John D. Teter Law Offices

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San Jose, CA 95128
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San Jose, CA tax attorney for corporate taxes and TCJAA C Corporation is a separate legal entity that protects a business owner’s assets from creditor claims. All corporations are C corporations by default until a business owner files for S corporation status. In a C corporation, business income and expenses are taxed to the corporation. When a business owner or owners receive profits from the business as dividends, the owner(s) must also pay income tax on the profits – creating a double taxation situation. On the other hand, S corporations are “flow-through” entities, meaning business income is treated as owner and investor income for tax purposes. This may make it seem as if operating your business as an S corporation is a better choice than operating it as a C corporation. However, major changes to U.S tax law were established by the 2017 Tax Cuts and Jobs Act (TCJA) that may influence your decision regarding corporation status.

The Qualified Business Income Deduction

The TCJA initiated sweeping changes to tax law, including the new qualified business income deduction, which is also called the Section 199A deduction. This deduction allows certain individuals the opportunity to deduct up to 20 percent of their qualified business income. However, business income generated by a C corporation is not eligible for this deduction. The TCJA also enacted a flat 21 percent tax rate on C corporations, which is much lower than the previous rate of 35 percent. Because income from an S corporation is taxed at the personal level instead of the corporate level, S corporation income does not qualify for the 21 percent tax rate. S corporation income flows through to the shareholders’ personal tax returns and can therefore be taxed at rates as high as 37 percent.

Potential Issues Regarding Switching From S Corporation to C Corporation Status

The Tax Cuts and Jobs Act included provisions to help make the transition from S corporation to C corporation easier. Section 1371(f) extends the time period during which an eligible terminated S corporation can make tax-free distributions from its accumulated adjustments account. Business owners should keep in mind that there is a time constraint regarding the transition relief offered by the TCJA. An eligible terminated S corporation must revoke its S election no more than two years after the TCJA is enacted. This means that reversals after December 22, 2019, will not qualify.

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San Jose tax lawyer for amended tax returns

In previous blogs, we have discussed the many consequences of not paying your taxes in full. However, sometimes a person has the opposite problem: the overpayment of taxes. If you have inadvertently or mistakenly paid more than your fair share of taxes, you may wonder if there is a way to get that extra money back. Whether or not the IRS will refund your money is based on many factors. Read on to learn about your options if you have overpaid your taxes and how a qualified tax lawyer can help.

Getting a Refund From the IRS

If you have overpaid the Internal Revenue Service (IRS), you may be able to receive a refund. If the IRS is aware that you overpaid, the agency may correct the issue by refunding you the extra balance. For example, if your tax return shows that you owe $2,000, and you send the IRS a check for $3,000, the IRS may refund you the extra $1,000 without issue. However, the situation becomes more complicated when the IRS is not aware of the overpayment. 

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San Jose, CA tax law attorney for IRS examinations

Many people have felt the sinking feeling that accompanies receiving a letter from the Internal Revenue Service (IRS). While it may be tempting to simply put the letter in a drawer and forget about it, ignoring the IRS can result in serious consequences. If you are contacted by the IRS and asked to make an office audit appointment, you should be sure to schedule the appointment, contact a tax lawyer for help if you need it, and attend the meeting. If you have already missed an audit meeting, you may wonder about the consequences you may face and what steps you can take to protect yourself.

Voluntary Appointments Versus Required Appointments

When the IRS examines a tax return and decides that the tax filer has misfiled, it may send a letter requesting an appointment. The tax filer may respond to the letter and schedule an appointment, or s/he may choose not to. If you have received a letter and did not schedule the appointment, the IRS has the authority to request a legal summons from a judge and demand that you attend it. If you fail to show up at an appointment that you personally scheduled, you will likely get the chance to reschedule the meeting without any major consequences. However if you were required to be at the appointment because of a legal summons and do not show up, the consequences will be much more serious.

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San Jose tax attorney for IRS auditsIf you are the subject of an Internal Revenue Service (IRS) audit, you likely have many questions about what the auditing process will entail. The IRS may have chosen you for an audit after comparing your tax return against “norms” for comparable returns, or you may have been selected because your tax returns involved transactions with other taxpayers who have been selected for an audit. The IRS manages audits through the mail and/or in-person interviews. As part of the auditing process, the IRS will request access to certain documents and financial information that supports the income and deductions claimed on your tax return.

Common Records Requested by the IRS

The documents and records that the IRS will want to examine during an audit can vary depending on your specific circumstances and the basis for the audit. Commonly, the IRS will request copies of:

  • Receipts: You may be asked to send the IRS receipts proving purchases you have made or money you have received for a product or service.
  • Canceled checks 
  • Bills: The IRS may request bills showing the person or entity receiving payment, the type of service received, and the dates on which you paid them.
  • Loan agreements: You may need to send copies of loan applications or agreements as well as information about how you used money that was loaned to you.
  • Travel logs and tickets: The IRS may want to examine travel plans and dates, mileage information, tickets, and expenses.
  • Theft or loss documents: If you experienced a theft or loss, the IRS will want to see insurance reports describing the loss, police reports, adjustor appraisals, and other relevant information.
  • Medical records
  • Legal documents: The IRS will likely want copies of documents related to property acquisition, tax preparation, divorce settlements, custody agreements, and any civil and criminal cases you have been involved in.

Your Rights During an IRS Audit

It is critical for anyone going through a tax audit to remember that they have certain rights as a taxpayer. In addition to professional and respectful treatment from IRS employees, you also have a right to confidentiality, the right to know why the IRS is auditing you, the right to know how the IRS will use any information gathered, and the right to know what the consequences will be if you do not provide the requested information. Most importantly, you have the right to be represented by a qualified tax lawyer. If you disagree with the IRS’s findings, you have the right to challenge or appeal the IRS auditor’s decision or file a petition with the U.S. Tax Court.

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San Jose, CA tax lawyer for innocent spouse relief

Married couples have the option to file a joint tax return instead of separate tax returns. There are often benefits to choosing this filing status, but there can also be drawbacks. Couples who file jointly are “jointly and severally” responsible for any tax liability, interest, or penalties due. The terms “jointly and severally” mean that each spouse is legally responsible for the entire tax debt. When one spouse does not adequately fulfill his or her tax obligations, this can leave the other spouse in serious trouble with the Internal Revenue Service (IRS). Fortunately, there are several ways that a spouse in this situation can be released from tax liability. One of these types of tax relief is called “innocent spouse relief.”

What Is Innocent Spouse Relief?

Imagine this scenario: your wife is a business owner who struggles to keep track of her profits and expenses. When you jointly file your tax returns, the IRS notices that there are inconsistencies with the business income, expenses, and/or deductions. You are audited. As a result, both of you now owe a significant amount of money in back taxes. In situations like this, innocent spouse relief, also called innocent spouse protection, may help a guiltless spouse avoid his or her spouse’s tax liability.

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