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Boston Tax Law Blog

Ensuring tax health in the sharing economy

We’ve discussed previously the importance of proper estimated tax payments if you have a profitable hobby or so-called “side-gig.” It’s understood and fairly well-known that if your side project brings in more than $1000 per year (via cash, check, bank account transfers, electronic currency or other source), you need to report that income, even if you don’t receive a 1099-MISC, W-2 or other similar tax form. You can also deduct qualified business expenses for a side gig just like you’d be able to with a full-time job.

It’s also pretty common knowledge that side-gigs have become the only gigs for many people, as they’ve been able to quit their full-time jobs just from the income of renting spaces via AirBnB or similar services, driving cars for Uber or Lyft, or selling products from a multilevel marketing company like Amway or LulaRoe.

Can tax liens affect business finance options?

Imagine this: a while back, your business was having some cash flow problems and you got behind on your taxes. You weren’t able to make an offer in compromise or cover the taxes in the timeframe requested by the IRS, so they put a tax lien on your business assets. Fast forward to today, when you are trying to raise capital to grow your operation. Will that tax lien make it impossible to secure financing?

The short answer is, like so many other things in the legal arena, “it depends.”

IRS offers guidance on new head-of-household credits

The passage of the 2017 Tax Cuts and Jobs Act (TCJA) brought many changes to the way that most Americans handle their income taxes. Most of the changes for middle-class earners comes with the loss of personal exemptions and an increase in the standard deduction. There are also new tax brackets, which may allow some people to pay less even while maintaining their same salary.

Two key changes as a result of the TCJA deal with head-of-household and child tax credits. The IRS recently offered guidance (in the form of Notice 2018-70 “Qualifying Relative and Exemption Amount”) to make it easier for the average person to understand when he or she would be eligible for credits for dependents and “qualifying relatives.”

Understanding the new 1040

One of President Trump’s campaign promises involved simplification of the tax return process for most filers; he specifically mentioned being able to file on a postcard-sized tax form. While that particular goal still hasn’t really come to fruition, Form 1040, the tax form used by most individual and married households throughout the country, has indeed undergone an overhaul.

Understanding how the tax forms have changed in light of the new tax law passed in 2017 is vital to avoid red flags that could potentially trigger an audit, result in under-withholding or mean that you could owe the IRS big money come tax time next year.

Fighting against a bank levy or wage garnishment by the IRS

Most Massachusetts residents know that the IRS has quite a bit of power when it comes to collecting the taxes it believes an individual owes. If you have been subjected to the agency's collection efforts, you may have a bank levy or wage garnishment filed against you. More than likely, these collection efforts put you in a precarious financial position. You may be able to stop these actions with the proper support.

If you receive a notice of a bank levy from the IRS, it means that the agency has told the bank to freeze your account. You will not have access to the funds in it during this time. At the expiration of 21 days, if you have not paid the taxes the IRS says you owe, it could seize the funds from your account to apply toward your debt. Due to the time sensitive nature of this collection action, you may want to seek the guidance and assistance of a tax law attorney as quickly as possible.

The first steps in the IRS collection process

Many Massachusetts residents find themselves unable to pay their taxes. They file their tax income tax returns with the IRS knowing that at some point, the agency will come looking for payment. They may receive a bill in the mail, not understanding that this constitutes the opening gambit of the collection process.

The IRS expects taxpayers to satisfy the balance due in full. When that does not happen, it may take other actions in order to obtain payment. Meanwhile, the principal balance begins accruing interest and penalties. If a Massachusetts taxpayer can find a way to pay in full, that may be preferable. However, like most people, if a taxpayer could pay the balance, he or she would have done so.

Is offshore banking a high-maintenance investment?

Offshore banking is an appealing way to invest for many individuals. Despite common misconceptions fueled by the cinema, having an offshore bank account isn’t as scandalous as portrayed. On the contrary, offshore banking is completely legal – and oftentimes beneficial – if done the proper way.

Meeting FBAR requirements may require filing Form 8938

Especially since 9/11, the federal government keeps a close eye on monies, assets and accounts held by American citizens that come from foreign countries. In order to determine whether a Massachusetts resident or entity must file a Report of Foreign Bank and Financial Accounts and/or IRS Form 8938, a party must review the FBAR requirements and the reporting requirements of the IRS. Having to file one may not mean having to file the other, depending on the circumstances.

Making that determination may come down to the amount of funds in question. For instance, a FBAR comes with a minimum threshold of $10,000 during the calendar year. This is not $10,000 per account, but instead the total amount across all accounts.

Extended filers: Watch out for mistakes

Not everyone filed their federal income taxes back in April. For example, you may be among the many individuals who requested an extension. For individuals who filed for an extension, an important deadline is coming up in a little under three months. This is the extended tax filing deadline. This year, this deadline is Oct. 15.

Extended filers who fail to file their taxes by this deadline can face penalties. So, for many extended filers, we are entering the time of year when they are heavily focused on getting their taxes ready so they can meet this deadline.

Obligations to the IRS don't end with retirement

Unless a Massachusetts resident worked as an independent contractor, he or she probably received a paycheck that negated the need to worry about taxes but once a year. Now that the opportunity to retire has arisen, it is important to know that obligations to the IRS continue, but in a different way. How tax payments are made and how much is owed depends on whether funds come from a pension, Social Security benefits, a retirement account or a combination of the three.

If an individual receives over a certain amount in Social Security benefits each year, up to 85 percent of that amount could be subject to income taxes. Instead of making large quarterly or yearly tax payments, it is possible to have between 7 and 22 percent deducted from each payment for taxes. This may reduce the monthly amount received, but it will also help avoid large, periodic tax bills that could be a challenge to pay.

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