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Recent Blog Posts

Business Law: Why Choice of Entity is a Crucial First Decision

 Posted on January 29, 2016 in Small Business Taxes

When starting a new business, it is critical to understand the differences between different types of business structures and to evaluate the pros and cons of each option as they relate to your new venture. Business laws govern both the formation and operation of all types of business, and contain very specific requirements that can be traps for the unwary.

What might be an appropriate choice of entity for one type of business may not meet the needs of another. Unfortunately, making an incorrect choice of business entity not only creates administrative burdens to "unwind" the first choice, but it also usually results in unnecessary expenses at a time when the new business needs every dollar working for it.

There are also differences in the type of supporting documents a business must have behind the scenes, and in the legal formalities that must be observed on an ongoing basis. For example, a single-member LLC usually does not need to observe the same types of formalities as a corporate entity, which must hold and document regular meetings of shareholders and directors. Where a single-member LLC may not need an operating agreement or a member control agreement, those types of documents are very important for a multi-member LLC.

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Highway Bill Creates Tax Collection Changes, New Penalties

 Posted on December 29, 2015 in Taxation Law

Taxpayer complaints led the IRS to abandon the practice in 2006 but now it is set to return: using private collectors to pursue overdue federal tax payments. Subcontracting with private collection firms was approved by President Obama when he signed the recent federal highway bill—also known as Fixing America's Surface Transportation (FAST) Act, HR 22—on December 4, 2015. According to multiple media sources, including the Hill, the president signed the legislation with only hours remaining before federal funding for highways was set to expire. FAST should provide funding for the nation's highways and other infrastructure for the next five years without increasing gasoline taxes. The law also has substantial implications for taxpayers who owe a significant amount of money to the IRS. In addition to authorizing the use of private collection agencies for some tax collections, FAST also includes a new penalty for taxpayers who have "serious" tax debt that is delinquent.

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Governor Brown Vetoes California A.B. 99

 Posted on December 03, 2015 in Taxation Law

Are you concerned that a recent decision by California Governor Jerry Brown may impact your taxliabilities? A.B. 99 was a bill written to bring California into compliance with federal rules regardingcancellation of debt income (CODI) related to mortgage debt forgiveness. Though the bill was approvedby state legislators, Governor Brown cited the need for California's continued tax revenue as the reasonhe is not granting this tax relief. Many tax payers anticipated the governor's signing of the bill. Manymay not have accounted for the mortgage debt relief to be counted as income. This may createincreased tax responsibilities. If you believed that A.B. 99 was going to be signed into law and you havenot made appropriate tax payments to the California Franchise Tax Board, you may need a California taxattorney.

Currently, California tax law does not conform to federal exclusions for income from the discharge ofqualified principal residence indebtedness occurring after 2013. California taxpayers with cancellation ofdebt income who anticipated the implementation of A.B. 99 may not have made their payments beforethe due date of the return. This may lead to penalties for the 2014 tax year.To get answers about California's A.B. 99 and how its veto might impact your tax responsibilities,contact California Tax Attorney John D. Teter.

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Bitcoin and Other Digital Currency Are Regarded as Property for Tax Purposes

 Posted on October 22, 2015 in Taxation Law

Digital currency may be a misnomer because, according the United States Government, it is property rather than currency. Regardless of what it is called, digital currency does have value and the owner of the currency must report digital currency transactions on his/her income tax returns or face penalties.

During an American Bar Association webcast that was held on March 25, 2015, government sources said they will aggressively pursue taxpayers who use virtual currency for illegal activities including money laundering, tax evasion and a host of other crimes. The webcast affirmed what the IRS stated in a press release published in March of last year: "IRS Virtual Currency Guidance : Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply."

Bitcoin, the most popular digital currency, has approximately $3.9 billion in circulation worldwide. Each holder of Bitcoin currency obligated to pay US income tax must report the fair market value to the IRS. According to the IRS press release, other requirements include

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Filing Taxes as an Independent Contractor

 Posted on August 13, 2015 in Employment Taxes

One of the challenges that independent contractors who work for themselves have is to file taxes accurately. Typically an independent contractor may be required to file taxes using a 1099-MISC form. In other cases, they file taxes using a 1099-K form. The bottom line is however, is that if you are earning an income as an independent contractor, you will have to file taxes.

However, it can become confusing to classify the kind of work that you do. Tax filing for an independent contractor may not be as cut and dry, as filing for taxes when you are an employee of a company. For instance, how do you classify the kind of work that you do? Is it a business, or are you engaged in a hobby, that occasionally earns you an income?

Filing properly is very important because it determines the kind of tax that you pay, and the exemptions and deductions that are deducted. For example, if you earn an income via a hobby that you are currently engaged in, you may be able to use deductions to offset the income, but those deductions cannot be higher than your income, because there is no concept of suffering a loss in a hobby. Things can be dramatically different when you're engaged in a business, however. Businesses do involve profit and loss, and in fact, in the early stages of a business, it's fairly normal to not be making any profit at all.

