international tax lawyers

Reporting Payments to Independent Contractors: Form 1099-MISC

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Reporting Payments to Independent Contractors: Form 1099-MISC

If you hire an independent contractor to do work for your business, you may have to report to the IRS your payments to him by filing Form 1099-MISC (Miscellaneous Income) if the following four conditions are met:
1. The payee is not your employee;
2. The payment was for services in the course of your trade or business (including nonprofit organizations);
3. The payment is made to an individual, partnership, estate, or in some cases, a corporation; and
4. You made payments to the payee of at least $600 during the calendar year.

In order to comply with the first requirement, it is advisable (and in many industries – required) to ask your contract attorney to draft the Independent Contractor Agreement, the Independent Contractor Certification, and the appropriate Independent Contractor Statement. The Independent Contractor should read and sign all three of these documents before he commences his services to your business.

Non-employee compensation paid to nonresident aliens should be reported on Form 1042-S, (Foreign Persons’ U.S. Source Income Subject to Withholding) where some withholding may be required., Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons) must be filed if Form 1042-S is required.

Filing This Year’s Tax Return: Name Change as a Result of Divorce or Marriage

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If you changed your last name last year as a result of getting married or divorced, you need to make sure that the name on your tax return matches the name registered with the Social Security Administration (the “SSA”). This is because the new name which you adopted as a result of marriage (or an old name to which you reverted after your divorce) is usually not reflected on your social security card. Therefore, your new name is not likely to match your old social security number (the “SSN”).

Informing the SSA about the name change is relatively easy. All you have to do is file Form SS-5, Application for a Social Security Card, at your local SSA office. The form can be found on the SSA’s website. You can also obtain the form by calling 800-772-1213 or at the local SSA offices.

It usually takes about two weeks to have the change verified.

Tax Lawyers in Minneapolis: Three Most Important Questions You Should Ask

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When you are about to hire a tax lawyer to help you with a tax issue, there are three fundamental questions that you need to ask him.

1. What percentage of the practice is devoted to the tax law? The purpose of this question is two-fold. First, you will figure out whether this tax lawyer likes handling cases in your area of law. If a Minneapolis attorney devotes more than 20% of his practice to tax law, you know that he likes this area of law and will be enthusiastic about your case. This means that, in addition to his general due diligence obligations, this tax lawyer will have a professional interest in your case. Second, generally, a tax lawyer who devotes 20% or more of his practice to tax law is likely to have good experience in this area.

2. How will I be billed? Generally, Minneapolis tax lawyers will bill you on an hourly basis, particularly in a tax litigation setting. They will provide you with a general estimate of your future expenses, which, understandably, will vary with the progress of the case. In a tax preparation or sometimes even in a simple tax planning case, a tax attorney may also offer a flat fee option. Where there are complex tax planning issues involved, however, most Minneapolis tax lawyers are likely to charge on an hourly basis. Similarly, Minneapolis international tax lawyers tend to rely on the hourly fee arrangements.

The more important issue with regard to this question is the manner in which you will be billed. Here, the practice varies among tax lawyers in Minneapolis. Some tax attorneys may require you to supply a large retainer which is later deposited in a client’s trust account; if the retainer is later depleted, your lawyer may ask you to replenish it. Other tax lawyers will require a smaller retainer and will then bill you on a monthly basis. If the latter option is proposed by your tax lawyer, you should ask for a sufficient time period (usually 10-14 days) to pay your bill. A mix of these options is also available. You will find that Minneapolis tax lawyers, especially solo practitioners, are rather flexible in their choice of the payment mode, but, once the fee agreement is signed, they will be firm in insisting that you comply with the terms of the agreement.

3. Will the tax lawyer devote his personal attention to your case? This question is very important, especially in the context of mid-size and large law firms, because in those firms the partner with whom you signed the agreement will generally delegate some of his responsibilities to his associates, who are generally less experienced in the area than the partner. In this case, you should insist that the tax attorney with whom you signed the agreement devotes his personal attention to your case and delegates only marginal matters to his associates. Generally, tax lawyers in Minneapolis who operate as solo practitioners or in small firms do not have similar problems.

