taxation law services

Tax Lawyers Minneapolis: Preparing for Initial Consultation II (for Individuals)

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In previous article, I discussed the first part of preparation for an initial consultation with Minneapolis tax lawyers; the first part was mainly concerned with what type of information you should bring to your Minneapolis tax 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 tax lawyer.

Usually, the questions that you want your tax attorney to answer should, at the very least, cover the following four areas:

1. Cost and Billing

One of most important areas that you need to cover 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 attorney to give you a precise amount of money you will need to spend on your case. Usually, your tax lawyer will give you an estimate, which, in the end, may or may not correspond to the actual cost of the case. I usually provide a fairly conservative estimate and it is rare for my clients to pay above the estimate; usually, it occurs where a client fails to fully disclose the circumstances of the case or otherwise causes a significant delay in the proceedings of the case.

In terms of the manner of billing, you are likely to billed per hour in most tax litigation and voluntary disclosure matters. Regular tax returns, especially for returning clients whose circumstances have not changed in any significant way, are usually subject to a flat fee.

2. Time

The next area you should question your Minneapolis tax attorney about is how long the case will need to be conducted. The estimates here are likely to vary significantly. While it is fairly easy to predict when a tax return will be finished, it is much harder to estimate an amount of time a voluntary disclosure process may take (especially if more issues come up during the disclosure process).

3. Participation

Ask your Minneapolis tax 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 tax lawyer who is probably an owner of the law firm and personally responsible for the case.

4. Percentage of Practice

Ask your Minneapolis tax lawyer about how much time per month, on the average, he devotes to his tax practice. At the very minimum, your tax attorney should devote about 25% of his practice to tax law. If, however, the attorney has specialized associates (for example, someone who is a lawyer and a CPA), then he can have a lower percentage devoted to tax law because he may work closely with his experienced and specialized associate.

Conclusion

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

Sherayzen Law Office can help you with your tax issues, whether you want to check your tax return, negotiate with the IRS, or engage in complex tax planning.

Contact Sherayzen Law Office NOW to discuss your tax case with an experienced Minneapolis tax attorney!

Tax Lawyers Minneapolis: Preparing for Initial Consultation I (for Individuals)

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A little disclaimer first: this article is concerned only with individuals contacting Minneapolis tax lawyers for a consultation. I will discuss preparation of business owners for an initial tax consultation in another article.

There are two sides to your preparation for the initial consultation with your Minneapolis tax lawyer. First, the information you need to supply to your tax attorney. Second, the questions you want to ask your tax lawyer. This essay deals with the first part of the preparation.

It is important to understand that your Minneapolis tax attorney will initially have to rely almost exclusively on the information that you supply to him. Moreover, failure to supply the necessary information during initial consultation may lead to significant delays in your case and increase your legal expenses. This is why it is very important to come prepared to the initial interview.

Below, you will find a number of suggestions about how to prepare for the initial consultation with your Minneapolis tax attorney. These suggestions come from my personal experience when I had to advice my clients on what to bring with them to the interview in order to maximize the efficiency of the case and my ability to provide sound tax advice.

The first step is to ask your tax attorney about what you should bring with you. The most common response is that you should bring all documents that are related to your case. Usually, however, I would list specific documents which are customary in a given tax situation. Unfortunately, I have found that a lot of clients, for various reasons, are not willing to bring many of these documents but only what they think a Minneapolis tax lawyer needs. Later on, this usually leads to repetitive documentary requests by a tax attorney from his clients.

“Everything related to the case” usually includes all official documents, accounting documents, e-mails, letters, corporate tax documents, et cetera. Sometimes, this would mean divulging sensitive financial information. For example, if you have foreign bank accounts and you are retaining your attorney to help resolve an FBAR issue, then these bank accounts will need to be submitted to your tax lawyer as well.

