Taxable vs. Non-Taxable Income

/in , /by

Generally, most income you receive is considered taxable. However, the tax code is riddled with various exceptions where certain types of income are partially taxed or not taxed at all.

For instance, here is a non-exclusive list of common examples of types of income usually excluded from taxable income:

  • Adoption Expense Reimbursements for qualifying expenses
  • Child support payments
  • Gifts, bequests and inheritances
  • Workers’ compensation benefits
  • Meals and Lodging for the convenience of your employer
  • Compensatory Damages awarded for physical injury or physical sickness
  • Welfare Benefits
  • Cash Rebates from a dealer or manufacturer

The most complicated situations arise where may or may not be included in your taxable income are, depending on your situation. Life insurance is a good example. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. On the other hand, life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.

Scholarships and Fellowship Grants also possess this dual nature. If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship; but, the money used for room and board do not qualify.

Remember, even a non-cash income usually should be included in the taxable income. The most common example of this is bartering. Bartering is basically an exchange of property or services between the parties. The fair market value of goods and services exchanged is fully taxable and must be included as income of both parties.

Usually, the rest of the common types of income – such as wages, salaries, tips and unemployment compensation – are fully taxable and must be included in your income unless it is specifically excluded by law.

Contact Us

Determining what types of income should be included in or excluded from your taxable income can be a complicated, highly fact-dependent process. Sherayzen Law Office can help you determine whether your income is taxable. Contact us NOW to discuss your case with an experienced Minneapolis tax attorney.

Medical and Dental Expenses Deduction

/in , /by

It may be possible for you to be able to deduct medical and dental care expenses incurred in the tax year 2010. This deduction, however, is available only if you itemize your deductions on Schedule A (Form 1040).

This deduction is allowed only for expenses primarily paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. The cost of drugs is deductible only for drugs that require a prescription (except insulin).

The deduction is allowed only by the amount by which your total medical care expenses for the year exceed 7.5 percent of your adjusted gross income. You can do this calculation on Form 1040, Schedule A in computing the amount deductible. The deduction is further reduced by any reimbursement (from the employer or insurance company). It makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

The good news is that you may include qualified medical expenses you pay for yourself, your spouse, and your dependents, including a person you claim as a dependent under a multiple support agreement. If either parent claims a child as a dependent under the rules for divorced or separated parents, each parent may deduct the medical expenses he or she actually pays for the child. Furthermore, you can also deduct medical expenses you paid for someone who would have qualified as your dependent except that the person didn’t meet the gross income or joint return test.

You may also deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance may be deducted. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses. With either method you may include tolls and parking fees.

Finally, distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if you pay qualified medical expenses.

If you have any questions with respect to your tax return, contact Sherayzen Law Office NOW and discuss your case with an experienced Minneapolis tax attorney!

What is Closing Agreement

/in , /by

Closing agreements constitute an important part of tax representation and tax planning. A “closing agreement” is a final agreement between the IRS and the taxpayer on a specific issue or liability. Closing agreements are entered into pursuant to IRC Section 7121.

Usually, closing agreements may be entered into when it is beneficial to permanently and conclusively close a pending matter. However, a taxpayer may use other good reasons for this type of an agreement to convince the IRS. In both cases, however, it should be demonstrated that the agreement will not prejudice the government’s interests.

If a transaction is eligible for a letter ruling, the taxpayer may request a closing agreement with or in lieu of a letter ruling. Sometimes, it is the IRS that may impose closing agreement as a condition for the issuance of a letter ruling.

Sherayzen Law Office offers full IRS representation, including handling your case through a private letter ruling request and entering into a closing agreement, where appropriate.

If you have a case pending before the IRS or you are unsure about the tax consequences of a business transaction, call NOW to discuss your case with an experienced Minneapolis tax lawyer!

Understanding Citations of Treasury Regulations

/in , /by

Understanding how to cite Treasury Regulations is crucial to being able to find the regulations relevant to a tax case.  This is why I devote this brief essay to explaining the location and basics of citation of Treasury Regulations.

