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Which States Don’t Have Income Tax?

Illustration of tax paperwork and cashFor those wanting to keep as much of their income as possible, our tax attorneys have outlined all of the states that do not collect state taxes..

States Without Income Tax

Alaska: Known as one of the tax-friendliest places to live in America, Alaskan residents enjoy not only the absence of a state income tax, but also no levied sales tax!

Florida: One of the most popular retirement destinations in part due to the gentle climate, the state of Florida offers no state income tax. People who choose to retire in Florida enjoy not having to share any retirement income with the federal government.

Nevada: Not only does Nevada have no state income tax, it also has a low sales tax at 5.5 percent. Residents also enjoy property tax rates that are far below the national average, making it a popular state for property owners.

South Dakota: No state income tax and a low sales tax of 4.5 percent are contributing factors to South Dakota having one of the lowest costs of living in the United States.

Texas: A popular destination for retirees who don’t want to share their retirement income with the government, exemptions on property taxes are available to all state residents, with additional perks offered to individuals over the age of 65.

Washington: Although Washington boasts higher property tax bills due to the higher-than-average property values, residents also enjoy that coveted absence of a state income tax.

Wyoming: Not only does Wyoming have no state income tax, their residents are privy to one of the lowest state and local tax levies in the nation.

Tennessee: Finally, Tennessee will be the eighth state to enjoy the absence of state taxes. By 2021, Tennessee will join the ranks of state-tax free places to live. The Hall income tax rate that is currently low at 3 percent is slated to decrease to 2 percent in 2019, 1 percent in 2020, and as of January, 2021, will be down to zero.

While state taxes can be a significant factor to consider for many, there are certain perks and quality of living issues that some weigh as more important. Some may choose to retire to a state with no state taxes, while others may consider climate issues, location, or access to medical care of more importance when deciding where to move or retire. The absence of state taxes means that people can keep all wage and retirement income without having to share it with the government, as well as maintaining all of their dividend and interest income. It will be interesting to see if, after Tennessee joins the ranks of states with no taxes on wage income, more states will follow suit in the coming years.… Read More

Celebrities With Delinquent Taxes

The most recent list of California’s top 500 tax delinquents included some well-known celebrities. Some of these celebrities have had tax problems in the past, some of them are new to the list. The following five celebrities have all found their names on the latest list for 2018.

Chris TuckerChris Tucker

There was a time when Chris Tucker was the highest paid actor in Hollywood. He is well known for his roles in Friday as well as the Rush Hour film series. In addition to acting, in the 1990s he frequently performed at Def Comedy Jam as a stand-up comedian. In 2014, Chris Tucker had a $2.5 million lien against him in Georgia which he blamed on “poor accounting and business management”. He settled that tax debt, but is now listed on the latest list of California’s top 500 tax delinquents. It is reported that he now owes the state of California more than $1.2 million in unpaid taxes.

Tori Spelling

Tori Spelling is an actress, reality TV personality, author, wife, and mother of 5 children. In her first major TV role, she played Donna Martin in the American teen drama, Beverly Hills, 90210. In 2009 she released her autobiography, Stori Telling, which made the New York Times Best Seller List. Tori Spelling, along with her husband, Dean McDermott, have had a history of financial problems in the past several years. They currently owe the state of California $282,655 in unpaid personal tax.

Xzibit

Born Alvin Nathaniel Joiner, he is most widely known by his stage name of Xzibit. Xzibit is a television host, actor, and rapper. He raps almost entirely about his own personal experiences, drawing on many tragic events in his life. He got his start working with rappers like Dr. Dre, Eminem, and Snoop Dog. As an actor, he is well known for his role in Empire, an American drama series. Xzibit made the most recent list of top 500 tax delinquents in the state of California. It is reported that he has unpaid taxes amounting to $231,579.

Nick Cassavetes

The American actor and director, Nick Cassavetes, got his start as an actor when as a child he appeared in the films Husbands, and A Woman Under the Influence; both of these films were directed by his father, John Cassavetes. He eventually went on to appear in a number of other films, including Backstreet Dreams, The Astronaut’s Wife, Face/Off, and The Wraith. He’s also directed many films, including The Notebook, She’s So Lovely, Unhook the Stars, and My Sister’s Keeper, among others. Nick Cassavetes made the 2018 list of Top 500 tax delinquents, owing California $252.950 in back taxes.

