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Los Angeles Tax Law Blog

What might taxpayers anticipate in the year ahead?

To say 2020 has presented unique economic challenges may be the understatement of a lifetime. Along with health scares, political uprisings and shelter-in-place orders, many income earners experienced business closures. Whether temporary or long-term, the threat to financial stability will inevitably show its face in upcoming tax returns.

Stimulus payments provided some semblance of relief for many Americans struggling to make ends meet. And while another check could potentially come to fruition, it's important to consider the ramifications of the assistance offered by the federal government.

Is retroactive liability the next trend for California taxpayers?

It is no secret that California maintains the highest income tax rate in the nation. Yet, nearing the tail end of a catastrophic global pandemic, more judicial proposals seek to target earnings.

Pending tax bills would extend beyond an increase on future income. If passed into law, the current proposed statutes would also introduce America's first tax levy on accumulated wealth.

A payroll tax suspension could come with legal gray area

To curb economic disruption caused by the pandemic, The White House is pitching an executive order to ease tax liabilities on workers and businesses by giving them a “tax holiday.” The holiday would halt the collection of payroll taxes, temporarily putting more money in employers and employees pockets through the end of the year. This is all part of an effort to boost the American economy.

While the offer seems generous and convenient at face value, it comes with a few legal hurdles.

America is still in limbo over payroll tax deferral

Taxpayers in California and across the United States have a short time window before the president's tax order goes into effect. But reports suggest many aren't ready for the transition.

The deferral begins Sept. 1 and runs through the end of the calendar year. However, some employers say they aren't ready to make the deadline by that time and some workers worry what their tax bill could look like in 2021.

IRS accepting accountability for late refunds caused by pandemic

If you've ever gotten money back after filing your tax return, you probably know what it's like to wait for the IRS to process your refund so you can take a vacation, pay other debts or invest in your future. Considering this year's shutdowns and July Tax Day, waiting patiently for a refund may be harder than usual right now.

However, did you know there is a chance you could receive additional money from the IRS? You are owed interest if your refund is not issued within 45 days after the acceptance of your return. As such, you might receive a larger check than you anticipated for 2019.

Can spouses avoid tax penalties if they prove their innocence?

Married couples hold many benefits. Not only can they share their lives together, they can also get special tax privileges. But this financial advantage comes with great responsibility. If spouses file a joint tax return, they can be equally liable for those returns and any interest, penalties and other expenses that come with them. That holds true even if one spouse is the sole source of income.

However, there are some exceptions to this rule. If one spouse makes a mistake when filing their joint return, the other can potentially avoid liability. They can do this by requesting innocent spouse relief from the IRS.

Watch out for auditing scams in 2020

IRS audits can be scary. But if you don't know how the agency conducts them, it's hard to know if they're legitimate. As the IRS issued its "Dirty Dozen" tax scams of 2020, it's in your best interest to make sure you're not falling victim to criminal acts.

The IRS has limited ways of conducting audits

Decreasing tax liability: consequences for alleged misreporting

Now that you filed your 2019 return, you might think you are done dealing with taxes until next spring. However, if the IRS determines there is something amiss with your reporting, you could face criminal charges.

A person found guilty of a willful attempt to "evade or defeat" tax assessment or payment will suffer the effects of a felony record, including up to five years served in prison and the potential of $500,000 in fines. Since these accusations can be life-changing, you should understand the laws surrounding your tax liability, as well as a court's requirements for finding you in contempt.

Preparing for an IRS audit

You had expected to hear from the IRS. The notice came in the mail yesterday. You and your business will undergo a painstaking tax audit. With the confirmation, there is some relief, but more worries, deadlines and conversations await you.

A sensitive IRS audit with a federal examiner often makes any business leader shudder. But, now that it has arrived, you must be prepared in dealing with it, survive it and learn from it. You likely do not want to experience another one.

What happens if your tax liability is unaffordable?

People from every income level and walk of life have suffered the effects of the global pandemic. With shutdowns, shelter-in-place orders and changes in consumer habits, financial constraints are a key consideration for many Americans – and just before Tax Day.

You might already realize you will owe money for 2019. Regardless of whether you are prepared to resolve your delinquent tax bill or cannot envision a way to improve your current financial situation, you can likely reduce the penalties owed if you file on time. Before you file your return, you may want to be aware of your potential payment options.

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