Posted on February 06, 2018 in Tax Audits

In recent months, much of the discussion surrounding tax laws in the United States has focused on the changes made by the Tax Cuts and Jobs Act of 2017. Yet while individuals and businesses should understand how they will be affected by tax reform, they should additionally be aware of recent new rules that govern tax audits.

The Centralized Partnership Audit Regime

Under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), the Internal Revenue Service (IRS) had certain rules for assessing and collecting taxes for partnerships. Audits of large partnerships, such as hedge funds or private equity firms, required individual audits of every partner. The Bipartisan Budget Act of 2015 (BBA) established a new, centralized audit regime, allowing the IRS to audit partnerships as a whole. This new regime will apply to partnership tax years beginning after December 31, 2017.

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 Posted on January 24, 2018 in Taxation Law

Following the passage of the Tax Cuts and Jobs Act of 2017, financial experts across the United States have been working to understand the full impact of this historic legislation. Much of the discussion surrounding the tax reform bill has focused on how its changes to tax law will affect large corporations (which have seen a reduction in the corporate tax rate from 35 percent to 21 percent). However, the growing portion of the country’s population that participates in the gig economy should also understand how it will be affected.

Taxes for Independent Contractors

Surveys have shown that there are 57 million people in the United States who currently perform freelance work either full-time or part-time, including people who earn an income in the gig economy (also known as the sharing economy), such as drivers for Uber or Lyft or people who rent their property through Airbnb. As independent contractors, these freelancers may be able to take advantage of new tax deductions.

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 Posted on January 17, 2018 in Taxation Law

The United States Congress passed a major tax reform bill in December 2017, and lawmakers stated that one of their top priorities was to help grow the country’s economy by alleviating the tax burden on small businesses. While the full effect of the Tax Cuts and Jobs Act of 2017 has yet to be felt, the reform bill contained a number of provisions that will affect the taxes which small businesses pay. Therefore, small business owners should take steps to understand how to make the most of these changes.

Tax Deductions for Pass-Through Businesses

Pass-through companies, in which income is taxed at the rate of the individual business owner rather than through the corporate tax structure, account for 95 percent of businesses in the United States and include sole proprietorships, partnerships, and S corporations. Under the new tax law, pass-through businesses can take a 20 percent deduction on their taxable income, providing them with some financial relief and allowing them to reinvest these tax savings to grow their business. The deduction is subject to several limitations based on the type of business, its financial condition, and the taxpayer’s income.

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 Posted on January 10, 2018 in Taxation Law

In December 2017, Congress passed a tax bill that represented the most significant reform to the U.S. tax code in the last 30 years. The Tax Cuts and Jobs Act of 2017 made a large number of sweeping changes to tax law in the United States, affecting nearly everyone in the country, from individual taxpayers to large corporations. While many of the effects of this new law are still being worked out, one change that businesses should be aware of is how net operating losses (NOLs) will be handled going forward.

NOLs, Carryback, and Carryforward

In the past, businesses that reported a net operating loss (that is, the business’s expenses were greater than its revenues) in a tax year were able to use this amount to offset taxable income in other tax years. They would be able to carry the amount back to the two preceding years and receive an immediate refund for taxes paid or carry the amount forward up to 20 years to reduce the amount of taxable income in those years. This allowed businesses to help avoid some of the consequences of taxing their income on an annual basis and effectively pay taxes on an average income over multiple years.

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 Posted on December 22, 2017 in Taxation Law

With the prevalence of smartphones and personal computers in modern American society, people have more opportunities than ever to earn an extra income. In the sharing economy (also known as the gig economy), money can be made by driving individuals in cars, renting out homes or rooms for short periods, making and selling products, or performing tasks for people.

While there are great benefits from supplementing one’s income in this manner, these individuals may not be aware of how this additional income affects the taxes they pay. Consider the following aspects of tax law of which people in the sharing economy should be aware:

1. Taxable income - All income is generally taxable, whether it is paid by an employer, earned in a “side business,” or received as a cash payment. Since sharing economy companies often treat workers as independent contractors rather than employees, the worker is usually responsible for paying taxes on his or her earnings.

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 Posted on December 19, 2017 in Taxation Law

In 2016, the release of the “Panama Papers” sent shockwaves through the financial world, exposing the methods that many wealthy individuals and corporations use to avoid paying taxes. This issue has received additional scrutiny recently due to the release of new documents, known as the “Paradise Papers,” which have revealed more details about how trillions of dollars are transferred through offshore tax havens.

The Paradise Papers include more than 13 million documents, most of them related to Appleby, a company with headquarters in Bermuda that helps its clients pay less taxes by moving money into offshore accounts. The financial dealings of a number of prominent people and entities were brought to light by this release, including companies like Apple and Facebook, celebrities like Madonna and Bono, and public figures like Queen Elizabeth II and U.S. Commerce Secretary Wilbur Ross.

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 Posted on December 07, 2017 in Taxation Law

For anyone who earns an income, operates a business, or makes a financial transaction in the United States and the state of California, taxes are an unfortunate reality. Nobody likes paying taxes, but they are a necessary part of modern life and allow our government to continue operating.

Collecting taxes is a complicated matter, especially when it involves large companies and organizations with complex financial assets. In recent years, the governmental departments that collect taxes have begun working to operate more efficiently by focusing their efforts on identifying and addressing specific tax issues. These tax compliance campaigns have been conducted by the Internal Revenue Service (IRS), the California Board of Equalization, and the California Employment Development Department.

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 Posted on November 28, 2017 in Taxation Law

Purchasing a business can be an exciting venture, allowing a person or company to expand his or her assets and add additional sources of income. However, business owners should be aware of the tax issues that can arise when buying a business, including whether they will be responsible for the business’s tax liability.

Successor Liability

If a business owes taxes, interest, or penalties at the time of its sale, the purchaser of the business may be held liable for these amounts. This is known as successor liability, and the California State Board of Equalization (BOE) may enforce this liability through a state sales tax audit within three years of the purchase of the business. A state sales tax refund claim may also trigger the enforcement of a tax liability.

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 Posted on November 17, 2017 in Taxation Law

Benjamin Franklin once said that nothing in this world is certain except death and taxes. This common saying is as true today as it was 200 years ago—paying taxes is a civic duty that is required of everyone in the United States. However, people often attempt to cheat on their taxes and avoid paying what they owe, and this can result in serious consequences. If you are facing a tax audit, you should understand the potential consequences of tax fraud or tax evasion.

IRS Tax Fraud Penalties

Tax fraud can take a number of different forms, including:

• Attempt to evade or defeat tax - This can include underreporting income, claiming improper deductions, or underreporting the value of an estate.

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 Posted on November 09, 2017 in Tax Audits

The prospect of being audited by the IRS is rather frightening, and many taxpayers do not know what to expect in a potential tax audit. However, only around 1 percent of people who file taxes are audited, and there is a great deal of confusion about what makes an audit likely. When filing a tax return, it is important to understand what the IRS looks for when deciding who to audit.

The DIF System

The IRS uses automated scoring known as the Discriminant Information Function (DIF) System to analyze tax returns. This system compares people’s incomes in a geographic area and looks at factors such as family size, how income is earned, and real estate property values to find any discrepancies that may require an audit. The IRS also uses an Unreported Income DIF (UIDIF) score to analyze whether a person is likely to have any income that was not reported correctly.

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