Macy Gray

Macy Gray, born Natalie Renee McIntyre, is a singer-songwriter, actress, musician, and record producer. She has been nominated for five Grammy Awards, winning one. Gray’s debut album became a multi-platinum album, and she’s probably best known for the single “I Try” which was on this album. In addition to the six studio albums she’s released, Macy Gray … Read More

Life After The Royal Wedding: Meghan Markle And Her Subsequent Tax Bill

The world at large has been fascinated by the blossoming romance between American actress, Meghan Markle, and Prince Harry. It is estimated that two billion people worldwide watched the royal nuptials take place in a ceremony of royal pride and pageantry. With such a build-up to the event, interest is now turning to what life will be like for the newest member of the royal family post-wedding.

As no one is immune to tax laws, not even royalty, eyes are now on Markle as she faces the complex issues of taxes and citizenship. Whether or not Markle decides to retain or renounce her U.S. citizenship is undoubtedly an emotional decision, but also a potentially expensive one.

The Expatriate Conundrum

There are millions of Americans living abroad, and one thing they all have in common is still having to pay taxes to the American government. While it seems obvious that Markle will obtain UK citizenship, if she chooses to renounce her U.S. citizenship, she will likely be obliged to pay fees of $2,350. Now, with an estimated worth of $5 million and having just married into the British monarchy, Megan Markle is clearly not a person who can’t afford to pay a fee or two, but complicated taxes are complicated taxes and not much fun for anyone.

Renouncing U.S. Citizenship

Should Markle choose to renounce her U.S. citizenship, in addition to the $2,350 renouncement fee, she would also be obliged to pay the exit tax for leaving her country of origin permanently. Under the exit tax her assets of property, stocks, and bonds, would be viewed as sold prior to her date of expatriation. As such, those assets would be subject to levies calculated based on current market value. Clearly, for someone like Markle whose assets are extensive, those levies could prove costly. Looking into the long term, should Markle decide to retain her U.S. citizenship, her children would also be subject to American tax laws.

Foreign Earned Income Exclusion

While American citizens are still obliged to pay U.S. taxes while living in another country, there are ways to pay less with the assistance of an experienced tax attorney. David McKeegan, of Expat Tax Services, explains foreign earned income exclusion as a means of excluding a portion of earnings made while living in another country from your U.S. tax return. Of course, in order to be eligible, there are certain parameters that must be met, further impacting Markle’s decision. Depending on how long an individual has been living in the new country of residence and if that individual is a permanent resident, as in not returning to their country of origin to live, will impact eligibility for foreign earned income exclusion.

Royal Income Disclosure

Further complications arise for Markle as the necessity for full income disclosure would result in the U.S. government being privy to Prince Harry’s financial information, as well as how much Markle receives from the British monarchy. Markle would have to report her husband’s assets as well as

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Proposed Legislation Could Decrease Boomers’ Property Tax Burden

4 Baby BoomersA new initiative to decrease the property tax burden faced by baby boomers in the state of California has received the requisite 585,407 signatures to appear on the general ballot in November, according to the Secretary of State’s office.

The proposed legislation would amend Proposition 13, a 40-year old property tax law still valid in California. Under its terms, a property’s assessed value is equal to the price it was purchased by the current homeowner for. Their annual property taxes are 1 percent of whatever that value is.

The new legislation would allow California homeowners over 55 years of age who are moving within the state to incorporate their previous home’s assessed value when calculating their property taxes, often reducing their overall tax burden considering the value of California real estate today.

The structure is complicated, so an example is helpful. If a current homeowner purchases a new property for $1 million while selling another for $500,000 with an assessed value of $250,000, current law would calculate their property taxes solely on the new property’s $1 million purchase price.

Under the proposed legislation, the tax burden would instead be calculated by adding the old property’s assessed value ($250,000 in the example above) to the difference between the sale prices of the new ($1 million) and old ($500,000) properties for a total of $750,000. This figure is considerably lower than it would be under the original Proposition 13.

In addition, homeowners will receive tax relief if they purchase a property for less money than they sell their existing property for. For instance, if the homeowner in the example above purchases a new property for $300,000 instead of $1 million, that figure will be halved for the purpose of calculating property taxes.

Supporters of this initiative claim that the measure will encourage older homeowners to sell their homes, adding inventory to California’s booming housing market. Alexander Creel, Vice President of the California Association of Realtors, noted that many older homeowners no longer like or need their current homes, but hang onto them to avoid higher property taxes when his organization originally proposed the legislation.