Treasury Regulations are located in Title 26 of the Code of Federal Regulations (“C.F.R.”).  This corresponds to title 26 of the United States Code.

The overall form of citation is as follows: C.F.R. part number, a decimal point, a Code section number, a dash, and a number of further subdivisions.  The “C.F.R. part number” basically indicates the general nature of the regulations – i.e. to what area is the regulation related.  The numbers are assigned to areas in the following way: “1″ relates to income tax, “20″ relates to estate tax, “25″ relates to gift tax; “31″ relates to employment tax (withholding), “301″ relates to administration and procedure, and “601″ relates to the Commissioner’s rules.

Let’s look at a specific example and try to decipher what it says at according to the general form described above: Treas. Reg. § 1.162-1.  “Treas. Reg.” is a common form of abbreviation of “Treasury Regulations”; “1″ is a C.F.R. part number which tells the reader that this regulation relates to the income tax;  “162″ is a Code section number which specifically discusses the deduction of business expenses; “ dash 1″ indicates a citation to the first subdivision of the regulation.  In sum, Treas. Reg. § 1.162-1 refers directly to a first subdivision of the regulation with respect to business expense deduction from income tax.

The ability to quickly read, understand, and find a relevant treasury regulation is just one of the many skills that an experienced tax attorney needs to have.

Business Lawyers Minneapolis: Preparing for Initial Consultation II

/1 Comment/in , /by

In previous article, I discussed what type of information you should bring to your Minneapolis business attorney. In this essay, I shift the focus toward the second part of the preparation which is about what type of questions you need to ask your business lawyer.

Usually, the questions that you want your Minneapolis business lawyer to answer should, at the very least, cover the following four areas:

1.    Cost and Billing

The most common and important issue is the cost of the case as well as the manner in which you will be billed.  Unless this is a flat-fee case, you should not expect your business attorney to give you a precise amount of money you will need to spend on your case.  Usually, a Minneapolis business lawyer will give you an estimate, which, in the end, may or may not correspond to the actual cost of the case.

In terms of the manner of billing, you are likely to billed per hour in most business litigation and large business transaction matters. Small contracts and certain common-place business services are often subject to a flat fee with an additional hourly fee charged in case of further modifications as requested by a client.

2.     Time

The next area you should discuss with your Minneapolis business attorney is how long the case will need to be conducted.   The estimates here are likely to vary significantly.   While it is often fairly easy to predict when an employment contract will be finished, it is much harder to estimate an amount of time a business litigation case may take (especially if an extensive motion practice is anticipated).

3.    Participation

Ask your Minneapolis business lawyer about who will handle your case – i.e. whether the attorney will handle it personally or turn it over to his associates.  When you are dealing with a large law firm, you run the risk that the attorney with whom you are having the initial consultation will not be the one handling your case, especially if you are a small business or an individual.  Due to common division of labor in large law firms, it is very likely that the case will be turned over to inexperienced associates whose work will be only reviewed by the attorney who conducted the initial consultation.

If, however, you are hiring a small firm or a solo practitioner, you are very likely to avoid this problem and your case will be handled from the beginning through the end by your experienced business lawyer who is probably an owner of the law firm and personally responsible for the case.

4.     Percentage of Practice

The last question is how much time per month, on the average, your Minneapolis business attorney devotes to his business practice.  At a minimum, your business lawyer should devote about 25% of his practice to business law.

Conclusion

While these four questions do not represent a complete list of questions you should ask your business attorney, they are likely to provide that minimum background necessary for the review of a retainer agreement with your Minneapolis business lawyer.

Sherayzen Law Office can help you with your business issues, whether you want to establish a new business, create a legal structure for an existing one, draft an employment contract or an Independent Contractor Agreement, engage in complex business planning, litigate a business dispute, and so on.

Contact Sherayzen Law Office to discuss your business case with an experienced business attorney!