Posted on December 31,2022 in Small Business Taxes

If you are a small business owner, you may be aware that there are multiple different types of taxes that you need to pay. Self-employment taxes are the combined Social Security and Medicare taxes that sole proprietors, independent contractors, and other types of business owners must pay. Understanding the self-employment taxes that may apply to you can help you make sure you stay compliant with the law and will not be required to pay penalties or fees. 

Understanding Self-Employment Tax

You will generally be required to pay the self-employment tax (also known as SE tax) if you have net earnings of at least $400 from self-employment in a tax year. The SE tax rate is currently 15.3 percent, which consists of 12.4 percent for Social Security taxes and 2.9 percent for Medicare taxes. In 2022, the Social Security portion of the self-employment tax will apply to the first $147,000 of your net earnings, including wages or tips. All combined earnings will be subject to the Medicare portion of the self-employment tax.

Continue Reading ››

 Posted on December 13,2022 in Tax Audits

The Criminal Investigation (CI) division of the IRS regularly investigates taxpayers who are suspected of tax evasion, tax fraud, and other offenses. These investigations may be related to tax audits, or they may be performed independently. Those who are accused of committing tax-related offenses may not only face penalties for non-payment of taxes or failure to submit the proper information to the IRS, but they may also be subject to criminal prosecution. In recent years, offenses related to cryptocurrency have been a significant concern for the IRS. Agency officials have stated that hundreds of cases involving virtual currency and tax evasion or other offenses are likely to be prosecuted within the next year.

The IRS's Increased Focus on Cryptocurrency

As more and more people invest in cryptocurrency, use virtual currencies to make payments and purchases, and receive digital assets as income, the IRS has begun to scrutinize these transactions and enforce compliance with tax laws. It has also been able to prosecute some major cases involving tax fraud and other related offenses. In just one example, the founders of Bitqyck, a cryptocurrency investment company, were convicted of tax evasion after defrauding investors of around $24 million. The defendants in this case had failed to file corporate tax returns, and they had underreported their income to the IRS, resulting in tax losses of more than $1.6 million. In addition to being sentenced to prison, the defendants were required to pay a civil penalty of $8.3 million to the U.S. Securities and Exchange Commission.

Continue Reading ››

 Posted on November 30,2022 in Taxation Law

Businesses that operate in the United States must meet a variety of legal requirements, including disclosing information to the government. In addition to submitting the proper information to the IRS when filing tax returns and other required forms, other types of disclosures need to be made to government agencies. This now includes reports required under the Corporate Transparency Act (CTA). This law was passed in 2019, and the final rule regarding reporting requirements was released in September 2022. Businesses will need to make sure to file the proper reports to avoid potential civil and criminal penalties.

What Is the Corporate Transparency Act?

Congress passed the CTA with the intent of preventing money laundering by people and organizations involved in drug trafficking, fraud, and other illegal activities. These activities often involve the creation of shell companies that conceal the identities of the owners and allow criminals to access and use assets in the United States. To combat these activities, the CTA requires companies to submit reports detailing their beneficial ownership information (BOI).

Continue Reading ››

 Posted on November 18,2022 in Taxation Law

Taxpayers who own foreign assets, earn income in more than one country, or may otherwise be required to pay taxes in multiple countries may need to address a variety of tax-related issues to ensure that they are in compliance with all applicable requirements. This can be a significant concern during tax audits, and in some cases, information about a person's finances and tax obligations may be shared with other countries by the IRS. By understanding when this can occur and how the sharing of information may affect tax liabilities, taxpayers can make sure they take the correct steps to avoid penalties in the United States or other countries.

Court Ruling Highlights Tax Information Sharing Practices

A recent court case that took place in California demonstrates the issues that taxpayers may face regarding the sharing of information by the IRS. In the case of Zhang v. United States, the Canadian government requested tax information from the IRS related to a married couple. The taxpayers challenged this request, claiming that the Canadian government made the request in bad faith. However, the Ninth Circuit Court of Appeals ruled against the taxpayers and found that the IRS had acted in good faith to provide the requested documents based on the terms of a bilateral treaty between the United States and Canada.

Continue Reading ››

 Posted on October 31,2022 in Small Business Taxes

The classification of workers as employees or independent contractors is an important legal distinction that can have significant implications for employers. Employees are entitled to a number of rights and protections under the law, including minimum wage and overtime pay, while independent contractors are not. It is important for employers to ensure that workers are classified correctly, and they may face penalties if they fail to do so. Recently, the Department of Labor announced a proposed rule that may affect worker classification. Employers will need to understand how this rule could affect them and how they can avoid the potential risks of misclassifying workers.

Potential Changes to Federal Worker Classification Rules

The Department of Labor follows certain rules when determining worker status under the Fair Labor Standards Act (FLSA). During the administration of President Donald Trump, these rules were updated to focus on two "core factors": the degree of control that an employer and/or worker has regarding key aspects of the work being performed, and a person's opportunities for profits and losses when performing work. This rule was generally considered to favor employers, allowing them to classify more workers as independent contractors.

