John D. Teter Law Offices

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San Jose, CA 95128
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San Jose, CA tax attorney for child support and spousal supportCouples who have decided to end their marriage will need to address a wide variety of financial issues. During this process, spouses will not only want to make financially advantageous decisions, but they will need to consider how these decisions will affect their taxes. One divorce-related tax issue that may arise involves determining how taxes will apply to child support or spousal support payments made by one party to the other.

Taxes on Support Payments

In the past, child support and spousal support were taxed differently. The person who paid spousal support was able to deduct these payments from their taxable income, and the person who received spousal support was required to report these payments as part of their income and pay taxes on the amount received. Child support was handled differently, with the payor not being allowed to deduct payments, and the payee not reporting payments as income. 

The tax laws changed a few years ago, and for divorces that were completed on January 1, 2019 or later, spousal support and child support are taxed the same. Payors of support cannot deduct payments, and payees are not taxed on the payments they receive. This may make the consideration of tax-related issues during divorce more straightforward. However, those who are currently paying spousal support from a divorce that was finalized before 2019 will still be able to deduct these payments, and they will want to be sure to understand how the decisions they make will affect their taxes going forward.

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San Jose tax law attorney for divorce filing statusEnding your marriage can be a difficult decision, but if you have decided that it is the best choice for you and your family, you will want to make sure you are taking the right steps to begin the next phase of your life on secure financial footing. In addition to addressing matters related to your property, income, and family finances, you will also need to look at your taxes. A variety of divorce-related tax issues may arise, and one of the most important is determining what filing status to use when filing your annual tax returns.

Options for Filing Status for Divorcing Spouses

For the year when your final divorce decree was or will be issued, you will not be able to file taxes jointly with your spouse. That is, if you will be finalizing your divorce in 2021, you and your ex will each be required to file separate 2021 tax returns before the April 15th deadline in 2022. However if you are still legally married on December 31, 2021, you can still file a joint tax return for 2021. 

When choosing a filing status, you generally have three options:

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San Jose, CA tax audit attorney for high income taxpayersThe Internal Revenue Service (IRS) regularly conducts tax audits of individual taxpayers and businesses. During an audit, it will seek to collect taxes that were underpaid due to misreported income, improper deductions, or other issues, as well as any applicable penalties. Under the administration of President Joe Biden, these efforts may increase, and the IRS will be looking to conduct more audits of individuals who earn high incomes or own significant assets, as well as large partnerships and corporations.

Increased IRS Budget and Focus on Closing the Tax Gap

President Biden recently announced the American Families Plan, a proposal that would increase infrastructure spending and provide aid to families with middle to low incomes. This proposal also included an increase in the IRS’s budget by $80 billion over 10 years. This increase would allow the IRS to conduct more audits and narrow the “tax gap,” or the difference between what U.S. taxpayers owe and what is actually collected. Experts believe that the tax gap is close to $1 trillion per year.

This proposal came on the heels of a report by the IRS and other economists which stated that taxpayers with income levels in the top 1% do not report 21% of the income they earn. This results in around $175 billion of taxes that go unpaid each year. In addition, the number of audits of taxpayers who earn at least $1 million per year has fallen by 80% over the past 10 years, making it less likely that the IRS will be able to collect the taxes owed by these taxpayers. Increased audit and collection efforts aimed at this top 1% may assist in narrowing the tax gap without additional tax increases.

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San Jose business lawyer for residential and commercial leasesWhether you are a landlord or a tenant, you will want to make sure you fully understand the terms of your lease agreement. Commercial and residential leases address a wide variety of issues that affect landlords and tenants, and if the language in a lease is not carefully drafted, this can lead to disputes that could result in financial losses or other legal issues. Before signing a lease, it is important to have an attorney review the agreement and identify any language that may need to be revised or other issues that could lead to problems in the future.

Terms to Address in a Residential or Commercial Lease

Some of the terms that should be reviewed before signing a lease include:

  • Severability - This clause states that if one or more terms in a lease are found to be invalid, this will not affect any other provisions in the lease. If this clause is not included or is not worded properly, an entire lease agreement could be found to be invalid based on a single error.
  • Use and exclusive use - A lease should detail the ways the tenant is allowed to use the property, and it may grant exclusive use to a commercial tenant, which would prevent other similar businesses from occupying the same building or another part of the property. When these terms are drafted correctly, the landlord and tenant can make sure they understand any restrictions or limitations that apply to them.
  • Improvements and alterations - A lease should specify whether a tenant can make any changes to the property while also detailing who will be responsible for paying for improvements. Wording these terms correctly will ensure that both parties fully understand their rights and requirements.
  • Renewal - The parties should understand the steps that must be taken to renew the lease at the end of its term. If the process for renewal is not clearly defined, a tenant may not be able to renew its lease, or a landlord may not be able to receive favorable terms in an agreement with a tenant.
  • Rent escalation - A lease should describe when and how the amount of rent may be increased. Unclear terms may lead to financial issues for the tenant if rent is raised unexpectedly, or the landlord may not be able to increase rent in response to higher taxes or insurance costs.
  • Force majeure - This clause will detail what will happen if either party is unable to meet their obligations due to issues that are out of their control, such as natural disasters or government orders. If these terms are not drafted properly, a landlord may not be able to collect rent from a tenant, or a tenant may face unreasonable financial obligations.

Contact Our San Jose Lease Agreement Lawyer

At John D. Teter Law Offices, we provide representation for small businesses, helping them address their legal issues. If you are a landlord who leases property to residential or commercial tenants, or if you will be leasing space where you will operate your business, we can review your lease agreements and help you draft language that will provide you with the legal protection you need. Contact our San Jose, CA business law attorney today at 408-866-1810.

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San Jose, CA tax debt relief attorneyWhen a married couple files a joint tax return, “joint and several liability” will apply to any tax debts related to that return. This means that if the Internal Revenue Service (IRS) conducts a tax audit and determines that the couple owes taxes due to erroneous information on their joint tax return, the spouses will be equally liable for paying these tax debts. This can sometimes come as a surprise, especially if a couple has gotten divorced since filing the joint tax return in question. Even if a divorce decree addressed tax issues and states that one spouse will be responsible for paying joint tax debts, the IRS can still pursue repayment from both spouses. However in some cases, a person may receive innocent spouse relief if they were not responsible for the tax debts.

Innocent Spouse Relief Eligibility Requirements

Innocent spouse relief may be available in situations where individual income taxes or self-employment taxes are owed to the IRS based on incorrect information on a couple’s joint tax return. To be eligible for innocent spouse relief, a person must be able to show that errors on a tax return were solely attributable to their current or former spouse. They will need to verify that when they signed the joint tax return, they did not know or could not reasonably have known about the errors.

A person may receive innocent spouse relief based on errors on a tax return related to unreported or misreported income or claiming of improper tax deductions, credits, or property basis. For example, if a person’s ex-spouse was a business owner, and they did not report all income earned through their business in a certain year, while also claiming tax deductions for business expenses without actually paying for those expenses, a tax audit may determine that taxes are owed. If the other spouse was not involved in the business and had no knowledge of the business’s finances, they may be eligible to receive innocent spouse relief, and the other spouse will be solely responsible for paying the tax debts.

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