Los Angeles Tax Attorney and CPA
The Best Tax Attorney in Los Angeles
Los Angeles is one of the busiest cities in the world from an economic standpoint. It is home to businesses of all kinds, each of which have their own unique tax situations.
Finding a trustworthy Los Angeles Tax Attorney is important to keep you on the right side of state and federal tax laws, while you attempt to legally reduce your overall tax burden, especially when you have a business that has an international presence.
Beyond income taxes, you may be subject to a variety of taxes as a business owner in Los Angeles. You must submit records of your payroll tax receipts to the federal and state government. You also must meet all of your sales tax collection obligations in the state of California. Failure to comply with either of these situations could result in an audit.
Individuals in Los Angeles may have uncommon personal tax situations that require the help of a Tax Attorney. Income earned in non-traditional professions or locations can result in complex tax compliance issues for individual and business (entity) taxpayers.
Contact the Tax Law Offices of David W. Klasing today for help with any and all state, federal, and international tax situations, including a failure to file taxes on time. At our Los Angeles tax law offices, our team is ready to represent your interests in areas of tax planning, IRS audit defense, and everything in between.
Los Angeles Taxpayers
Many businesses and taxpayers in and around Los Angeles have benefitted significantly from the strong local, state, and regional economy yet do not use the services of a local L.A. tax attorney when they face potential tax audits or inquiries. Los Angeles is an international city with a booming entertainment industry that not only reaches across the United States but also the world. Furthermore, L.A. is fortunate enough to be located on the west coast close to major ports bringing goods, products, and commodities from Asia and China. Thus, some companies also operating overseas may have additional international tax obligations on the funds they repatriate. Furthermore, due to the area’s significant ties to the worldwide economy, individuals living in Los Angeles are more likely to have foreign disclosure and international tax obligations.
These economic advantages have led to the development of some of the more wealthy areas in the United States. In particular, Beverly Park, The Hill Section of Manhattan Beach, Beverly Hills, Woodland Hills and Hidden Hills are neighborhoods where great financial success is the rule. However, the prosperity in Los Angeles may mean that taxpayers in the area face a higher than average risk of a tax audit. A recent study by the National Taxpayer Advocate showed clusters of tax enforcement activity in wealthy parts of major metropolitan areas. Los Angeles was one of the cities identified in the report. This is likely a case of the IRS focusing its efforts on where the money is in order to maximize its return on tax enforcement efforts. Nevertheless, taxpayers should recognize this risk and engage in appropriate measures to maintain or achieve compliance with the U.S. Tax Code.
Most citizens, legal permanent residents, and others in the Los Angeles area, all have an obligation to file their income taxes on a yearly basis. Typically, the deadline to file one’s personal taxes is April 15. Whether an individual is obligated to file a return is based on his or her filing status and level of income. For example, in 2014 a single filer aged 65 years or older must file if he or she has $11,700 or greater in income. However, a sole filer who has yet to reach the age of 65 would be required to file after earning only $10,150 in income. In general, heads of households, married taxpayers who file jointly, and certain widowers who have qualifying dependents can earn more before they are required to file. However, many of these individuals would likely want to file regardless because the only way to obtain one’s income tax return is to file. Learn more about the importance of hiring a Los Angeles income tax attorney.
California State Income Taxes
Aside from the obligation to file federal income tax, Los Angeles taxpayers are also obligated to pay the state income tax. The California Franchise Tax Board (FTB) is the state agency responsible of administering and enforcing the state income tax. The tax brackets for the state income tax are indexed to this figure. For the 2015 tax year, the maximum rate for an individual is 12.3%. Certain individuals may fall within criteria requiring them to pay the Alternative Minimum Tax which is set at 7%. Furthermore, individuals with taxable income in excess of $1 million, are subject to a Mental Services Tax of 1% for all income above this threshold. Residents of L.A. should, generally, file their individual California Resident Income Tax Return via form 540 or 540 2EZ. Taxpayers who fail to satisfy any element of their federal or state tax obligation are likely to receive a notice from the relevant agency concerning the deficiency.
