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Will Tax Reform Generate Higher Take-Home Pay?

boss holding paycheckTrump’s signature tax plan promises to deliver immediate results for many middle-class families and those with even smaller annual incomes. A recent article explained the new tax withholding tables for the tax plan passed in December of 2017. According to Yahoo Finance, a worker earning $60,000 per year—which is the median income of American citizens—would save $112 per month, or about $1,344 per year. [1]

Borrowing from Peter to Pay Paul

Any tax changes are certain to result in winners and losers, and critics of Trump’s tax plan insist that it benefits the wealthy more than the middle and lower classes. Many people’s paychecks will; immediately begin to get larger, but not everyone will see higher take-home pay. The tax bill eliminates the deduction for state and local taxes, so taxpayers in high-tax states will seldom realize big benefits from the changes. The new withholding tables are scheduled to take place in middle February of 2018. However, there are potential savings based on changes in the inheritance tax. The so-called “death tax” has long been a target of Republicans who’ve tried to enable wealthy supporters to pass on their wealth without high taxes.

Most Americans Expect Significant Cuts in Tax Liability

Our San Jose tax attorneys spoke with a gentleman from Milpitas who said “I’ve got a wife and 3 kids to look after, so I could definitely use a few extra dollars on my paycheck. The cost of living in the bay area is difficult to keep up with even with a great job.”

Although most groups can expect lower taxes and less withholding, the new tax tables don’t reflect traditional deductions for larger families. [2] The Newsweek study estimated that a single person earning $50,000 per year would have a tax bill that’s $974 lower than in 2017. Married couples earning $75,000 per year would pay $1,033 less, which is a 59% savings. A wealthy couple earning $1.5 million annually paid about $439,275 in taxes under the old tax regulations. Trump’s plan would result in a 20% increase in tax liability, or a bill of $527,268.

House Speaker Representative Paul Ryan (R-Wisconsin) commented on the new withholding tables.Ryan suggests that these savings would be a big boon for most families. Unfortunately, not everyone agrees. Taxpayers in states with high state income tax rates and local income taxes won’t be able to deduct their taxes from their federal tax bill. That means that those taxpayers could end up paying even more taxes.[3]

Inaccurate Withholding Risks of Trump Tax Plan

The total tax liability is hard to predict because so many common deductions have been eliminated. Many people who accept the new withholding strategy could end up owing higher taxes than withholding covers as well as penalties and interest. There’s no guarantee that the new tables will be 100% accurate. Every change in IRS policies generates thousands of hours of extra work for tax preparers, and even Trump’s simplified taxes are no exception.

Some Democratic members of Congress have complained

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California May Start Taxing Business Services

CA Flag and Credit CardA bill was proposed in California’s State Senate this past Monday that would add a new tax on businesses to help offset the impact of the federal tax bill passed by Congress and President Trump back in December, according to CourtHouseNews.com.

Senate Bill 993 was proposed by State Sen. Bob Hertzberg, D-Van Nays, to increase California’s state revenues through “a modest tax” on consultant services purchased by companies with more than $100,000 in sales receipts. Law firms and accountants are among the services that would be taxed under the proposed legislation.

The resulting revenue would be placed in a “Retail Sales Tax on Services Fund” that the state treasurer could distribute as needed for education, infrastructure projects, and programs to benefit California’s middle-lower income residents.

The exact tax rate will be determined at an unspecified date by a policy committee. Hertzberg’s office notes that other states with comparable taxes already in place charge between 4-6 percent on corporate consulting services.

Sen. Hertzberg also notes that this new tax could be used as a deduction on affected business’s federal tax return to the IRS, potentially lowering their total tax burden. He also cited the need to diversify the state of California’s revenue streams as a reason to support the bill.

This new bill is an effort to undo some of the impact of the federal tax law President Trump signed in December. That law capped state-level tax deductions at $10,000, a figure residents of blue states such as California and New York exceed with regularity. Some believe that this is an effort by President Trump to play political favorites in his tax bill.