The next step is for you to review what documents you actually have. The exact list of documents may differ depending on your particular situation; however, here is a non-exclusive list of the most usual documents you need to bring to your tax attorney:

a) Tax returns: copies of your tax returns, usually going back three tax years. Your tax attorney, however, may advise you to bring tax returns for the past six years in certain situation;
b) Supporting documentation for tax returns (including deductions and credits): usually, you do not have to provide it for the initial interview unless this is relevant to your case (for example, you are contacting a tax attorney to file a tax return);
c) Housing documents: this issue usually comes up with respect to claiming first-time homebuyer tax credit or for tax planning purposes.
d) IRS correspondence: all relevant IRS correspondence should be provided to your tax lawyer;
e) Your correspondence: letters, e-mails, faxes, et cetera if they are relevant to your case;
f) Business/Investment documentation: I discuss preparation for a business-related tax consultation in another article, but it is important to mention here that if your individual tax issue is related to your business or investment activities, then you should bring relevant business documents (incorporation documents, business structure documentation, business tax I.D. number, et cetera);
g) Any other documents relevant to your case: if there is anything else that you think is relevant to your case, then bring it with you. I once had a client who brought carton boxes with unique ID numbers on them.

The third step is to find out what information you are missing. Compare the information you obtained from the second step with the list of documents your attorney provided and what you think is relevant to the case. Identify the documents that are missing and try to obtain the missing information before meeting with your tax attorney. If this is not possible, then let your attorney know during the consultation what information you are missing and whether you will be able to find it after the meeting.

Once you go through these three steps, the first part of the your preparation for the initial tax consultation is finished. I will discuss the second part of your preparation in the next article.

Remember, Sherayzen Law Office can help you with your tax issues, whether you want to check your tax return, negotiate with the IRS, or engage in complex tax planning.

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

Tax Lawyers Minneapolis | 2011 Reduction in Social Security Payroll Taxes

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One of the most important provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”), which was signed into law on December 17, 2010, deals with Social Security tax reduction for employees.

The Act reduces the employee’s share of Social Security tax from 6.2% to 4.2% for wages earned in 2011 up to $106,800. The employer’s share of Social Security tax remains at 6.2%. The Act makes no changes to the Medicare portion of payroll taxes, which remains at 1.45% for each of the employee and employer on all wage income.

Individuals who are self-employed will also benefit from the Act’s Social Security tax reduction. Self-employed individuals would pay Social Security tax at a 10.4% rate on self-employment income up to $106,800. However, self-employed individuals would continue to calculate their deduction for employment taxes without regard to the temporary rate reduction.

If you have tax questions or need tax representation, contact Sherayzen Law Office to discuss your case with an experienced Minneapolis tax lawyer.

Tax Lawyers Minneapolis | Wash-Sales: General Rules

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Do you frequently trade stocks or purchase options? Then you should be aware of the wash-sales rules. In some extreme circumstances, the wash-sales rules can have drastic negative effects on your taxes, so they are well worth knowing.

A wash-sale occurs when stock, securities, or options are sold for a loss, and within a 61-day period (30-days before or after the sale), “substantially identical” stock, securities, or options (termed here, “replacement stock”) are purchased. The loss is not deductible under the wash-sales rules. Instead, the loss is added to the basis of the replacement stock. Wash-sales do not apply to gains.

The wash-sales rules apply to investors and traders, but not to dealers in stocks or securities, or losses sustained in the ordinary course of business. In general, “substantially identical” refers to stocks or securities of the same company (i.e. shares of Apple stock is not “substantially identical” to Microsoft for purposes of the wash-sales tax rules).

For year-end tax planning purposes, taxpayers should be aware that the wash-sale 61-day rule applies even if duration is spread over two years. Thus, stock sold for a loss in 2010 will not be deductible for tax year 2010 if the replacement stock from the same company is purchased within the 61-day window. Also, for tax planning purposes, keep in mind that the holding period of the replacement stock will include the holding period of the original shares. Thus, if a taxpayer sold shares that were held for more than a year (“long-term” for tax purposes), and then purchased replacement stock within the wash-sales window, the replacement shares will also be considered to be long-term, even if they are eventually sold in less than a year.

