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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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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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california business taxes, San Jose tax lawyerThe California State Board of Equalization (BOE) has changed sales and use tax Regulation 1702.5. This regulation governs when a responsible party must personally pay taxes owed by a business entity that is closed or abandoned. These changes could alter your tax obligation, and so it is important to understand the new regulation and seek counsel to determine if it modifies your circumstances. These changes could prohibit the BOE from seizing your personal assets. The amendments to the law will be effective on April 1, 2017.

Amendments to Business Tax Regulation 1702.5 

The current regulation is defined by the following: “Any responsible person who willfully fails to pay or to cause to be paid... any taxes due from a [business entity] shall be personally liable for any unpaid taxes and interest and penalties on those taxes not so paid upon termination, dissolution, or abandonment of the business...” (Emphasis added.)

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Privacy and the sharing of personal information have many concerned when being contacted by a caller stating that they represent the IRS. Per John Dalrymple, Deputy Commissioner for Services and Enforcement: "We are evaluating our contacts with taxpayers, outside of the examination context, to determine whether they present risks with respect to phone scams and other such threats."

The new changes will mitigate any risk taxpayers may take when providing personal information over the phone. Deputy Commissioner Dalrymple, stated the policy change clearly in his memo, dated May 20, 2016, "Effective immediately, all initial contacts with taxpayers to commence and examination must be made by mail, instead of the telephone, using the appropriate initial contact letters."

Implementing written correspondence as the initial contact in case examination will establish the validity of the communication received by the taxpayer. The Deputy Commissioner elaborates on the new policy change throughout the memo, indicating the following:"Employees will use the appropriate initial contact letters listed in the Internal Revenue Manual ( IRM ) to notify a taxpayer when a return is selected for examination, and will not make initial contact by telephone."

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If you have a business-whether it's a single-member outfit you run out of your garage or a large organization with dozens or even hundreds of employees-you will eventually come to the question of whether you should form a business entity such as a corporation or LLC.

Doing business as a corporation or LLC makes sense for many reasons, not the least of which is the liability limitation that protects you as an individual from having to pay for any issues that arise out of the operation of the business. Still, when it's time to create a business entity, you will need to consider the various tax implications of each.

You should speak with an experienced attorney who knows tax law in order to fully understand the different types of tax exposure each entity can bring with it. For example, although operating as a corporation will protect you from being sued personally for the negligent acts of the corporation, doing so can expose you to double taxation: the profits of the corporation are taxed at the corporate rate, and then whatever pay you take out of the business is taxed at your personal income tax rate. On the other hand, if you operate the business as an LLC , the income of the business passes through to you and is only taxed once-at your personal income tax rate, which is typically far lower than the corporate income tax rate.

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