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San Jose tax lawyer for exit taxThose who live in the United States may choose to leave the country and live elsewhere, but if this will be a permanent change, they should be aware that they may face certain tax consequences. Expatriation occurs when a U.S. citizen chooses to relinquish their citizenship. Expatriation will also apply to a lawful permanent resident who holds a “Green Card” if their immigration status is revoked or abandoned or if they notify the IRS that they will be commencing residence in a country that has a tax treaty with the United States. Expatriates may be required to pay an exit tax, and they will want to understand how the tax laws will apply to their situation.

Who Is Subject to the Exit Tax?

The exit tax (also known as the expatriation tax) is a form of income tax that applies to the potential gains a person would earn by selling or disposing of the assets they own. While capital gains taxes typically apply to the profits a person earns when selling assets, a taxpayer may not actually realize these gains until years or decades after they leave the United States. Exit taxes ensure that the IRS can apply the proper taxes to the gains a person earned while they resided in the United States.

The exit tax will only apply if a taxpayer meets the qualifying criteria to be a “covered expatriate.” Three tests are used to determine whether a person is a covered expatriate:

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San Jose, CA business and payroll tax attorney

Employers and employees throughout the United States have been affected by the COVID-19 pandemic. Many businesses have been forced to close, reduce hours in operation, or lay off employees. While some programs have been implemented to provide relief to both businesses and individual taxpayers, many people and businesses continue to struggle financially. In response to these concerns, a recent presidential order has been issued that will allow employers to defer certain payroll taxes.

Payroll Tax Deferral Available from September through December of 2020

On August 8, 2020, President Trump issued a Presidential Memorandum, “Relief with Respect to Employment Tax Deadlines Applicable to Employers Affected by the Ongoing Coronavirus (COVID-19) Disease 2019 Pandemic.” This order allows employers to defer the withholding of employees’ share of Social Security (FICA) taxes on wages paid between September 1, 2020, and December 31, 2020. Deferrals are available for any employee who earns less than $4,000 on a biweekly basis before taxes are withheld.

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San Jose, CA tax attorney retirement accounts

Many Americans have spent years saving money in a retirement account such as a 401(k) or IRA while planning to use this money to support themselves later in life. Retirement accounts can offer certain tax benefits, but they also provide restrictions on when these funds can be withdrawn. In times of economic hardship, account holders may wonder about their options for using these funds. Fortunately, the Coronavirus Aid, Relief, and Economic Security (CARES) Act has given those who have been affected by the COVID-19 crisis the ability to use funds in a retirement account while avoiding some of the penalties for early withdrawal.

Withdrawals and Loans from Retirement Accounts Under the CARES Act

Typically, account holders will face a 10 percent penalty (on top of any taxes that would normally apply) if they withdraw funds from a retirement account before reaching the age of 59 ½. The CARES Act has waived this tax for withdrawals of up to $100,000 made before December 31, 2020, by people who qualify for relief due to being impacted by the coronavirus pandemic. Qualifying accounts and retirement plans include 401(k)s, IRAs, 403(b)s, and profit-sharing plans.

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San Jose, CA tax attorney foreign foreign tax compliance

U.S. taxpayers are required to report all of the income they earn and pay applicable taxes, including income earned from foreign investments and offshore accounts. The requirements related to these types of accounts can often be complex. Taxpayers who are not compliant may be audited, and they could face penalties that include civil fines or criminal prosecution. 

Foreign tax compliance has become more difficult since the end of the Offshore Voluntary Disclosure Program (OVDP). This program, which was discontinued in September 2018, allowed taxpayers to avoid penalties by disclosing their foreign assets and paying taxes due. Since the end of the OVDP, some taxpayers who had previously been compliant may be facing additional scrutiny and potential penalties from the IRS. The IRS’s Streamlined Domestic Offshore Procedures (SDOP) and Streamlined Foreign Offshore Procedures (SFOP) programs are still available for taxpayers able to make sworn nonwillfulness statements and file the required forms and make the required payment.

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San Jose tax lawyer for IRS debt reliefThe coronavirus has dramatically impacted people’s lives in the United States and across the globe. Many individuals have been temporarily or even permanently laid off from work or have been forced to reduce their work hours significantly. The financial consequences of the virus itself and the attempts to curb the spread of the virus have left many families wondering how they will pay their bills. In a move to provide financial relief to struggling taxpayers in the United States, the Internal Revenue Service (IRS) has implemented a new program called the “People First Initiative.” The program provides relief for individuals and businesses through extended filing deadlines, postponed payments, and limited enforcement actions. The deadline for filing federal tax returns has been extended to July 15 and many states, including California, are also offering extensions for state tax returns.

Existing Installment Plans and Offers in Compromise

The IRS offers several options for taxpayers who cannot fulfill their tax obligations. One of these options is to pay their tax bill in installments over time through a payment plan called an installment agreement. Another option that is available in some situations is an “offer in compromise” (OIC). An OIC is an agreement between the IRS and a taxpayer with a tax debt that settles the debt for less than the original amount owed. Individuals who are paying off tax debt through an installment agreement may postpone payments until July 15 of this year. The IRS has also announced that it will not default on installment agreements during this time period. However, interest on the unpaid amount will continue to accumulate.

If you have a pending application for an offer in compromise, the IRS is increasing the amount of time you have to provide any requested documentation or information. The agency has also promised that it will not close any pending OIC requests before July 15 unless the taxpayer agrees to close the request. Those currently making OIC payments have the option to suspend payments until July 15, but interest will continue to accumulate. Furthermore, the IRS has stated that it will not default on OICs for individuals who are delinquent on their 2018 tax return during the relief period.

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