This is not the first bill aimed at easing the tax burden on Californians. Another bill was passed last week allowing California residents to make charitable contributions to a fund within the state’s budget used for publicly funded colleges and universities. Since any donations are charitable and not a state tax, they act as a work-around to the $10,000 cap in the federal bill.

California state law requires any new tax to receive a super majority in both the State Senate and State Legislature before heading to the governor’s desk for final approval. Time will tell if Hertzberg can get the votes he needs.

Will Tax Reform Generate Higher Take-Home Pay?

Trump's signature tax plan promises to deliver immediate results for many middle-class families and those with even smaller annual incomes. A recent article explained the new tax withholding tables for the tax plan passed in December of 2017....

read more

California May Start Taxing Business Services

A bill was proposed in California's State Senate this past Monday that would add a new tax on businesses to help offset the impact of the federal tax bill passed by Congress and President Trump back in December, according to CourtHouseNews.com....

read more
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San Jose Car Dealer Convicted of Tax Evasion

Aerial View of Car DealershipOur San Jose tax attorneys recently learned that a high-end car dealer who did not pay $400,000 worth of sales tax due to under-reporting sales in San Jose, was sentenced to prison for three years.

Mohammad Hassan Mostavfi, the 31-year-old salesman, was convicted after the California Tax department, as well as the Fee Administration and Criminal Investigation, identified his inpropriety. The results of the investigations and audits yielded more than enough evidence to convict Mr. Mostavfi.

In his tax documents, Mr Mostavfi had reported having earned $1.8 million in vehicle sales; while in truth he had earned $6.8 million, as per the office of the attorney in the district.

On October 24, the prosecutor had said that Mostafvi was convicted for three years based on the three counts of sales tax evasion he had committed. A restitution hearing has been scheduled by the Superior county judge in Santa Clara, Drew Takaichi to be held on March 9th.

Mostafvi’s business had been operating on West San Carlos street from June 2006 until May 2012.

The original state audit revealed that the defendant was late in filing his tax returns and sales payments.

They would go on to discover the tax fraud shortly thereafter. The San Jose district attorney has confirmed that Mr. Mostafvi’s car selling license has been revoked, and his business has been closed.

The Deputy District attorney, Erica Engin made it clear that tax fraud is by no means a victim-less crime. Sales taxes go toward public interests like protecting neighborhoods, filling potholes and keeping our parks beautiful. Fraud of this sort is a crime against the community; not just the government.

Our tax lawyers are committed to informing the public about matters concerning tax law and the Internal Revenue Service. If you have a tax related story you would like us to cover on our blog, feel free to write to us, or send a link to info@taxhelpers.com

Will Tax Reform Generate Higher Take-Home Pay?

Trump's signature tax plan promises to deliver immediate results for many middle-class families and those with even smaller annual incomes. A recent article explained the new tax withholding tables for the tax plan passed in December of 2017....

read more

California May Start Taxing Business Services

A bill was proposed in California's State Senate this past Monday that would add a new tax on businesses to help offset the impact of the federal tax bill passed by Congress and President Trump back in December, according to CourtHouseNews.com....

read more

San Jose Car Dealer Convicted of Tax Evasion

Our San Jose tax attorneys recently learned that a high-end car dealer who did not pay $400,000 worth of sales tax due to under-reporting sales in San Jose, was sentenced to prison for three years. Mohammad Hassan Mostavfi, the 31-year-old salesman, was...

read more
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IRS Collects Billions in Cannabis Taxes; Mostly in Cash

cash in a brief caseAs the medical merits of marijuana have moved into the forefront of the health industry, more and more people are obtaining prescriptions for its use accompanied by a medical cannabis card. From pain to inflammation relief, to appetite stimulation, epilepsy treatment, and killing certain cancer cells, marijuana is being hailed as a miracle drug by many. Seen as the U.S.’ fastest growing industry, many are wondering how the IRS and tax law will regulate it, and our San Jose tax attorneys have been watching the stories as they develop.