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In Spite Of Federal Initiatives, Tax Inversion Continues

 Posted on July 07, 2015 in Taxation Law

The federal administration has been taking a number of initiatives in order to reduce the corporate practice of tax inversion. However, statistics indicate that these initiatives are not having the required effect.

Tax inversion refers to the practice of a company moving its legal base offshore while retaining most operations in the US. According to the Wall Street Journal, companies are continuing to move base to lower-tax destinations overseas, and are taking over US companies after doing so. They are taking advantage of lower tax rates in these tax havens. Typically, in these lower-tax havens like Ireland, corporate tax rates are in the mid-teens. That is in sharp contrast to the United States corporate tax rate, which hovers at 35%.

Not only are these companies saving on the taxes that they have to pay because they have now shifted legal base overseas, but they also enjoy profits from the mergers that they're able to bring about from their overseas bases. A number of companies have overseas bases that are used to save on taxes.

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IRS Considers Lowering Limits for Taxes on Gambling

 Posted on May 04, 2015 in Taxation Law

Gamblers have been eligible to pay taxes on their winnings for years, and must pay taxes on each dollar that they win on all kinds of gambling. That includes not just slot machines in casinos, but also winnings on sports bets.

 

At a slot machine, only winnings above $1200 must be reported to the IRS. However, the Internal Revenue Service has admitted that it is toying with the idea of lowering that limit to $600. Predictably, that has generated outrage in the gambling community. It's not just gamblers who are opposing those proposals. The casino industry is also opposing that lowered threshold for reporting earnings at slot machines.

 

According to the American Gaming Association, which is the main lobbying arm for the industry, implementing any such change would be very expensive for the industry. All slot machines at casinos would need to be updated to ensure that tax forms are submitted to gamblers as soon as they hit the taxable threshold. Besides, initial costs would also include labor costs. According to Caesars Entertainment, that additional labor could cost an additional $18 million per year.

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Most IRS Employees Who Violate Tax Laws Are Not Fired

 Posted on April 15, 2015 in IRS Scams

According to a highly critical government report on the Internal Revenue Service recently, employees who were caught cheating on tax laws are very unlikely to be fired. That is in spite of the fact that a federal law expressly requires the head of the Internal Revenue Service to fire cheating employees. The report finds however, that the agency fired only approximately 39% employees who were found to violate tax laws.

The report couldn't come at a worse time for the Internal Revenue Service. The agency is already battling not just funding crunches, and staffing shortages, but also a number of questions about its operations. Public confidence in the agency is at an all-time low, and the agency's reputation is damaged.

The report says that the Internal Revenue Service looked away when many IRS employees violated tax laws willfully. The kind of cheating reported included missing tax deadlines, overstating expenses, and claiming tax credits for first-time homebuyers, even without buying a house. According to the report, over the past decade, the Internal Revenue Service has caught 1,580 of its employees in violation of tax laws. However, in 61% of the cases, the employee was simply given access to counseling sessions, or was reprimanded for the offense. In other cases, they were suspended. In the remaining cases, they were fired.

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Understaffed IRS Poses Challenges Ahead of Tax Season

 Posted on March 05, 2015 in Taxation Law

Even as the year's annual tax season gets underway, staffing shortages at the Internal Revenue Service promise to make this year's season even more challenging than usual.

As the deadline for tax filing looms, taxpayers across the country are finding that their calls to the Internal Revenue Service offices are barely being answered. Just about 4 out of 10 calls are getting answered. At centers across the country, taxpayers are waiting for hours to get assistance from IRS officers.

The staffing shortages are linked to a reduction in the budget of the IRS. Congress has reduced the budget of the IRS by $1.2 billion since 2010 alone. That has led to significant staffing shortages at the Internal Revenue Service, as the agency has been forced to downsize as a result.

That has meant fewer staff members to man the telephone calls, and assist taxpayers. Agency employees are dealing with their own problems. The staffing shortages have meant that several clerical staff, including secretaries, have been given the ax. That means that regular employees are also being given clerical duties to perform, in addition to taxpayer assistance responsibilities. Motivations and morale levels are low at the agency.

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Caterpillar Faces Offshore Tax Scrutiny

 Posted on February 06, 2015 in Taxation Law

The Internal Revenue Service has proposed penalties and taxes worth more than $1 billion on Caterpillar. That announcement came after the Internal Revenue Service went through the company's returns from between 2007 and 2009.

The Internal Revenue Service is specifically looking at profits from a Caterpillar subsidiary in Switzerland. The subsidiary is also currently the subject of an investigation by the Securities and Exchange Commission.

In 1999, Caterpillar via a process of restructuring shifted most of its profits to this subsidiary, and gave it a license to distribute the company's replacement parts for its excavators, and other equipment outside of the United States. According to a Senate investigation, by doing so, Caterpillar managed to save as much as $2.4 billion in taxes between 2000 and 2013. The Senate investigation was specifically looking at how this is tax structure for the Swiss subsidiary helped the company to save as much as $300 million in taxes every year.

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