However, opponents are concerned by the state’s loss of property tax income. The measure will reduce tax revenues collected by California’s counties by $150 million annually, according to the Legislative Analyst’s Office. Furthermore, the figure projects to increase to up to $1 billion annually in the future. Another analysis concluded that approximately 20 percent of the tax revenues collected by California counties are derived from property taxes. This could compromise the core services provided by cities, schools, county governments, and special districts that rely on property tax income.

This forecast generally makes the proposed legislation unpopular with local governments and districts around California. For example, the California State of Counties‘ (CSAC) Board of Directors voted on Thursday, May 17, 2018 to oppose the initiative. Dorothy Johnson, Legislative Representative of the CSAC, was quoted in a recent interview categorizing the measure as a “direct threat” to the

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Mel B. Hit With Tax Lien

In the case of former Spice Girl Mel B and her now ex-husband Stephen Belafonte, it appears that somebody forgot to take care of their joint business in the heat of a not-super-friendly divorce. As a result, the US Internal Revenue Service has filed a tax lien against the couple with regard to their 2016 taxes.

The $274,863.99 which the IRS claims is owed to them has not been quantified beyond the bare filing of a tax lien. In other words, it is not known at this time as to whether this is a question of a shortfall in payment, a complete failure to file, or some sort of other tax dispute. Nor is it known as to whether this is something largely attributable to the business dealings of Mel B or of her former husband, although it is most likely something chargeable to her account since she was the true breadwinner of the family during their ten year marriage.

What does come to mind for many ordinary people is that a quarter of a million dollars and change is a lot of money for unpaid taxes in a single year. It makes one wonder what the actual income involved might have been. Still, while undoubtedly embarrassing, the likelihood is that this will all get cleared up in due course. Most likely, this matter is tied in to the usual difficulty in disentangling business and financial affairs during a divorce proceeding.

Our tax attorneys specialize in resolving tax liens! If you have received a tax lien notice from the IRS, call us now at 1-866-TAX-TAX-5.

Which States Don’t Have Income Tax?

For those wanting to keep as much of their income as possible, our tax attorneys have outlined all of the states that do not collect state taxes.. States Without Income Tax Alaska: Known as one of the tax-friendliest places to live in America, Alaskan residents enjoy...

read more

Celebrities With Delinquent Taxes

The most recent list of California's top 500 tax delinquents included some well-known celebrities. Some of these celebrities have had tax problems in the past, some of them are new to the list. The following five celebrities have all found their names on the latest...

read more
Read More

Can I Deduct Pet Expenses From My Taxes?

One question that our tax attorneys in San Francisco get asked frequently is “Can I deduct pet expenses from my taxes?”. As is the case with most issues relating to your taxes, the answer is more complicated than a simple yes or no.

The new tax laws have changed many assumptions that formerly governed how people arranged their business and personal affairs in order to take maximum advantage of the previous tax regime. One of the relatively unknown parts of the code deals with the potential tax consequences of our animal companions. So, first off, calling them pets is likely to kill any chance of actually gaining some deduction for the expense of your fur friends.

It is therefore necessary to approach the current tax code provisions with the idea in mind that these living creatures perform some sort of necessary medical or professional function which renders the cost of their upkeep deductible. Anyone who owns a junkyard is most likely going to be able to deduct the cost of a large, vicious hound without getting too much flak from the tax examiners. Someone who operates a babysitting service out of their apartment will probably need a lot of paperwork to justify taking the same deduction for their own business.

Of course context is really what this is all about. A medical office or restaurant that keeps a fish tank can probably write off some of the costs, whereas keeping a tank full of exotic tropical fish in your home is likely to be adjudicated as a hobby. The biggest gray area, and one which is likely to see a big uptick in activity, is in the field of service animals.

In the past, a service animal was something along the lines of a Seeing Eye Dog- an obvious medical necessity and easily deductible. Nowadays, however, the designation of Service Animal is increasingly being applied in the field of mental health. This is creating an intrusive explosion of animals into areas once largely out-of-bounds for them, such as the cabins of passenger airplanes and a host of retail outlets. It should also be mentioned that the designation is not restricted to the usual household pets. Incidents have been reported of people insisting that pigs, chickens, and other barnyard or even semi-feral creatures are their service animals and thus exempt to the usual proscriptions against entry into formerly-restricted public spaces.

While there are undoubtedly a great many people who truly require the solace of their service animals, the need to replace formerly-valid-but-now-verboten deductions with something else is clearly leading up to the point where millions of pets are soon going to be declared as essential service animals and claimed as legitimate write-offs. This, in turn, is going to lead to a massive IRS tightening of the rules once the trickle of pet exemptions turns into a tidal wave of revenue loss to the government.