International Tax Obligations
Taxpayers who hold or control account balances in excess of the filing threshold must also prepare and file annual offshore tax disclosures. There are two sources for this obligation: FBAR (Report of Foreign Bank & Financial Accounts) and FATCA (Foreign Account & Tax Compliance Act). To satisfy one’s offshore tax obligation one may be required to disclose an account under FBAR, FATCA, or both. Failure to comply with offshore disclosure obligations can result in significant fines and penalties including a $10,000 penalty for even an inadvertent violation of FBAR. Penalties for conduct perceived as intentional or voluntary can carry significantly harsher penalties that routinely exceed the original foreign account balance.
Offshore Voluntary Disclosure Program (OVDP) and Streamlined Disclosure can offer non-compliant taxpayers a means to correct past inaccurate, incomplete or missing FATCA or FBAR filings. However, it is important to consult with an experienced tax lawyer before filing to participate in either program. On one hand, the Streamlined Program can provide for significantly reduced penalties in comparison to standard OVDP. However, only OVDP provides some level of insulation from criminal penalties should willfulness be at issue. Taxpayers who mistakenly enter into Streamlined when they intentionally or voluntarily avoided this duty may face criminal prosecution bolstered by the disclosures they just made. By contrast, a taxpayer who is not willful but enters into standard OVDP will pay significantly more in offshore penalties than they would have through the streamlined program.
We touched on the concept of streamlined disclosure above, but it is important to go into more detail. One of the most important things to understand is that the streamlined disclosure process is reserved for those individuals who made unintentional errors in disclosing money in offshore or overseas financial accounts that was required to be disclosed under FBAR or FACTA. This means that if you acted willfully to avoid your reporting or payment obligations, you will not be eligible for the streamlined disclosure option.
Many people make unintentional mistakes related to the disclosure of foreign bank accounts. The law is complicated and ever-changing, and it can be difficult for those living overseas or those with foreign bank accounts or income to keep track of which accounts are covered under these laws and the various threshold amounts for required reporting. However, if you did understand these laws and willfully ignored them, and then proceeded to report your overseas income through the streamlined disclosure process, you can open yourself up to serious criminal charges.
It is vitally important to consult with a tax attorney before deciding to enter the streamlined disclosure program. Speaking with a CPA or other type of financial or accounting professional will not grant you the type of confidentiality that comes with speaking to an attorney. They could later be subpoenaed and forced to turn over documents or relay your conversations. When speaking to a tax attorney, anything you say will always remain between the two of you under attorney-client confidentiality. A tax attorney will undertake a careful and comprehensive review of your actions to be sure that you did not do anything that could be viewed as willful. If you did, you would need to go another route such as OVDP, because streamlined disclosure may only further complicate things for you.
Once you have consulted with a tax attorney, and the attorney has determined that your actions were unintentional oversights rather than a wanton disregard for the law, you can proceed to decide if you would like to participate in the streamlined disclosure program. The streamlined disclosure process can offer a lot of benefits to those taxpayers who were unaware of their reporting responsibilities.
For example, the OVDP process, which is the route those who willfully chose not to report foreign income will have to take, results in penalties of 50% of the highest amount in your offshore accounts over the 6 year period of the offshore voluntary disclosure. By contrast, the streamlined disclosure process results in no penalty at all for taxpayers living outside of the United States (expats) or a 5% penalty for those that live in the U.S. There is also no failure to file, failure to pay, or 20% accuracy fees assessed on those who participate in the streamlined disclosure process.
There are several requirements to participate in this program. First and foremost, as discussed in detail above, you must certify that your conduct was not willful under penalty of perjury. A second major requirement is what is known as the non-residency requirement. This program is only available to U.S. citizens or green card holders who have spent most of their time living outside of the United States in the past 3 years. Specifically, in at least one of the past three years you must have not had a U.S. abode (primary residence) and must have been physically outside of the country for at least 330 full days. For joint tax filers, both spouses must meet this requirement.