Business Owners and Banking

While anyone with their eye on current events is aware of the rising medical marijuana industry, many people don’t quite understand how basic principles like banking and taxes will apply. It is interesting that an industry as large and growing as the marijuana industry still endures growing pains when it comes to the basics of banking and paying taxes. As marijuana is still, officially, declared illegal by the federal government, it is illegal for banks to provide basic services to businesses whose profits come from state-legal marijuana. Thus marijuana business owners have difficulty even getting bank accounts or have had their accounts closed by the banks. The result is that marijuana business owners who wish to pay their taxes, must do so in cash.

Earnings

According to ‘New Frontier Data’, it is projected that this year, the U.S. alone will see marijuana business owners owing close to $3 million in taxes. While the federal government still designates the marijuana industry as an illicit one, its business owners are obligated to pay taxes under a provisional tax code: 280E. This provision demands that drug dealers and business owners alike making money off illegal substances are obligated to pay taxes on their earnings just like Joe Public.

The IRS

According to the federal government and the IRS, income made is income reported and taxes paid. New Frontier Data predicts that if marijuana is officially legalized throughout the U.S., Feds will increase marijuana taxes upwards of $18 billion by 2025. While this prediction does not take into account the fluctuating business tax rates, the message is clear: there will be major tax revenue generated by the marijuana industry, and the federal government is certain to get their chunk of the pie.

Safe Banking and Protection for Business Owners

Moving into 2018, legislation amendments regarding the legitimization of marijuana are predicted to be under way in Congress. A 2017 Oregon bill, the SAFE Banking Act, is a perfect example of these legislative changes as it acknowledged the need and allowed for financial institutions to provide services to marijuana businesses. The vastness of the marijuana cash economy has prompted questions and concerns regarding the costs of it remaining an unbanked economy. How would businesses with such huge cash flows exist without basic banking services? Where would these billions of dollars be stored, protected? How much would money laundering crimes increase? Many in the U.S. question if their country will follow

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No More Deductions For Confidential Sexual Harassment Settlements

Judge with gavelEvery new tax bill, no matter how simple it appears on the surface, always seems to contain a couple of surprises hidden within its innocuous exterior. In the recently passed Tax Cuts and Jobs Act, one of those little concealed hand grenades is to be found in a little-noticed amendment that bans deductibility on taxes for any sexual harassment payment or claim if the terms of the settlement provide for any form of non-disclosure agreement, or NDA.

While this provision was obviously ripped from the recent headlines, it leaves a lot of ground that is, or rather will be, subject to various interpretations and legal maneuverings. The problem is that it is not particularly explicit about what is and is not covered by its terms. The language of the amendment specifies payments “related to” sexual harassment or abuse.

One tax attorney in San Jose said “This was clearly intended to pull the plug on any lawyers that got creative ideas about denying any sexual harassment but instead shifting the complaint over to an infraction where the plaintiff is willing to accept millions for something as innocuous as a parking spot discrimination claim instead”. Since many attorneys often utilize the “kitchen sink” approach to sexual harassment claims, there is often a lengthy smorgasbord of additional allegations attached to the major one as a way of showing intent and a pattern of continuing abuse.

Yet the obscurity of the statutory language on taxes leaves a lot of issues open to interpretation. For one thing, attorney’s fees are now also non-deductible when an NDA comes into play– a provision which is certain to bring a host of court challenges from trial lawyers nationwide. Likewise, the law is silent as to whether this amendment applies to the plaintiff’s side as well as to the defendant.

It is clear that the intent of the statute is to discourage serial abusers from being able to repeat these depredations by gagging previous victims of their conduct and thus leaving others unaware of the risks they are exposed to. Of course, the most likely defendants in such actions are all primarily found in the category of those who have so-called “deep pockets”. It may well be that these individuals and institutions will simply opt to accept the elevated taxes that come from including an NDA in the settlement agreement and keep on doing things the way they have always done them in the past.

Given the likelihood of legal challenges from the trial lawyers and the possibility that the intent of the law gets ignored in favor of paying a little extra on the annual tax bill, it seems like a pretty safe bet that this issue is far from settled.

