerous circumstances where the IRS may not require you to pay a penalty. In order to take advantage of this relief, you must fully comply with certain IRS procedures.

Importantly, if you believe you may be assessed a penalty, you can preemptively apply for abatement when you act quickly. Also, if you have already paid a penalty, you may still request abatement. In all cases of tax penalty abatement, time is of the essence. 

Do You Qualify for Tax Penalty Abatement?

The IRS offers penalty abatement to those who have a reasonable cause for late filing, late payment, or accuracy-related issues (negligence penalties). Reasonable causes include natural disasters and medical emergencies. If the IRS has made a mistake with regard to your return, you may also qualify for penalty abatement. Depending on your specific circumstance, you may also qualify for a one-time abatement of a penalty.

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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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What You Need to Know About Taxes When Renting a Residence Seasonally

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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