Eventually, of course, a body of legal precedent and agency guidance will be built up on the

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San Francisco Improves Self Service Tax Portal

Not every upgrade of a municipality’s infrastructure is genuinely newsworthy. In some ways, the recent announcement by the City of San Francisco that it has streamlined and improved its self service tax payment portal falls into this category of announcement. In ordinary circumstances, this would hardly be news at all.

When one considers the pride with which this news is conveyed by by the city, however, an interesting backstory suggests itself. Their description of this new tax payment system speaks about how citizens can go online, search for various meta-terms which will call up all of their tax payment history and billing, and then generate a single standardized form which will permit them to easily pay their taxes with it.

Conversely, the new system also allows people to quickly and easily make their tax payments online. As an added bonus, the system also automatically generates friendly reminders about when tax payments are due and provides for various other forms of consciousness raising that will, as they say, help reduce late payments and other forms of mistakes made by the general public, such as perhaps paying the right sum towards the wrong account.

While all of these things are admirable, one large question pops up when one thinks about the whole idea that San Francisco, High Priestess of the high-tech world, is just now setting up a system capable of doing these things. Far from being revolutionary, this is actually a case of someone playing catch-up to the rest of the world– which has been utilizing similar technologies for years. What sort of system have Bay Area taxpayers been suffering under prior to this new rollout?

San Francisco has apparently been working on updating their previous system since April of 2016 and serendipitously managed to have it up and running in time for the unexpected flood of business that came at the end of 2017, when the President’s new tax bill changed the way in which local tax payments were treated for federal tax purposes. Given the drastic decrease in the deductibility of these payments for the 2018 calendar year and beyond, many Bay Area residents rushed to pay their taxes before the close of business on December 31st, 2017 to take advantage of one last writeoff before the new tax regime became law.

To its credit, the new system, which replaced and unified four older platforms, performed extremely well. It handled an eight-fold surge in self service tax payments compared to the usual sedate pace of payments at the end of a calendar year. The chaos and recrimination that would have ensued in the event of any glitches cropping up would have been ruinous, so the long horizon which the city employed on its deployment schedule has proven the wisdom of the idea that a patient approach on such a key part of the city’s basic IT infrastructure is better than rushing a buggy system into action prematurely.

In that regard, the IT planners who designed and built the new … Read More

Supreme Court to Rule on Mandatory Online Sales Tax

Woman making online purchase with credit cardThe US Supreme Court will soon issue its opinion on the case of South Dakota v. Mayfair, which concerns the ability of the 50 states to charge an online sales tax to retailers who sell goods inside their jurisdictions, but are actually selling from a physical platform located outside of their jurisdiction.

As often happens, SD v. Mayfair is not just intended to settle things in South Dakota but to serve as a foundational exemplar that will create a legal precedent to guide the court system in the vast number of other cases slowly grinding through the system. Simply put, the Supreme Court has judged that the hour has arrived to issue a definitive ruling on the subject of online merchandising that revisits the 1992 ruling in Quill Corp. v. North Dakota.

At the time of the mail order-oriented Quill ruling, e-commerce had not yet been invented, so it is certainly proper to provide some clarification of the interstate commerce aspects of online merchandising. On the face of it, the case appears to be one of local Mom-and-Pop David versus online behemoth Goliaths such as Amazon, but there are many subtle shades of variation in the overall classifications.

The large online retailers are likely to argue that there are many small retailers doing business online which depend on this one slight tax advantage conferred to offset the numerous blessings that larger operations enjoy– such as wholesale purchasing power. Certain well-known online vendors, among whom are the aforementioned Amazon and eBay, serve as host platforms that provide enormous amounts of opportunity to small-scale vendors who would have no chance of staying in business without access to the sales that grow in virtual land.

Regardless of their actual sympathies, they are certainly hoping to capitalize on concern for the little guy as a cover for their own extensive operations. An additional argument and one that truly concerns them personally is the idea that an unfavorable ruling could lead to the need to stay abreast of ever-changing tax laws and rates in more than 12,000 jurisdictions in the United States alone. This is probably the most fascinating part of the case.

After all, it’s reasonable to think that large corporations might be better equipped to handle those 12,000 separate tax rates than any of their smaller online rivals. So, on the face of it, it would seem like a South Dakota victory in the case would be in their own ultimate best interest. Yet they remain firmly on the opposite side of the case. Given the competing interests at stake, the position of the behemoths seems to be that allowing the little guys to stay in the game by paying no taxes is preferable to dealing with 12,000 distinct tax jurisdictions as the cost of rubbing them out.