There are really two significant ways in which this measure will move forward as it gains traction. If nothing is done to modify or clarify the language, it can effectively become a dead letter that looks good on paper but results in nothing more than some

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5 Reasons The IRS Withholds Tax Refunds

Tax Refund PapersCompleting a tax return doesn’t necessarily mean a tax refund is on its way to you. As a tax attorney in San Jose, I hear from a lot of clients who are curious as to why they haven’t received their tax refund. I’ve put together a list of 5 possible scenarios to explain why the IRS might withhold your tax refund.

Missing the Due Date

To claim the refund for a specific year, a statute of limitations applies. If you do not file a return for a particular year during which you usually receive a refund, the IRS would certainly not volunteer to have that refund sent across to you. You could head back and have the return filed for the particular year, but if you are late to file by three years or more, you can forget about the refund. For instance, if the return due date is April 16, 2018, the return must be filed on or before April 15, 2021 for the refund to be issued to you.

The Deadline

When you owe funds to the IRS, things can soon turn ugly. The agency has multiple collection measures and one of them is seizing tax refunds and applying them to the balance due. Losing the refund this way would decrease tax debt, however. If you owe back taxes to the IRS and cannot pay, file for offer in compromise or apply for an installment scheme so that your future tax refunds remain yours.

Owing Taxes to a Government Branch

The Treasury Offset Program employs taxpayer refunds to clear their debts to government agencies belonging to other states. The program is commonly used to clear delinquent student loans, although it could also be used for state income taxes or outstanding child support.

In case you are trailing on your education loans because you do not have sufficient incoming funds to make payments, check if you are eligible to move to an income-based repayment program. These plans let you pay back your school loan payments, based on a specific portion of your income. In fact, these plans could also bring your outstanding payments down to zero. In addition, they result in automatic write-offs of balances remaining after 20 years or more.

Personal Bankruptcy

If you are right in the center of the Chapter 13 or Chapter 7 bankruptcy procedure, the bankruptcy trustee could ask the court to use a portion, or the complete tax refund sum for paying off your debts. Once the bankruptcy process is done with, and you have completely discharged your debts, your future refunds won’t be grabbed by the bankruptcy court.

Tax Return Missed

If you did not file a return the previous year, the IRS could keep future refunds in possession until the missing return has been filed. If the return has been filed and you owe taxes for the particular year, the government agency would most likely use the held refund money to clear those back taxes. And if you don’t owe any

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Wesley Snipes Sues IRS

Wesley SnipesWesley Snipes, best known for his roles in Demolition Man, U.S. Marshals, and Blade has had some widely publicized issues with the Internal Revenue Service over the past few years. Mr. Snipes’ trouble with the IRS started in 2008 when he was convicted of three misdemeanor counts of neglecting to file his tax returns. This ignited a battle that still rages today as he attempts to force the IRS to honor its original Offer in Compromise Program and Fresh Start Initiative with a $17.5 million lawsuit.

To many, it comes as no surprise that Mr. Snipes is in court again. Over the years, he has become one of the most high-profile cases of tax evasion and has been charged with multiple felony tax evasion charges. When charged in 2008, it was a partial victory for Snipes as he was not found guilty of the most serious felony charges. He did, however, serve jail time which he carried out from December of 2010 to April of 2013. It was reported that between 1999 and 2001, Snipes owed $7 million in taxes.

While Snipes did serve his jail time, his acquittal from charges of felony tax fraud and conspiracy remained his largest legal victory. Snipes tried everything to have his sentence overturned, filing an appeal and citing reasons of race for not being able to get a fair trial in Ocala, Florida; this was rejected by the U.S. Supreme Court.

Snipes’ most current issue with the IRS is over civil tax collections. Not only does the IRS want to collect the owed amounts for the criminal court orders, it can also assign other tax bills to offenders. Snipes claimed that he was trying to work with the IRS at resolving his tax debts and move forward. When Snipes had just finished his jail time in 2013, the IRS hit him with large-scale tax assessments extending back 10 years. In response to this, Snipes sought a Collection Due Process Hearing and paid two of the assessment amounts from 1999 and 2002. He then offered to settle the amounts from five additional years.

