taxation law services

Tax Rates on Capital Gains and Qualified Dividends through 2012

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Pursuant to the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”), which was singed into law on December 17, 2010, the tax cuts on capital gains and qualified dividends have been extended through the tax year 2012.

Generally, long-term capital gains of individuals will be taxed at a maximum rate of 15% through the tax year 2012.  The same is true for the qualified dividends received by individuals; this means that these dividends will be taxed at the same rates as long-term capital gains through the tax year 2012 (rather than being taxed as part of a taxpayer’s ordinary income at the relevant tax bracket).

Tax Lawyers Minneapolis | Tax Rates for Individual Taxpayers through 2012

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The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”) was singed into law on December 17, 2010. Prior to the Act, the previous tax cuts were scheduled to expire and the marginal federal income tax rates for individuals were scheduled to return to 15%, 28%, 31%, 36% and 39.6%.  Under the Act, however, the marginal federal income tax rates for individuals will remain at the 10%, 15%, 25%, 28%, 33% and 35% graduated rates through the tax year 2012.

Keep in mind that the Act does not in any way alter the taxes that were enacted as part of the recent health care reform, such as 0.9% tax on wage income and 3.8% tax on investment income for higher-income individuals.  These taxes will be imposed in 2013.

Attorney Tax Minneapolis | Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

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On December 17, 2010, the President signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”).  The new law preserves the 2001 and 2003 tax cuts through the year 2012, reduces the estate tax to 35 percent and allows a $5 million individual exemption, cuts the  Social Security payroll taxes by 2 percentage points, and renews the alternative minimum tax patch for the tax years 2010 and 2011.  Additional provisions of the Act are devoted to renewing other tax incentives (such as the research and development credit and a 100% exclusion on gain from the sale of small business stock) that either already expired in the tax year 2009 or were scheduled to expire in the tax year 2010.

Look for more detailed explanation of the specific provisions of the Act on this website throughout this week!

St Paul International Tax Lawyer: Hiring Questions

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

Hiring St Paul International Tax Lawyer Question #1:  How Will I Be Billed?

Generally, a St Paul international tax lawyer will bill you on an hourly basis, particularly in a tax litigation setting. He 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 St Paul international tax lawyer may also offer a flat fee option. Where there are complex international tax planning issues involved, however, most St Paul international tax lawyers are likely to charge on an hourly basis. Similarly, while working on international tax compliance issues (Form 3520, 5471, 8891, et cetera) or preparing a tax return (including foreign tax credit and earned foreign income exclusion), St Paul 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 international tax lawyers in St Paul, Minnesota. Some St Paul international tax lawyers may require you to provide a large retainer which is later deposited in a client trust account; the withdrawals from the account are made in conjunction with the work completed and as spelled out in the retainer agreement between the lawyer and the client. If the retainer is later depleted, your St Paul international tax lawyer may ask you to replenish it. Other St Paul international tax lawyers will require a smaller retainer and will then bill you on a monthly basis. If the latter option is proposed by your St Paul international 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 St. Paul international 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.

Hiring St Paul International Tax Lawyer Question #2: What percentage of the practice is devoted to the international tax law?

The purpose of this question is two-fold. First, you will figure out whether this St Paul international tax lawyer likes handling cases in your area of law. If a tax lawyer devotes more than 50% of his practice to international 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 St Paul international tax lawyer will have a professional interest in your case. Second, generally, a St Paul international tax lawyer who devotes 50% or more of his practice to international tax law is likely to have good experience in this area.

Hiring St Paul International Tax Lawyer Question #3: will this St Paul international tax lawyer devote his personal attention to your case?

This question is very important, because you need to make sure that your lawyer personally works on your case. This becomes one of the biggest problems with hiring most mid-size and large law firms, because in those firms, the partner with whom you signed the agreement will generally delegate a large percentage (sometimes virtually all) 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 St Paul international tax lawyer who signed the retainer agreement with you devotes his personal attention to your case and delegates only marginal matters to his associates. Generally, solo practitioners or small international firms do not have similar problems.

The other important issue involved in this question is whether your St Paul international tax lawyer is generally responsive to your calls and keeps you up-to-date with respect to the progress of your case. Most international tax lawyers are very busy people; yet, you must insist that you should 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 available to them. For example, my firm has a rule of returning most calls before the end of the day.

Contact Sherayzen Law Office for Professional Legal Help With Your International Tax Issues

Tax Lawyer Minneapolis | Common Tax Penalties and Interest: The Basics

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Penalties and interest may be impose

d by the IRS relating to various tax underpayments. Taxpayers should understand some of the basic tax penalties detailed in this article (many of which can be quite sever) in order to avoid such penalties if possible, and to perhaps mitigate any imposed penalties.

Accuracy-Related Penalties

An accuracy-related penalty of 20% of a tax underpayment may be imposed by the IRS if the underpayment is attributable to one or more of the following: (1) negligence or disregard of the rules and regulations; (2) any substantial understatement of income tax; (3) any substantial valuation overstatement; (4) any substantial overstatement of pension liabilities; and/or
(5) any substantial gift or estate tax valuation understatement.

Late-Filing Penalty

If a taxpayer files a late tax return, unless he/she can demonstrate “reasonable cause” to the IRS for not filing on time, a late filing penalty of 5% of the net tax due for each month the return is due, up to five months (25% maximum) can be imposed. In addition, there is a minimum
penalty, equal to the lesser of $135 or the net amount required to be shown on the tax return, for returns that are more than 60 days late (including extensions).

The late filing penalty does not apply if a return is filed late but no taxes are owed.

Failure to Pay Penalty

In general, if a taxpayer is late in paying taxes owed, the IRS can impose a failure to pay penalty of 0.5% (0.5 of 1%) upon the net amount of tax due and unpaid by the due date. The penalty begins on April 16th, and stops accruing when the IRS receives the payment amount. The maximum penalty that can be imposed is 25%.

Combined Penalties

Taxpayers may also be subject to combined penalties, with special rules. For example, if both late-filing and late-payment penalties are imposed on a taxpayer, a combined penalty of 5% per month will be applied for the duration in which both penalties apply at the same time (maximum penalty of 25%). The combined penalty is made up of a reduced late-filing penalty (4.5% instead of the standard 5%) added to the 0.5% late-payment penalty. After the maximum 25% penalty is met, the late-filing portion of the penalty ends, but the late-payment portion will continue at 0.5% up to a maximum of 22.5%.

Other penalties may also be imposed in addition to the combined penalty.

Civil Fraud Penalties

If the IRS can establish by clear and convincing evidence that a taxpayer has fraudulently underreported income, it can impose a penalty equal to 75% of the entire amount underreported. After such determination, the burden of proof rests upon the taxpayer to establish that fraud did not constitute the entire underreported amount. Fraud is defined to be an intentional wrongdoing by the taxpayer with the specific intent to evade a tax known or believed to be owing.

Furthermore, if the IRS determines that a taxpayer fraudulently failed to file a tax return, a penalty equal to 15% of the net tax due for every month that a return is due and not filed, up to five months (for a maximum of 75%) can be imposed.

Interest on Tax Underpayments

In addition to the various penalties, interest on tax underpayments may also be imposed. For individual taxpayers, the interest rate is equal to the short-term Federal rate plus 3%. Interest is compounded daily in most cases, and begins to accrue from the due date of the return.