The process for filing once you have determined you are eligible is complicated and you should rely on the expertise of a tax attorney who can prepare and review all documents submitted to the IRS. Depending on whether any returns related to these foreign accounts were filed, you will need to either file new returns or update your returns to reflect the existence of these assets. This applies to the previous 3 years where a tax return was supposed to be filed. Out international tax lawyers and CPAs can help you determine precisely which documents need to be filed. These documents must indicate that they are being filed as part of the streamlined disclosure program. You will then need to remit all tax that is due on these accounts for the past 3 years, including any interest that has accrued.
The streamlined disclosure program can be a huge relief for those citizens living abroad who were legitimately unaware of their U.S. reporting and tax obligations. However, it is massively important that you retain a tax attorney to help you through this process, because mistakes in filing can result in serious penalties or fines.
Failure to File Taxes
Taxpayers in Los Angeles and beyond have an obligation to file and pay taxes. This obligation includes filing and paying taxes by the deadline. If a federal extension is filed via IRS Form 4868 Application for Automatic Extension of Time to File U.S. Individual Income Tax Return the extension applies only to the amount of time to file – the payment of the taxes or an amount satisfying the safe harbor provision is still due by the original date. A similar extension can be obtained for state tax obligations via the filing of FTB Form 3519 along with an estimated tax payment. Individuals who will receive a refund or no balance due receive an automatic six-month extension. Individuals who fail to file or pay state or federal tax or make arrangements consistent with the preceding may face penalties. Individuals whose actions raise red flags in IRS or FTB systems are likely to face an audit or tax examination.
The IRS may send an array of notices or letters to inform the taxpayer of their selection for an examination or the agency’s need for additional information. If the FTB makes changes to a taxpayer’s return, it may send the taxpayer a Return Information or other documentation detailing the changes and tax balance. Furthermore, taxpayers who fail to take action regarding the requests, may have the IRS or FTB file a tax return on their behalf. This return is rarely filed with the taxpayer’s best interest in mind and often results in significant additional liabilities and penalties. California tax payers who proceed to collections at the state or federal level may face a lien on their property, a levy to seize their property or assets, or a garnishment on their wages.
Business Tax Audit by the Employment Development Division (EDD)
Furthermore, Los Angeles businesses in California and throughout the United States have an obligation to account for, hold, and turn over payroll tax receipts to the U.S. government. These taxes are sometimes referred to as trust fund taxes because although it is the business owner who accounts for and collects the tax, the money is actually being held in trust for the U.S. government. Therefore, penalties for payroll tax fraud and evasion are severe and can, upon conviction, include the imposition of personal liability on the part of the business owner or responsible party. Problems of this type are financially disastrous for both the business and for the individual.
An audit by the California Employment Development Division is often the start of a trying and difficult for a business owner. Chiefly, the EDD is concerned with employment tax payments and handles payroll tax audits. Typically, this process requires an in-person interview that will also include a tour of the business and its facilities. The agent from the EDD often uses this tour to gather information about the company and its operations. In many cases, they may even conduct an informal interview of the person giving the tour of the premises. Practices and characteristics of a business that may trigger an audit by the EDD include:
• Use of structured transactions – Transactions made only to circumvent tax obligations, cash reporting laws and other paper transactions with no economic substance can create fertile ground for an EDD audit. The evasion of certain cash reporting laws through multiple transactions and other methods of structuring may also result in a referral to the IRS or other relevant state agencies.
• Inappropriate use of corporate or business funds – Business owners who commingle personal and company money set themselves up for possible criminal charges. Likewise, CEOs and stakeholders who use company money for family members, to pay personal expenses, or who mischaracterize expenses are also preferred targets for the EDD.
• Excessive cash transactions – In some instances, the use of cash in the business may be completely innocent and merely related to the industry and type of transactions. However, the EDD realizes that transactions of this type prevent a greater potential for abuse. Thus, businesses dealing primarily or exclusively in cash face a higher audit risk. Further, due to Los Angeles’ proximity to operations by Mexican cartels and instances of money laundering on their behalf in L.A.’s Fashion District, EDD and other regulators watch cash businesses closely.