While Snipes’ lawyers attempted to work with the IRS, an agreement was reached that Snipes would pay a total amount of $6,416,396. When the IRS increased that figure to $18,116,396, Snipes asserted that they were abusing their power. Snipes drew attention to the claimed nature of the IRS Compromise Program as he felt its goal of reaching a resolution beneficial for both the taxpayer and the government was not being prioritized. Snipes claimed that the supposed end-goal of resolving the tax disputes in an attempt to move forward with the taxpayer in compliance was not being honored, and that he was being deprived of the chance of a fresh start.

In May of 2012, the IRS launched the ‘Fresh Start Initiative’. This initiative revised the former Compromise Program to make its mandates more flexible and productive to those it aimed at helping. Under the Fresh Start Initiative, those taxpayers who are

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Taxes on Cryptocurrencies Explained

BitcoinFor most taxpayers, earning a tidy profit on crypto-currencies like Ethereum and Bitcoin has been relatively simple in 2017.

However, with the passage of the new tax bill, those profits will be subject to much closer scrutiny by the IRS.

For example, federal tax law is especially tricky when it comes to swaps between different types of coins (Bitcoin and Litecoin, for example), and in cases where coins do their version of a stock split, known as a “hard fork” in the crypto business.

The IRS, according to its own website at IRS.gov, is clear about the fact that they want to collect tax on every exchange, sale and split of crypto-currency.

According to Fortune and other financial media outlets, federal tax authorities have noted that very few taxpayers are reporting sales and exchanges of crypto-money.

In late November, 2017, a San Francisco federal court ruled that the largest crypto-currency platform, Coinbase, must turn over client data to the IRS. After lengthy arguments throughout the case, Coinbase was able to limit the data seizure to just 3 percent of the original number of records the IRS sought. But in the end, the feds will get Coinbase’s records on any U.S. taxpayer who traded, bought or sold in excess of $20,000 worth of crypto-currency, according to the ABA Journal.

Many CPAs and tax attorneys now specialize in crypto transactions as Bitcoin and similar assets continue to gain popularity with average investors.

If you are one of the millions of U.S. citizens that sold, exchanged, purchased, or somehow made a profit on any crypto-currency during 2017, you need to know the following:

Swaps: According to the new tax law, swapping one crypto for another is a taxable event (a capital gain, in this case), plain and simple, whether you “park” the initial sales proceeds with a third party or not.

The new tax law no longer allows crypto-currency activity to take advantage of the 1031 “like-kind property exchange” shield. That’s because lawmakers were careful to define “property” in the new legislation as real estate only.

Reporting for foreign assets in your portfolio

If you owned more than $10,000 of foreign-based assets, you will likely have to file IRS form 8938 and FinCEN report 114. The definition of “foreign-based” is a bit murky, but if your crypto-currency is held in a non-U.S. account or primarily situated in a foreign nation, you will be subject to reporting requirements.

Holding periods matter

If you hold a crypto asset for less than one year, the gain on sale will be treated as a short-term one, and be taxed at a 37 percent rate. To enjoy the lower, long-term treatment of between 0 and 20 percent, you’ll need to hold your crypto-currency for more than one year. And don’t forget about state taxes on these transactions, which can amount to something between 3 percent and 13 percent.

What is a hard fork, anyway?

Crypto-currencies often make “upgrades” for various reasons, similar to an old-fashioned stock split. For

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San Francisco And The GOP Tax Plan

San Francisco HomesWhat Donald Trump and his republican allies have proclaimed as an unprecedented gift for the public, may not be viewed as such in all sectors of the public. Especially in areas like San Francisco where affordable housing is already an issue, it has been predicted that the GOP tax overhaul could have ruinous effects for its low-income populace in the bay area.

California is a state known for its shortage of affordable housing. What concerns many is that the passing of the GOP tax plan will demolish the public/private partnership that last year, saw more than 20,000 affordable homes built. Without this partnership, there will be an extreme shortage in both funds and motivation to move forward with plans to increase the availability of affordable housing.