Continue Reading ››

 Posted on October 21,2022 in Taxation Law

There are multiple different types of taxes that apply to the income a person earns and the assets they own. Wealthy individuals and families will need to be aware of the estate taxes that may apply, as well as how they can transfer wealth while minimizing taxes. The federal estate tax is levied after a person's death. Fortunately, exemptions are available, and estate taxes will only apply to estates that are worth more than the amount of these exemptions. The Tax Cuts and Jobs Act of 2017 significantly increased the estate tax exemption, but this law is scheduled to sunset in 2026. This change may have an impact on how a person or family may address issues related to estates.

What Are the Current Estate Tax Exemption Levels?

For 2022, the exemption level for the estate tax is $12.06 million per person. This means that an individual can have up to $12.06 million worth of property at death without incurring any estate tax liability. For married couples, the exemption level is doubled, meaning they can have up to $24.12 million worth of property at death without incurring any estate tax liability. This exemption also applies to lifetime gifts given by a person or couple. That is, an individual may give gifts of up to $12.06 million to others during their lifetime without being required to pay taxes on these gifts.

Continue Reading ››

 Posted on October 17,2022 in Small Business Taxes

As a small business owner, it is important to be aware of the various tax deductions that are available to you. Taking advantage of these deductions can help reduce your tax liability, leaving you with more money to reinvest in your business. By working with a tax law attorney, you can determine the best ways to minimize your tax burden and ensure that your business will be able to continue operating successfully. 

Tax Deductions for Business Expenses and Other Costs

There are multiple types of expenses that small business owners may be able to deduct from their taxes, including:

• Startup costs - A business's capital expenses may address the costs of starting a company. Deductions may be available for the costs of founding or acquiring a business, and these may be amortized over several years after a business is founded.

  Continue Reading ››

 Posted on September 28,2022 in Taxation Law

In August 2022, the U.S. Congress passed the Inflation Reduction Act, which is a key part of President Joe Biden's agenda. One much-discussed component of this act involved an increase in funding to the IRS. Nearly $80 billion of additional funds will be allocated to the IRS over the next 10 years, and officials have stated that this funding may be used to hire around 87,000 new IRS employees and increase tax audits on individuals and businesses that earn large incomes or own high-value assets. With this increased funding, the IRS will most likely be making efforts to crack down on offshore tax evasion. Taxpayers who own foreign assets and investments will need to be aware of the potential consequences they may face if they fail to abide by the applicable tax laws, and by working with an attorney, they can determine the best ways to come into compliance with their offshore tax reporting requirements.

Continue Reading ››

 Posted on September 22,2022 in Taxation Law

The IRS has been very clear that it may take action against taxpayers with undeclared foreign accounts. In fact, the IRS often specifically targets individuals who have failed to comply with U.S. tax laws by willfully hiding their assets in offshore accounts. However, the agency is also aware that many of these taxpayers may not have been willful in their actions, and they may be seeking to come into compliance through the Streamlined Compliance Procedures. It is important to understand how the IRS determines whether or not someone was willful in their failure to disclose a foreign account. Based on the results of a recent court case, there are some situations where the IRS may reject a taxpayer's self-certification of non-willfulness.

Non-Willfulness Under the Streamlined Compliance Procedures

U.S. taxpayers are required to report any foreign accounts they own to the IRS, and this is typically done by filing a Foreign Bank Account Report (FBAR) on an annual basis, as well as submitting a Statement of Specified Foreign Financial Assets (Form 8938) with their annual tax returns. Failure to submit these forms can result in significant penalties. However, those who have not reported foreign assets as required may be able to come into compliance with their requirements through the Streamlined Compliance Procedures.

Continue Reading ››

 Posted on September 07,2022 in Taxation Law

While nearly everyone is required to pay taxes and file annual tax returns, there are a variety of reasons why some people may fail to do so. In many cases, these issues occur because of financial difficulties, and unfortunately, these difficulties may be compounded by the penalties that will apply for failure to file tax returns or failure to pay taxes. Fortunately, penalty abatement programs are available in certain situations. The IRS offers first-time penalty abatement for some federal income tax penalties, and the state of California recently passed a law that will provide similar abatement options for taxpayers who are facing penalties related to state income taxes.

One-Time Penalty Abatement Options Under AB 194

Assembly Bill 194, which was signed into law by Governor Gavin Newsom on June 30, 2022, gives the California Franchise Tax Board (FTB) the authority to grant abatement to taxpayers facing timeliness penalties. These include failure-to-file penalties that apply when a taxpayer does not file a state income tax return by the annual deadline and failure-to-pay penalties that apply when taxes that are owed are not paid when required.

Continue Reading ››