After all, the whole point of giving the Federal government authority over interstate commerce is to avoid exactly this sort of commerce-strangling bureaucracy for everyone involved. Yet the continuing decline of local retailers does appear

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What Happens If I Pay My Taxes Late?

Failing to file your federal income tax return by the filing deadline could be costly if you owe the IRS money. You could be assessed penalties and interest on the money you owe and this can really add up over time. If you are due a refund from the IRS there is no penalty for filing late, however, you should be certain that you are actually due a refund to avoid any issues.

There is a 5% late filing penalty for all monies owed each month and part of a month that the debt goes unpaid. These charges are accrued for a period of 5 months and the cap on this penalty is 25% of the unpaid balance.

If your unpaid balance is 60 days or more past due to an additional minimum fee of $205 or 100% of the unpaid balance will be assessed whichever is the least of the two amounts. The minimum amount that is charged however does not lessen the impact of the 5% per month that has accrued for 5 months which can be significantly greater.

In addition to the previously mentioned charges, an additional 0.5% late payment penalty will be applied to your unpaid tax bill plus any interest every month and part of a month that the balance goes unpaid.

The deadline to file your taxes for 2018 is April 17th and if you request an extension for six months, the filing deadline is October 15.

Note that requesting an extension will not offset your obligation to pay. You must pay approximately 90% of your owed taxes for 2017 to avoid any penalties and interest.

In order to avoid paying penalties and interest, it is suggested that you try to avoid any penalties by filing your tax return on time by the filing deadline. Even though you may owe the IRS and can’t pay right away, it is best to file your return by the deadline to avoid penalties, if not request an extension.

If you request an extension you may offset the late payment penalty only if you have already paid at least 90% of what you owe for your 2017 tax return. The remaining 10% can be paid by the extended filing date.

If you foresee that you are going to be late paying your taxes, it is suggested that you try to pay some of the money when you file your return. This reduces the number of penalties and interest because it will be applied to a lesser amount.

The final suggestion is that if you are going to file a late return and can’t pay what you owe; if you can show ‘reasonable cause’ why you filed late and can’t pay your taxes, the IRS will not charge you with penalties. However, ‘reasonable cause’ is not something that is outlined or defined by the IRS and they make their decision based on each individual case.

If you owe less than $50,000, you may be able to request to pay

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Tax Audit Red Flags

At this time every year our tax attorneys are inundated with questions from clients regarding what they should look out for to ensure they don’t send any red flags to the IRS that would trigger an audit.

With the deadline for filing your tax return rapidly approaching, we thought it would be a great idea to ask our tax attorneys about some of the most common red flags that the IRS is looking for when they’re deciding to audit someone. Note: this blog is not intended to be legal advice, and was designed solely to inform the public on common mistakes that lead to tax audits.

Failure to Report all Income

This one seems obvious, but you might be surprised how easy it is to forget to report a source of income.

This is especially true for people who do freelance work. Any company a freelancer does work for is required to send the IRS 1099 and W2 forms that report all the income they earned. They are also supposed to send these forms to you – but it’s not out of the ordinary for these to get lost in the mail, or have incorrect figures on them.

Keeping your own books is crucial to make sure that you’re reporting the appropriate amount, and that someone else’s error doesn’t increase your tax liability.

A typical issue that plagues many high tech workers in the San Francisco Bay Area is the double counting of income from stock options, or employee stock purchase plans that is reported on both W2 and a 1099B from the brokerage house that handles the trades.  Anyone selling stock must make sure to report the sales and take credit for the basis, or gain that has been reported on the W2.  San Francisco tax attorneys are often asked to step in and resolve the erroneous tax bills issued to Silicon Valley employees due to this issue.

Charitable Deductions

This is one of the most common deductions that people take on their taxes; and subsequently one of the most common that people abuse.

The IRS may examine your total amount given to charity in relationship with what you make each year. Then they’ll compare that to what other people in your tax break donate each year. If you have donated much more than people with similar income, this could potentially trigger an audit.

A tax attorney in San Francisco says “I’m sure it’s no surprise to you that documentation is huge for these deductions. If you’ve donated something that isn’t monetary, you need to be able to prove the value. If you have donated money, it’s crucial to get a receipt from the organization you’ve donated to.”

Home Office

One of the most common deductions people get wrong is the home office deduction. The rules for taking the home office deduction are very specific, and can be tricky for people who aren’t professional tax preparers.

One tax attorney in San Jose said “There are a lot of people

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