Posted on April 28, 2017 in Taxation Law

If you are an independent contractor, you may be required to pay your taxes several times throughout the year. This is called an estimated tax.

This requirement comes as a surprise to many freelancers and contract employees. If not properly handled, it can create undue stress as well as expose the taxpayer to IRS penalties.

It is important to not get bogged down in the complexity of your tax situation as an independent contractor. Instead, you should reach out to a professional, such as a tax attorney, who can advise you on how you need to comply.

What Federal Taxes Must You Pay Quarterly?

When independent contractors are paid, certain taxes are not deducted from their paycheck. These taxes are called the self-employment tax, and include Social Security, Medicare, and similar state taxes.

Continue Reading ››

 Posted on April 19, 2017 in Taxation Law

A new law will soon go into effect that will revoke the passports of taxpayers who owe a significant amount of back taxes. This law was passed in 2015 as a tax collection tool for the Internal Revenue Service (IRS).

Details of the Law

The law allows the IRS to certify your tax debt to the State Department—the agency that issues passports. Once a tax debt is certified, the State Department will revoke passports or prevent passports from being issued to the tax debtor. The IRS has not yet begun certifying tax debt and has not announced the exact date this process will begin; however, the IRS did indicate that the first certifications could come in early 2017.

Who Will Be Affected by This Law?

The new law will apply to individuals with seriously delinquent tax debt. The law defines this type of debt as federal tax debt of more than $50,000, including interest and penalties indexed for inflation.

Continue Reading ››

 Posted on April 12, 2017 in Taxation Law

Is a Non-U.S. Citizen Required to File a U.S. Tax Return?

Non-U.S. citizens with taxable income must file a tax return and must adhere to special requirements. This situation often comes up with international students and scholars who work or receive scholarship funds.

Requirements for Non-U.S. Citizen Taxpayers

Non-U.S. citizen taxpayers are defined in the Internal Revenue Code as those who are resident or nonresident aliens who are engaged in trade or business within the country. These individuals must file a U.S. tax return.

Foreign teachers, trainees, or students who are temporarily in the country on F, J, M, or Q visas will be considered to be engaged in trade or business.

Most people with non-immigrant status of F-1, J-1, M-1, Q-1, and Q-2 can be employed in the U.S. If such people are employed, they can apply for a Social Security number. If someone is not eligible for a Social Security number and has a tax filing requirement, an Individual Taxpayer Identification Number can be applied for through the IRS.

Continue Reading ››

 Posted on March 31, 2017 in Taxation Law

If you a considering moving outside of the United States and renouncing your citizenship or long-term green card, there are important tax considerations you should review.

One of the most important determinations is whether you are a “covered expatriate,” as this group must pay an Exit Tax. There are steps you can take to avoid being classified as a covered expatriate.

The Exit Tax is calculated by the IRS as if you sold your assets and reported the gains. Net capital gains are taxed at rates of up to 23.8 percent. In 2017, the first $699,000 of gain is not subject to the Exit Tax.

Who Qualifies as a Covered Expatriate?

1. Anyone with a net worth of over $2 million. Net worth includes your assets anywhere in the world, including your assets in the U.S. There are several complications if you are married.

The net worth of each spouse will be calculated separately. If the husband or wife owns most of the assets, it may be possible for a spouse to gift assets to the other in order to bring each person’s net worth under $2 million. For receiving spouses who are U.S. citizens, such a gift may not be taxed.

If your spouse is not a U.S. citizen (even if he or she is a green card holder), then the gift may be subject to the gift tax if over $149,000 (in 2017). If more assets than this need to be transferred between spouses to come in under the $2 million net worth cut off, you could avoid the gift tax by making the transfers over a number of years or by relying on a unified tax credit.

Continue Reading ››

 Posted on March 21, 2017 in Taxation Law

You may or may not know of someone who has not filed income taxes. It may be tempting each year to not file with the Internal Revenue Service (IRS); however, such an omission can lead to serious consequences.