Currently, San Francisco has 6,000 affordable housing units that will become highly vulnerable if the tax bill is passed. The city has the added concern of rushing to protect the almost 5,000 units of affordable housing still in the construction stage. Developers will be scrambling to drain the available bonds before they disappear into the GOP abyss and will incur extra interest costs as a result. Those high-interest costs, of approximately $10 to $20 million, is money that would have been used to find housing for people in need: homeless, elderly, the sick, low-income families, and veterans.

In short, affordable housing advocates that have tirelessly worked for decades in securing housing tax credits to fund affordable housing projects fear the results of that work will be wiped out if the tax plan becomes a reality. Not only will housing projects not be built; projects in construction will face huge delays, when the need for these homes is current and urgent, in many cases.

Some of the far-reaching effects of a worsening shortage of affordable housing in San Francisco predicts an exodus of its residents. People will move states in search of lower rents. To extend that further, what will be the result of the absence of service workers when that happens; will the mechanization of replacing absent workers with robots become an issue in the near or distant future?

With the passing of the proposed GOP tax plan, the 4-percent low income housing tax credit would no longer be available. Without that tax credit, projects like Mercy Mission Bay apartments for low-income residents, including more than 200 children, would not have been built. That tax credit contributed more than $30 million to the building, which comprised a huge portion (40 percent) of the building’s total cost. The Mercy Mission Bay apartments represents the type of housing projects that would suffer without the benefits of the tax credit that the GOP overhaul would abolish. With the absence of these types of housing projects, the question of what happens to the displaced individuals and families that need them comes into focus. An absence of affordable housing means more people on the streets, which clearly produces a host of other potential issues relating to homelessness and crime

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Trump Administration Plans To Reverse Tip-pooling Rule

A cocktail waitressThe proposal by the Trump administration to rollback the tip-pooling rule is now open for public comment. The Department of Labor’s formal publication kick-started a month-long period for the public to provide feedback. If successful, the proposal reverses the rule passed by the Obama administration in 2011.

The rule permits restaurant employees to retain tips without being forced to share with non-tipped workers.The Department of Labor’s proposal was triggered by the need to correct wage disparities between waiters and other restaurant staff. Enforcement of the rule was officially halted by the current administration in July.

According to federal law, employers are not allowed to pool tips if they pay the tipped minimum wage. The amount is lower than the standard minimum wage, which stands at $7.25 per hour. The Obama-era rule also prevented the practice for employers paying their staff the higher minimum wage.

Opponents of the proposal argue that the latest move by the Trump administration is aimed at targeting workers. The Labor Department’s actions in July were aimed at blocking extended mandatory overtime wages to over 4 million employees. It proceeded to counteract a rule, which was designed to compel businesses to submit detailed employee wage data. The information was supposed to be broken down by race and gender.

Vulnerability

According to Saru Jayaraman, president of the union-backed ROCU, tipped workers are vulnerable to manipulation. She is concerned that the rollback of the Obama-era laws would make the situation worse for the workers. This would lead to increased vulnerability, poverty and financial instability for a workforce that is dominated by females. The possibility of harassment may rise exponentially.

On the other hand, the Labor Department stated that it carried out a qualitative analysis. It also urged stakeholders to provide feedback regarding the economic effects of the proposal.

A growing number of industry groups are opposed to the proposal because they believe tip pooling is good for the workers. They argue that the practice addresses the compensation gap between untipped workers and waiters. The servers typically earn more as the prices of food increase. Many commentators warn that the Trump administration risks facing considerable legal challenges from rights groups representing workers.

Christine Owens of the National Employment Law Project said the department’s proposal omitted vital details relating to the amount of money that tipped workers could lose in the event that the repeal goes ahead. Meanwhile, the Supreme Court is reportedly reviewing a challenge lodged by the National Restaurant Association in association with other industry groups. The proposal was published in the first week of December on the Federal Register.

Impact

Heidi Shierholz of the Economic Policy Institute (EPI) is currently researching how much money employees would lose to their employers by analyzing information from the Bureau of Labor Statistics and data from the Internal Revenue Service. She asserts that this form of theft amounts to more than $15 billion annually. A significant number of employers are willing to pocket the tips when the law is on their

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