Example of the Wash-Sale Rule

A taxpayer buys shares of Widget Company for $20,000. The stock declines to $10,000, and the taxpayer decides to sell the shares for a loss. However, good news is reported from Widget Company after the shares are sold, so the taxpayer decides to buy Widget shares for $12,000 five days after the sale, believing that the shares will increase substantially this time. Because the new shares are purchased within the wash-sale rule time period, the $10,000 loss will not be deductible. Instead the $10,000 will be added to the cost of the new shares, meaning the new shares will have a basis of $22,000 (and thus, the original loss will be deducted when the new shares are sold).

Do you have tax problems or questions relating to your investments? Then give Sherayzen Law Office a call to discuss your tax situation with an experienced Minneapolis tax lawyer!

Partnership Tax Lawyers St Paul | Partnerships: Required Taxable Year

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Under the U.S. tax laws, partnership income and expenses flow through to each partner in a partnership, at a partnership’s tax year-end. Generally, the tax year of a partnership must conform to the tax years of its partners. In some situations, however, a partner, or multiple partners, and the partnership itself may have different tax years, there is a potential for income deferral.

While legitimate income deferral is allowed under the U.S. tax laws, the IRS has rules in place to prevent excessive deferral of partnership income. These rules are explained briefly below in three successive steps. A partnership must apply each rule in chronological order, and the first tax year that meets all of the criteria in a specific rule will be the required tax year for the partnership (subject to certain exceptions allowed by the IRS).

Three-Step Analysis

1) Majority partners’ tax year

In general, if one partner owns more than 50% of the partnership capital and profits, then that partner’s taxable year will apply to the partnership. Similarly, if a group of partners have the same taxable year and own more than 50% of the partnership capital and profits, then that shared taxable year will also apply to the partnership. Majority interest is generally determined on the first day of the partnership.

2) Principal partners’ tax year

If step 1 does not yield a majority interest tax year, then the tax year the principal partners who own more than a 5% interest of capital or partnership profits, will be used if they all have the same tax year.

3) Year with smallest amount of income deferred

If steps 1 and 2 do not yield a result, then the “least aggregate deferral rule” is used to determine the weighted-average deferral of partnership income by testing the tax year-ends of the partners. The tax year required to be selected under the test will be whichever tax year-end is calculated to yield the least amount of deferral of partnership income.

Example of the Three-Step Analysis

To illustrate, assume that Adam and Bob are equal partners, each owning a 50% share. Adam’s tax year ends August 31, while Bob uses the calendar year, December 31. Step 1 would determine that there is no majority interest because neither partner owns more than 50%, and Step 2 would show that neither partners have the same tax year (even though they are both considered to be principal partners owning more than 5%). Thus, the least aggregate deferral rule would be applied in this case.
Under the least aggregate deferral rule, to determine the weighted-average product, begin by counting forward from the end of one partner’s tax year to the end of the other partner’s tax year-end, and then vice versa. For example, counting forward from the end of Adam’s tax year (August 31) to the end of Bob’s (December 31) is four months. Then, the number of months is multiplied by the partnership percentage interest, to determine a weighted-average product. Multiplying four by the partnership interest of 0.5 equals a product of two (the aggregate deferral). Counting forward from the end of Bob’s tax year to the end of Adam’s, determines that eight months will be deferred. Multiplying eight by .50 equals a product of four. Since the product of two under Adam’s August 31 tax year is less than the product of four under Bob’s December 31 tax year, Adam’s tax year-end will also be the tax year-end for the partnership itself.

Conclusion

Described above are the basic rules for determining the required tax year for partnerships. In some cases, it may be possible to be granted an exception from the general rules. These options however often depend upon persuading the IRS of the necessity of adopting a different tax year than would be available under the standard rules. Often, complex legal rules and case law are involved, so it is advisable to seek legal counsel. Furthermore , individual partners may need specific guidance relating to partnership taxation scenarios. Sherayzen Law Office can assist you with these matters.

Call us today to set up a consultation!