The other important issue involved in this question is whether your tax attorney is generally responsive to your calls and keeps you up-to-date with respect to the progress of your case. Most tax lawyers in Minneapolis are very busy people; yet, you must insist that you would be able to communicate with them. In my practice, I devote a great deal of energy and time to make sure that my clients do not feel neglected and have the latest information about their case. For example, my firm has a rule of returning most calls within two hours after the client calls. I also make sure that the communication details are discussed during the first meeting. Usually, in additional to bi-weekly phone updates, I also send out a monthly written update, which generally includes a brief summary of events and copies of all relevant documents and materials, including communications with the other party.

In conclusion, by asking these three questions to tax attorneys in Minneapolis, you will make sure that the tax lawyer you are choosing is congruent to your interests and character.

Effect of the Foreign Earned Income Exclusion on the Self-Employment Tax on Business Activities Oversees

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In this essay, I would like to explore the relationship between the self-employment tax and the tax exclusion of income earned by the U.S. businesses abroad.

The self-employment tax is a social security and Medicare tax on net earnings from self-employment. A self-employed U.S. citizen or resident must pay self-employment tax if his net earnings from self-employment are at least $400. In tax year 2009, the maximum amount of net earnings that is subject to the social security portion of the tax is $106,800, while all net earnings are subject to the Medicare portion of the tax.

Despite the commonly-held belief, in calculating his self-employment tax liability, a U.S. citizen or resident must take all of his self-employment income into account, even if this income is exempt from income tax because of the foreign earned income exclusion. For example, suppose A, a U.S. citizen, provides consulting services in a European country as part of his business activities. Under the independent contractor agreement, A is paid $120,000 for his services; A’s total business deductions are $50,000, and his net income is therefore $70,000. A can successfully exclude $70,000 from taxable gross income (the exclusion for year 2009 is up to $91,400). He, however, must pay the self-employment tax on all of his net profit, including those $70,000 that he excluded from taxable income.

Similar rule applies to U.S. citizens or residents alien who own and operate a business in the U.S. possessions (Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, and the U.S. Virgin Islands). Self-employment tax must be paid on all of the self-employment income (as long as it is $400 or more) derived from such businesses, even if the income is exempt from the U.S. income taxes. Schedule SE (Form 1040) must be attached to the U.S. income tax return. If the owner of the business is a resident of any of the U.S. possessions and he does not have to file Form 1040, then the self-employment tax should be determined on Form 1040-SS. Residents of Puerto Rico may file the Spanish-language Form 1040-PR, Self-Employment Tax Form — Puerto Rico (Spanish Version).

While non-resident aliens generally are not subject to the self-employment tax, they still have to pay the tax on self-employment income received while they were resident aliens, even if such income was paid for services performed while they were non-resident aliens. For example, royalties received by a U.S. resident for the intellectual property created while this person was non-resident alien.

Finally, one must be aware that the United States has entered into social security agreements (also known as Totalization Agreements) with foreign countries to eliminate duel coverage and duel social security tax payments for the same work. Hence, the social security taxes (including the self-employment tax) are paid only to one country. If a person’s self-employment earnings should be exempt from foreign social security tax and subject only to U.S. self-employment tax, he should request a certificate of coverage from the U.S. Social Security Administration, Office of International Programs. The certificate will establish this person’s exemption from the foreign social security tax.

To establish that one’s self-employment income is subject only to foreign social security taxes and is exempt from U.S. self-employment tax, this person must request a certificate of coverage from the appropriate agency of the foreign country. If the foreign country will not issue the certificate, he should request from the U.S. Social Security Administration a statement that his income is not covered by the U.S. social security system.

Sales Tax Deduction for Vehicle Purchases

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If you are considering whether to buy a new car, it is important to remember that, under the American Recovery and Reinvestment Act of 2009 (the “ARRA”), taxpayers may deduct state and local sales and excise taxes paid on the purchase of new passenger cars, light trucks, motor homes and motorcycles. The deduction is available on new vehicles purchased from February 17, 2009 through December 31, 2009. In states that don’t have a sales tax, the ARRA provides a deduction for other taxes or fees paid as long as these taxes and fees are assessed on the purchase of the vehicle and are based on the vehicle’s sales price or as a per unit fee. This deduction is available whether or not a taxpayer itemizes deductions on Schedule A.

The deduction is limited to the taxes and fees paid on up to $49,500 of the purchase price of an eligible vehicle. The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.