Frequently Asked Questions About Tax Laws
What exactly does a tax attorney do?
A tax attorney can help you with numerous tax-related issues and problems involving federal, state, and local taxes. An experienced tax attorney handles tax-related issues, including property taxes, income taxes, business tax, estate taxes, sales tax, employment tax, and other taxes. In matters involving tax litigation of either a civil or criminal nature, tax preparation, investigations, appeals, or audits, it helps to have an experienced tax attorney at your side to protect your rights and guide you through the complex issues related to tax laws and regulations.
I’m being audited by the IRS – what do I do?
Even though it may be difficult, try to remain calm. An audit by the IRS does not mean that you have committed a crime or done anything improper. The IRS conducts audits for a variety of reasons, including when they need additional information to process a return or when your return was selectedfor a random audit. When you receive a notice of an IRS audit, read the notice very carefully. The notice may contain deadlines and other important information.
In addition, ask the IRS why it is auditing your tax return. The IRS should put the reason for the audit in the notice, but if it does not, ask an IRS agent why your return was selected for an audit. Understanding why your tax return was chosen for an audit can help you prepare for the audit.
Because there are numerous steps that you should take to protect your legal rights during an audit, it is usually best to consult a tax attorney as soon as possible to discuss the best way to handle the tax audit.
Can I get my tax debt reduced by the IRS?
If you owe money to the IRS, there may be one or more ways for you to reduce your tax debt liability. A tax attorney can help you explore ways to reduce your tax debt including offers in compromise, appeals, innocent spouse relief, and verifying when the statute of limitations expires for tax collection. If you cannot reduce the tax debt, you might be able to work out an affordable installment agreement, consolidate the tax debt, apply for an economic hardship discharge, or file bankruptcy to get rid of old tax debt.
What should I do if I get a letter from the IRS?
Any notice or letter from the IRS needsto be examinedvery carefully. All correspondence from the IRS states why you are receiving the letter and the steps you need to take to resolve the tax matter referred to in the IRS letter. The IRS uses many letters as it seeks to motivate taxpayers to pay their tax liability, but these are form letters and the intent may not be obvious to the uninitiated.
Do not become complacent because you have ignored several IRS letters already and nothing has happened—yet. You should not assume that the IRS will send you another letter demanding payment before filing a tax lien, garnishing your wages, or seizing funds in your bank account. If you have questions about IRS letters, it is best to consult with a tax attorney as soon as possible to review your available options and legal rights. It is important to understand that your best option may become unavailable to you if you delay.
Can I lose my passport if I owe the IRS taxes?
Yes, there are cases in which your passport could be revokedif you do not pay your taxes or cooperate with the IRS. The IRS can certify seriously delinquent tax debt under the Internal Revenue Code to the State Department for action. The State Department can take several actions, including revoking or denying a passport for seriously delinquent tax debt.
However, there are exceptions, such as for taxpayers who are in bankruptcy, identified as victims of tax-related identity theft, requested an installment agreement, has a pending offer in compromise, or resides in a federally declared disaster area. A tax attorney experienced in dealing with IRS matters can often help save your travel privileges.
Can the 2018 Maryland tax law changes help my business?
Yes, there are several provisions in the Maryland tax code for 2018 that can help some businesses with their tax liability. For instance, a single salesfactor formula for apportioning income for corporate income tax purposes will be phased in over five years beginning with the 2018 tax year.
Some businesses may qualify for a small business relief tax credit. The business must employ a qualified employee who earns wages that are equal to or less than 250% of the annual poverty guidelines. If qualified, the business may receive a credit against state income tax liability for certain benefits the employer provides for a qualified employee.
An experienced tax attorney can review a company’s entire financial situation to determine if other tax changes might benefit the business.
Do I have to report income on my tax return from virtual currency transactions?
The IRS issued a noticein March 2018 advising taxpayers virtual currency transactions resulting in income should be reported ontheir income tax returns. If a taxpayer fails to report virtual currency transactions as required by law, the taxpayer could be audited and face civil consequences, including penalties and interest. In addition, the IRS could refer the matter for criminal charges, including tax evasion, tax fraud, and filing a false tax return.
How can a federal tax lien affect my assets and credit?
The Notice of Federal Tax Lien is used to place the public on notice that the government has a claim against your assets for unpaid debts. The lien remains until the tax debt is paidin full. The notice itself is not an attempt to collect by the IRS; however, the lien attaches to all assets and gives the IRS priority over other creditors in attempting further collection efforts to collect the tax debt. A federal tax lien negatively impacts your credit score, making it difficult—if not impossible—to qualify for lines of credit and loans.
If you have received notice of an impending tax lien, contact an experienced tax attorney to help guide you through the next steps and protect your credit rating.
What can happen if I do not pay my business employment taxes?
Employers are required by law to withhold payroll taxes from the wages of their employees, including federal taxes, state taxes, and FICA taxes (Social Security and Medicare). The tax withholding must be regularly deposited with the U.S. Treasury by the employer according to the Federal Tax Deposit Requirements applicable to the employer. In addition, an employer must match the deductions for FICA for each employee and add that amount to the federal tax deposit.
If a company fails to report the employment taxes withheld and deposit its employment taxes pursuant tothe Federal Tax Deposit Requirements, the company, company officers, and company owners can be subject to civil sanctions (fines and penalties) as well as criminal charges. Because the company is holding its employees’ tax withholdings as a trustee for the U.S. Treasury, any violation of the deposit requirements is taken seriously by the IRS and the company officers and owners can face a personal penalty of 100% for failure to timely make company tax deposits.
Can I still deduct home equity loan interest under the Tax Cuts and Jobs Act of 2017?
According to the IRS,homeowners may continue to deduct interest for home equity loans in some cases. However, the new tax law limits interest deductions for home equity loans between 2018 and 2026 based on how the money from the loan was used. Interest on loans used to “buy, build, or substantially improve” the home may qualify for the deduction. In addition, the TCJA decreased the dollar amount of mortgages that qualifyfor the interest deduction. Taxpayers may only deduct interest for a combined $750,000 ($375,000 for married filing separate returns) of qualified residential loans for main homes and second homes. Contact an experienced tax attorney if you have questions about the Tax Cuts and Jobs Act of 2017.
If I don't have the money to pay the IRS, should I delay filing my tax return?
Absolutely not. If you fail to file your tax return on time, you may be chargeda penalty for failure to file a tax return in addition to being charged penalties for failure to pay taxes. Therefore, it is typically best to file the tax return on time even if you cannot pay the balance due in full. There are several ways you can deal with a tax liability you cannot afford to pay. For instance, you can apply for an installment agreement with the IRS to pay the balance due over several months or years.
You may also submit an offer in compromise or file for innocent spouse relief. In some cases, you might want to request that the IRS temporarily delay collection efforts if payment of the tax debt would prevent you from paying for your basic living expenses. An experienced tax attorney can help you explore your options for resolving tax liabilities you cannot afford to pay.