What to do when you receive a tax notice
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Wednesday
Apr092014

Should You Avoid Paying Online Sales Tax? With Rob Wood, Tax Lawyer, San Francisco, California

Avoiding sales tax online is a very divisive issue, according to Rob Wood, tax lawyer with Wood, LLP in San Francisco, California.  Amazon shows the evolution of this issue, as they started with not charging sales tax and now is charging sales tax in 20 different states. 

Until the law changes, Wood says to look at the merchant and see by the time you check out if you'll be charged sales tax.  Wood's advice is for people not to kid themselves and that if can get away with it do it, but you should know you have liability in most states and they may come after you.  You may be asked to certify on your income tax return if you have any sales where you use tax.

"Self-reporting and enforcing is coming," says Wood and he tells people to be careful.  For small merchants, the question is do they have enough contacts within a particular state that they should be required to withhold and send in sales tax.  For big merchants, it's tougher and that's why state tax authorities went after the merchants because it's much harder to find all the customers out there.

Wood says that if you're not paying use tax, you're not safe because you clearly owe use tax if not charging sales tax because it's an internet purchase.

Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

 

Tuesday
Apr082014

Common IRS Audit Triggers, With Rob Wood, Tax Attorney, San Francisco, California

While it may be common sense and intuitive for some, there are some key things that might trigger an IRS audit.

While the IRS still does random audits and one may never know what specifically triggers them,  Rob Wood, a tax attorney, who's been practicing for 35 years at Wood, LLP in San Francisco, California, says the overwhelming majority of the ones he's seen have been triggered by something in particular.  He says to be aware of 1099's in particular and to keep track of them and make sure they're recorded on returns.  Usually, a 1099 issue is one where you forget to put it on the return, either received from a consulting job or a legal settlement or judgement.  The public ones, he notes, does make you a target, so those carry bigger risks of getting audited than the random ones.

Wood says to not panic if you are audited and to respond quickly and appropriately.  The majority of audits are correspondence that are very frequently computer-generated when something doesn't jive, he says.

For more information on the article written in Forbes magazine about this, click here.  Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Tuesday
Apr082014

Advantages of Setting Up a Small Business as an S-Corp, With Rob Wood, Tax Attorney, San Francisco, California

The old model of how a company is formed has changed over the years with tax law and the evolution of different types of business entities, says Rob Wood, a tax attorney with Wood, LLP in San Francisco, however some fundamental things have stayed the same.

Businesses need to look at how their business is run, how the income will be taxed and what happens on sale, whether it's anticipated or unanticipated.  Wood says to set it up right from the beginning to avoid getting hurt on taxes.

A C-corp and an S-corp are tax terms that refer to articles of a corporation.  They are very simple and are mostly for liability protection, says Wood,  An S-corp, which stands for Sub Chapter S of the Internal Revenue Code, is a one page form, signed in a certain way and the shareholders have to give consent.  The IRS form is a 2553 form.  Wood says the business is taxed as a flow-through, so the corporation doesn't pay tax, except for a few here and there, and is treated like a partnership.  That's the reason it's attractive, says Wood, because it's a corporation that is an entity with liability protection that's taxed like a partnership.  Wood says most small businesses can qualify and should take advantage of S-corps.

For more information on the article written in Forbes magazine about this, click here.  Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel,  a featured network of the Legal Broadcast Network and Sequence Media Group.

Tuesday
Apr082014

Structured Settlements For Lawyers, With Rob Wood, Tax Attorney, San Francisco, California

A structured legal fee is when a contingent fee lawyer, typically right before a case is resolved, decides to structure their fee through a third party for payments over time instead of receiving the fee all at once, says Rob Wood, a tax attorney with Wood, LLP in San Francisco, California. 

One might think that a lawyer, who's entitled to a contingent fee, has already earned that fee but authorities say as long as the lawyer, before earning the fee and signing the documents to settle the case, says that they don't want to take a percentage, rather have it distributed over time through a third party, it's perfectly legitimate and not a tax scam, says Wood.

This allows for firms to have cash flow, Wood says.  Most lawyers charge hourly or flat fees but contingent fees are the staple of a large segment of the plaintiff's bar and they frequently complain about the ebbs and flows and ups and downs, says Wood.  "This is a way of leveling out income," he adds.

As a tax lawyer, Wood is surprised that this is still allowed and in the tax code only because there are relatively few professions where you can do this and it's a function of the way contingent fees are earned.  "It's not earned until the deal is done and that's the key," Wood says.

For more information on the article written in Forbes magazine about this, click here.  Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Tuesday
Apr082014

Hollywood Movie Tax Credits Get Celebs in Hot Water, With Rob Wood, San Francisco, California

Celebrities investing in movies to get tax credits are finding themselves in trouble with tax authorities, such as Annie Lennox and the Beckham's.  Investments are supposed to be good and throw off income, while providing tax benefits, says Rob Wood, tax attorney with Wood, LLP in San Francisco, California.  However, the question is, is it a legitimate transaction and how certain or aggressive is it, Wood asks.

People tend to run for cover when a deal goes bad, which is what happened when the UK authorities were claiming some investments were scams.  The celebrities run for cover, saying they didn't know and invested for all the right reasons, Wood says.

Wood says "buyer beware," and if you're not able to look at the deal yourself to see that it's a legitimate deal, don't necessarily buy all of the hype and get professional help on your own, who's loyal to you, to look at it.

It's a very detailed issue, Wood says, that combines a multitude of tax rules.  You buy into something and it's a bit of a shell game, he says.  To the extent that anyone's guilty, it's not the celebrities but probably the behind he scenes people who are moving shells around.  Ultimately, it's not just about the $10 write off you put in but rather the $100 and the question is, is the debt real and do you have to pay it back, notes Wood.

This is an economic substance, designed to serve as a back stop to many of the technical tax rules that end up getting people in trouble, says Wood.

For more information on the article written in Forbes magazine about this, click here.  Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.