Business owners who fail to keep sufficient records of the company’s finances and transactions often exacerbate the potential consequences of an EDD audit. Absent business records, the owner and other responsible parties may face difficulty in proving the source of cash. Whether your business in Los Angeles is a retail location, a bar or liquor store, a medical practice or another type of company keeping accurate and sufficient records is of the utmost importance. Furthermore, the practices described above can also result in a federal employment tax audit by the IRS.
Business Sales Tax Audits By California Board of Equalization
Business owners must also be sure that their company’s books are in good order and that sales and payroll tax obligations have been accounted for and addressed. Sales Tax in California is administered by the California State Board of Equalization (BOE or SBE). In recent years, the BOE has cracked down on sales tax evasion and abuses including the use of zappers; devices that can alter sales records as part of a scheme to avoid sales tax. Penalties for state sales tax evasion are severe.
Typically, a California sales tax audit conducted by a state auditor will begin with an examination of the business records. Regulation 1698 Records sets forth the types of records a business owner must keep and provide in the case of a sales tax audit. Generally, the records that must be kept merely begin with the normal books of accounts that a business owner keeps in the regular course of business. The standard that guides these records is objective in nature and not based on the individual business. Rather it was premised on the type of records an “average prudent businessperson engaged in the activity in question.” These and other required records that should be kept for a minimum of four years may include:
• Register receipts whether electronic or paper
• Cash receipts
• Schedules used in the preparation of tax returns
Audits by the BOE are best handled by having a tax attorney engage with the auditor early in the process. During these initial discussions ground rules for the audit should be discussed and decided upon. Furthermore, discussions should also include contingencies for potential problems including what will happen if the auditor determines the documents are insufficient or he or she perceives problems or inconsistencies in the records.
Typically, if problems are found, the auditor may initiate an in-depth review. The thorough review will typically involve an audit either on a sample basis or on an actual basis. An actual basis audit will examine every transaction and assess sales tax on this basis. A sample basis audit will take a certain time period or statistical sample and assess sales tax on this basis. As one can imagine, a non-representative sample may result in the imposition of an overstated sales tax liability. Since, in this scenario, the tax assessed is based on inflated sales that were never actually made the business may face a tax burden that cannot be satisfied or results in a capture of a substantial amount of legitimate profits. In any case, this is one of the potential nightmare scenarios that can be avoided by working with a tax attorney who takes an active role in the audit from its start. Business owners who wait until a problem is discovered to attempt to negotiate or reason with the auditor do so from a position of weakness rather than strength. These individuals often face worst-case scenarios. For certain businesses that depend on licenses subject to suspension for unpaid sales tax, like liquor stores, a BOE audit that goes poorly can place the entire operation and organization in jeopardy.
Los Angeles Federal, State and International Tax Experience
The tax code can be challenging to navigate and interpret, and the consequences of a mistake could include prison time, expensive fines, penalties for your business, and lost financial opportunities. But whatever tax issue you may be facing, whether you are concerned about an IRS audit or need assistance planning an international estate, the Tax Law Offices of David W. Klasing can help.
With his unique dual qualification as both a Los Angeles tax law firm attorney and CPA, David W. Klasing offers businesses and individuals a wide variety of legal services to protect their financial interests while ensuring compliance with the law. Equipped with more than 20 years of experience, our dedicated team of accountants and litigators is committed to providing our clients with aggressive legal representation, and even more importantly, priceless peace of mind.
Our Los Angeles tax law firm attorneys have extensive experience consulting with businesses and individuals across a wide range of general tax planning and litigation matters, including:
- Awards and Settlements
- Bookkeeping Accounting
- California Sales Tax
- Employment Tax Representation
- Innocent Spouse Relief
- Tax Transactions
- Business Law
The experienced and dedicated Los Angeles tax attorney professionals of the Tax Law Offices of David W. Klasing can provide strategic guidance to mitigate the consequences you face. Contact our Los Angeles tax law offices to schedule your personal consultation.