Tax Planning FAQs
Q. When would I need a tax lawyer?
A.
1. A tax lawyer can help you plan your business and investments to achieve the best tax result. For example, whether you set up a new business as a corporation or a partnership could make a big difference in how much tax you end up paying.
2. A tax lawyer can advise you about how to report an unusual transaction on your tax return, and even prepare the return for you.
3. A tax lawyer can represent you before the IRS or a state agency when you need someone to stand up for you against the government. Whereas accountants are trained in the rules of accounting and tax law, lawyers are comfortable with evaluating unusual or confusing situations. Lawyers also have the advantage of providing total client confidentiality should matters turn ugly between the client and the government.
Q. I can’t pay my employees what they are worth. Can I pay them in stock of the company?
A. 1. The short answer is: yes, if they agree to that form of payment.
2. However, special tax rules could apply to such an arrangement, rules too complicated to discuss here. Seek the help of a tax lawyer or professional compensation adviser.
Q. I have not filed returns for a number of years. What should I do about that?
A.
1. As soon as possible, you should file returns for the most recent years for which you actually owe returns.
2. If you are concerned about possible criminal penalties for not filing, you can avert that prospect by coming forward before the IRS notices your default.
Q. I owe a lot of taxes and I plan to get married soon. Will my new wife be responsible for my past taxes?
A.
1. No, your new wife will not become responsible for your previous tax debt.
2. However, if you and she file joint returns and claim a refund, her share of the refund might get held up because of your problem.
3. Also, if you try to work out your debt with the IRS, it may be harder for you to show inability to pay the tax debt if you are sharing living expenses with a spouse.
Q. When is a person an employee, not an independent contractor?
A.
1. When you, as the employer, control what and where and when that person does to earn his compensation, then you most likely have an employee.
2. An independent contractor is someone who takes on a task for you but chooses how, where and when to accomplish that task.
3. An independent contractor usually works for more than one company during the year.
Q. Can I get rid of tax debt by declaring bankruptcy?
A.
1. Certain tax debts, such as payroll taxes, are not dischargeable in bankruptcy.
2. Income taxes that are more than three years old are usually eligible for discharge. There are exceptions:
a. Taxes assessed by the IRS pursuant to a substitute-for-return (because you did not file a return) are not eligible for discharge.
b. And in egregious circumstances, the IRS can oppose the discharge for cause.
Q. One of my customers went bankrupt before paying me. Can I deduct the amount that I had to write off?
A.
1. Not if you report your income on a cash basis. You would have reported the amount as income if you received it, but since you didn’t receive it, you don’t report it as income. Taking a deduction of the same amount would double-count the loss.
2. Yes, if you report on an accrual basis, and had already reported the amount as income.
At Lotter & Associates- our main goal is to assit, counsel and represent our clients in the best way possible. Contact the professionals at Lotter & Associatestoday.
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