Taxpayers in the United States have an array of tax obligations that they must satisfy. They must satisfy their duty to file and pay taxes at the local, state, and federal levels. For taxpayers living in wealthy, prosperous cities and areas in California like Los Angeles and throughout Orange County, the importance of maintaining one’s tax compliance is particularly pronounced. This is largely because, like all agencies and businesses, the IRS must show a return on the money invested into tax audits and other tax enforcement actions. As such, the IRS is likely to target wealthy taxpayers, small businesses, and other taxpayers with characteristics that the agency believes are more likely to result in sufficient ROI.
The tax attorneys of the Tax Law Offices of David W. Klasing are proud to serve taxpayers regarding an array of state and federal tax concerns. We routinely handle an array of tax issues including income tax audits, litigation due to criminal tax charges, and also work to provide tax relief for our clients.
To schedule a reduced-rate consultation with an experienced tax attorney call 800-681-1295 today or contact us online.
California Income Tax
The California state income tax is enforced and administered by the State of California Franchise Tax Board (FTB). FTB sets the minimum and maximum tax rates for individuals and businesses required to file income taxes in Los Angeles, Orange County, or anywhere else within the state. For the recent 2014 tax obligations, the maximum individual income tax rate has been set by FTB at 12.3 percent. The alternative minimum tax rate (AMT) is set at 7 percent for the year. Furthermore, for individuals with taxable income greater than $1 million, a Mental Health Services Tax at the rate of 1 percent applies.
In California, whether an individual has an income tax filing obligation is dependent upon filing status, age, and the number of dependents one can claim. An individual who is a sole filer or who files as head of household and under age 65 could earn $16,047 in California gross income ($12,838 in California adjusted gross income) before having to file state taxes. With one dependent, the same individual could earn $27,147 in gross income ($23,938 in adjusted gross income) before he or she must file. Typically married couples, senior citizens aged 65 or older, and individuals with increasing numbers of dependents can earn more gross income before they are required to file.
Employment and Payroll Tax Obligations
In California, the Employment Development Division (EDD) is responsible for the administration of payroll tax obligations. In this state any person employing workers that have paid a minimum of $100 in wages to one or more employees in any quarter of the year. In the case of an employer who only has household employees, registration with California EDD is required after paying $750 in quarterly wages. Payroll taxes paid by residents and employers in California are:
- Unemployment insurance (UI) – UI is paid by the employer on the first $7,000 in wages for each employee in a calendar year. New employees are subject to a higher withholding rate. This tax is utilized to provided unemployment benefits in the state.
- State disability insurance (SDI) – SDI is paid by the worker through a payroll withholding by the employer or payroll processor. Currently applicable SDI rates are available on EDD’s website.
- Employment training tax (ETT) – Employers are responsible for paying this tax that covers employee training in the state. ETT is paid at the rate of .1 percent on the first $7,000 of wages paid to an employee.
- California personal income tax (PIT) – This is a tax paid by employees that are withheld by the employer as part of payroll taxes. The amount withheld is based on the employee’s W-4 or DE 4 filed with the employer. Employees receive credit for taxes withheld towards their income tax obligation.
Aside from the obligation to pay state payroll taxes, there is also a federal payroll tax obligation. Federal payroll taxes include federal income tax, Social Security and Medicare taxes (FICA), and unemployment taxes (FUTA). The failure to account for, hold, and pay over employment tax obligations can create major tax problems for the business, employees, and responsible parties. Managers, bookkeepers, owners and other responsible parties can be held personally liable for compliance failures in this area.
Failure to File or Pay Taxes
One’s federal income tax obligation is actually made up of two requirements. First, there is the obligation of most taxpayers to file taxes. Most taxpayers are required to make an income tax report or file for an automatic extension by April 15 or the relevant tax deadline for that year. In fact, for the 2016 tax year, an individual filing with single status was required to file taxes after earning only $10,150 in gross income. Second, there is the obligation to pay any taxes that are due and owing. Thus, as there are two obligations to satisfy, there are penalties that are responsive to the failure to satisfy either or both obligations. That is, there are separate penalties that can be imposed for a failure to satisfy one’s tax reporting and those who fail to pay all or some tax that is due and owing by the due date.
While the penalties for one’s inadvertent or mistaken failure to file taxes can result in significant penalties, taxpayers that intentionally or voluntarily endeavor to avoid or defeat tax can face even more serious penalties that include federal prison time. For instance, under Section 7203 of the tax code — Willful failure to file a return, supply information, or pay tax – a taxpayer who is found to have willfully violated their tax filing, payment, or record-keeping duties can face serious additional penalties. If charged as a felony, Section 7203 can result in up to a five-year federal prison sentence. If charged as a misdemeanor, a conviction could result in up to one year in federal prison.