California Filmmaker Josh Kornbluth was one of these non-filers. He did not file income taxes for seven years in the 1990s. He stopped filing taxes one year when his tax returns got more complicated after taking on freelance writing assignments. He said that he never got caught, which caused him to continue to not file.

"The first time, I got very nervous," Kornbluth told reporters. "But then I noticed that nothing happened to me. The next day after I didn't file was the same as the day before. It just became sort of a habit not to file."

Eventually, he realized that not paying his taxes meant that he was not supporting his country. He also got engaged and was expecting a child, leading him to make changes in his life. In the end, Kornbluth came clean and began to file. He chronicled his income tax experience in his film "Love & Taxes," which premiered in 2015.  

Continue Reading ››

 Posted on March 10, 2017 in Taxation Law

Recently, House Republicans introduced a health insurance bill that would replace the Affordable Care Act (also known as ACA or “Obamacare”). This bill was pulled before the House could vote, but its analysis is worthy as future bills may be forthcoming. The new bill was called the American Health Care Act (AHCA). Industry experts analyzed the effects of the bill and predicted that this plan, or any Obamacare replacement plan, would create “winners and losers.”

Both healthcare plans would have tax implications. Obamacare has an individual mandate requiring most taxpayers to obtain health insurance or pay a penalty when filing tax returns. It also offers tax credits. Obamacare offers a broad range of insurance premium subsidies based on household income and the local cost of healthcare insurance. The AHCA would have eliminated the required mandate and changed the tax credits that can be claimed. 

Continue Reading ››

 Posted on February 22, 2017 in Taxation Law

Cybercriminals target tax professionals in order to gain access to sensitive client data. With this data, criminals can file tax returns fraudulently and be issued a tax refund. Tax professionals have a duty to keep client data secure. When client data is compromised, tax professionals must take certain steps to protect themselves and their clients. Following certain steps can also help prevent tax refunds from being issued to cybercriminals. 

1. Inform the Internal Revenue Service and law enforcement agencies.

• Notify the IRS. Your local IRS Stakeholder Liaison will take a report of client data compromise. The liaison will then inform the IRS Criminal Investigation unit on your behalf. It may be possible for the IRS can block the fraudulent returns based on the stolen data. For this to happen, reporting the breach to the IRS must occur quickly.
  
  

  Continue Reading ››

 Posted on February 15, 2017 in Small Business Taxes

The 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.)

Continue Reading ››

 Posted on February 08, 2017 in Taxation Law

Many individuals and businesses turn to a tax preparer for the extra assurance a preparer gives that taxes will be filed properly. While most tax preparers provide a valuable service, some preparers use tax season to scam customers as well as state and federal governments.

Different Schemes Used by Tax Preparers

Tax preparers can set up schemes to defraud in a number of ways. For example, a tax preparer could claim credit or deductions for which the individual was not eligible. A tax preparer could also divert tax refund checks to his or her own bank account.

These schemes can be very lucrative. Last year, a California tax preparer was ordered to pay more than $7 million dollars in restitution after she pled guilty to tax fraud.

Penalties for Taxpayers

If the IRS determines that your tax preparer submitted fraudulent returns, you will likely face consequences. The IRS takes the view that the taxpayer is ultimately responsible for the filing. 

Continue Reading ››

 Posted on January 30, 2017 in Taxation Law

The IRS has announced that it has received nearly $10 billion as part of a special program offered to taxpayers who were shielding assets in undisclosed offshore accounts. The $10 billion dollars was paid by 55,000 taxpayers who utilized the Offshore Voluntary Disclosure Program (OVDP). This sum includes taxes, interest, and penalties.

The OVDP is offered to those with undisclosed income from foreign financial accounts and assets and allows them to come into compliance with tax returns and report obligations. The program incentivizes taxpayers to voluntarily disclose these assets before the IRS finds out about them later. If the IRS discovers that an offshore account has not been disclosed, more severe penalties and possible criminal prosecution can result.

Similar to the OVDP, taxpayers have used a second program called the Streamlined Offshore Disclosure Program to pay approximately $450 million in taxes, interest, and penalties.

Continue Reading ››