Real California Tax Relief is Available
Taxpayers who fail to satisfy their tax obligations can face significant penalties. For inadvertent mistakes, the penalties are harsh but typically financial in nature. However, when conduct is believed to be willful, penalties can include lengthy state or federal prison sentences.
In some cases, following an audit you could be facing a large tax bill compounded by interest and penalties. This tax debt may seem to be insurmountable. However, our experienced Los Angeles tax attorneys uncover that there are a number of strategies and options available to reduce or eliminate your tax burden.
One option is to appeal the tax owed or the penalties that have been assessed. To appeal you must file a written notification of your intent to appeal and identify the determination or determinations you disagree with, the legal basis for your claim, the factual basis for your claim, and any other relevant information. A qualified tax attorney can help you with this.
Aside from a tax appeal, one can also make an offer in compromise to the IRS. An offer in compromise is a lump sum payment, a payment plan, or both where you offer to settle the tax debt for less than the full amount. If the IRS rejects your offer in compromise you may appeal the rejection within 30 days of the dated letter informing you of the IRS’ decision.
Tax Attorney vs. CPA
There is a clear difference in the focus and skillset of an attorney vis-à-vis the focus and skillset of an attorney. On one hand, an accountant is focused on ensuring that, based on the information and documents received from the taxpayer, that computations and calculations are accurate. Thus, working with an accountant is frequently most appropriate when preparing your taxes or when one needs to reconstruct certain aspects of one’s tax records.
By contrast, attorneys are focused on advocating for their clients. Thus, when the issue at hand involves disparate interpretations of tax law, an attorney’s ability to set forth a clear position and supporting evidence is often more relevant. Therefore, the services of a tax attorney are frequently more appropriate when a tax controversy, tax audit, or criminal tax allegations arise. However, there are also important legal reasons why only a tax attorney should be consulted when the IRS contacts you about tax problems.
Only Attorney-Client Privilege Can Adequately Protect the Disclosures You Make When Seeking Tax Law Advice
If you are accused of a tax crime or fear that the IRS or California tax agencies will come to view your noncompliance as a willful violation of the law, it is important that you only speak to a tax lawyer. It is certainly true that there is some inherent appeal in going back to the original preparer and ordering them to, “fix it.” Unfortunately, during the course of this conversation, you may reveal certain facts or thoughts that hurt your chances at success in a subsequent audit or criminal tax proceeding. The reason why going back to the original preparer is a bad idea is two-fold.
First, accountants and CPA rely on their reputation to attract clients. They rely on their accountant certification to lawfully practice their trade. Thus, when an accountant faces the prospect that he or she made a potentially serious error and their license and reputation is on the line, their inclination may be to blame the client. They may claim that you failed to inform them of certain facts, provided false documents, or otherwise caused the issue. It is not uncommon for the original tax preparer or accountant to become Government Witness #1 against their former client.
The second reason why making disclosures to an accountant can create major problems is that the accountant-client privilege is extremely weak. Even where it is recognized, it is not functional when legal proceedings are criminal in nature. Therefore, even if your accountant doesn’t want to reveal damaging admissions you made, he or she will be forced to if subpoenaed by the government.
In contrast, the attorney-client privilege is extremely robust. This privilege is recognized in all 50 states and in federal court. The attorney-client privilege will protect any disclosures you make to your attorney in when seeking legal advice and guidance. Furthermore, your attorney can bring in a consulting accountant who will also receive derivative attorney-client privilege through a Kovel letter. Finally, the work-product doctrine can also ensure that the mental impressions and documents prepared by your attorney are not used against you in court.
Income Tax Attorney
Paying income taxes on the success you or your business have experienced is an individual’s contribution back to the United States and part of what makes this country great. From the tax revenues provided by successful businesses, hard-working individuals, and other commercial ventures the local, state, and federal governments obtain funds to maintain the transportation and communications infrastructure, provide for education and training, and provide important social services. In many cases, the expertise of an income tax attorney can help navigate through tax filing questions.
However in recent years many hard-working individuals have noticed the distinctly anti-tax rhetoric that has come through Washington D.C. To many taxpayers, it seems as if our elected officials have nothing positive to say about the IRS and the way it conducts its operations. Some taxpayers may even decide or believe that the IRS’ actions are improper. However, taxpayers are still required to file, pay, and satisfy all other applicable tax obligations regardless of their own personal beliefs or the beliefs of elected representatives. Taxpayers who fail to file taxes, pay taxes, or satisfy other tax obligations in a timely manner can face significant fines, penalties, and other tax consequences including potentially exposure for tax crimes.
While some individuals can avoid the filing of income tax, the truth is that most individuals living and working in the United States will be required to file by the April 15 filing deadline. This is due to the fact that the gross income a taxpayer may have before filing is relatively slight. Furthermore, even people without a strict filing obligation often file income taxes because the only way to receive a tax refund is to file.
The amount of gross income an individual can have before an obligation to file income taxes is based on one’s age and filing status. For instance, for the 2014 tax year a single filer under age 65 was obligated to file income taxes after he or she earned $10,150 in gross income. In contrast a single filer age 65 or older is not required to file until he or she has $11,700 in income. Married taxpayers filing jointly, head of household, and qualifying widowers with one or more dependent children also can earn more gross income before they are required to file income taxes.
Taxpayers who fail to file or pay taxes can face serious penalties for their noncompliance with the U.S. Tax Code. While the reasons behind failure to file or pay income taxes can vary, the key in determining the level of liability you face is whether the actions or inaction was willful. Willful acts are those acts or failures to act that involve a voluntary or intentional disregard of a known legal duty. For instance, a taxpayer who intentionally works to cover-up and conceal past filing errors is considered to act willfully. Likewise, a taxpayer who intentionally endeavors to avoid learning about this year’s tax filing deadline has engaged in willful blindness (which can constitute willful behavior in certain circumstances especially were foreign accounts and unreported income are at issue).
A taxpayer’s willful failure to file his or her annual income tax report can be punished under 26 USC 7203. Willful failure to file taxes can be punished by up to a one year federal prison sentence and significant fines and penalties. The taxpayer must also be required to pay back the amounts he or she gained through a tax fraud or tax evasion scheme as restitution. If the taxpayer attempts to hide or otherwise conceal his or her failure to file, he or she may be charged with the obstruction of the administration of the tax code or face felony (rather than misdemeanor) Spies Evasion charges. Taxpayers who allegedly commit such acts can, upon conviction, can be punished by a federal prison sentence of up to three years and would demand to be represented by an experienced income tax attorney.
Common Questions About Tax Attorneys
How Much Does a Tax Attorney Cost?
We can answer this question in two ways: The monetary cost and the cost to your long-term financial well-being.
As far as the upfront financial cost goes, tax attorneys typically charge by the hour or a flat fee, depending on the type of work they’re doing for you. This is why most tax attorneys will set up a consultation meeting with you to explore your situation and gain an idea of the potential costs and time required.
Now for the long-term cost. If you choose not to hire a tax attorney and you make a mistake with your tax account, you could end up causing months or years of red tape. This could end up costing you several times more in time spent and attorney fees than you’d have paid initially.
Why Hire a Tax Attorney?
Should you ever receive notice that the IRS will be auditing you, your first step should be hiring a tax attorney. Tax problems represent a potentially serious setback to your financial future, and you could even end up in jail if things go particularly poorly.
A tax attorney will ensure that you’re represented fairly in any dealings with the IRS. Because an experienced tax attorney has a grasp on the nuances of tax law and knows how the IRS approaches audits, he or she can help you understand exactly what you’re facing, cutting through the confusing jargon in these types of situations.
If you were facing criminal charges, you wouldn’t hesitate to hire an attorney to represent your best interests, and a serious tax problem is no different.
Where Do I Find a Tax Attorney?
The best way to find a qualified tax attorney is to do some homework. You’ll want to start by researching local attorneys’ web sites, Look for attorneys who have specific experience in dealing with the IRS and tax problems. Not every attorney does. You also may want to look at web sites for tax attorney associations, which often provide a list of qualified attorneys.
When it’s time to make a choice, you’ll want to ask the attorney for a consultation meeting. Lay out your situation in detail, making sure the attorney has experience with your specific problem. Verify any credentials the attorney has.
Finally, make sure you feel comfortable conversing with the tax attorney. Tax problems often can be uncomfortable situations, so it’s important to have a tax attorney with whom you’re comfortable sharing very personal information.
When Should I Hire a Tax Attorney?
Some people will choose to hire a tax attorney as soon as they hear notification from the IRS about an audit, while others will choose to try to solve the problem on their own for a little bit first.
Probably the best time to hire an experienced tax attorney occurs at the point where you feel uncomfortable with the process. This could be something as simple as an IRS agent speaking in language you don’t fully understand or asking for documents you aren’t sure you can provide.
Additionally, if you’re having trouble communicating with the IRS or if the agent doesn’t seem to be responding to your questions in a timely manner, a tax attorney can help cut through the red tape, speeding the process along.
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Working with an Experienced California Tax Attorney
Other options for tax relief include a tax motivated bankruptcy and filing for innocent spouse relief. The Tax Law Offices of David W. Klasing can help you weigh these and other tax relief options. To schedule a reduced rate initial consultation about your business law issues with a business tax attorney , contact me online or call (800) 681-1295.