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Atlanta Tax Law Blog

Budget cuts lead to lower audit risks for taxpayers

It’s hard to think of a bright side to federal budget cuts that have left agencies strapped for cash, particularly this tax season as millions of phone calls to the IRS seeking help on tax returns went unanswered. However, for some taxpayers the understaffed Internal Revenue Service means that they have a lower risk of being audited this year.

In fact, experts predict that audits will be at their lowest levels since the 1980s. A spokesperson from the IRS said that they will continue to zealously pursue the most blatant offenders and people attempting serious tax evasion. Still, he admitted that some people who should be held accountable for unpaid taxes may not hear from the IRS this year.

Man stages pre-emptive strike against tax audit

A man with residences in two different states gained internet fame recently when his daughter began sharing photos he had taken to prove his residence to the Internal Revenue Service in case of an audit. For people who live and work in two different states this can be a big issue, since double taxation can become very expensive. The scenario might sound unlikely at first, but think of people who travel often for work or who live on near the border of one state and commute across each day. For some, the distance might be greater and a second residence is required to help ease the burden of the long daily commute.

When this happens the IRS or state tax authorities may seek proof of residency to determine how many days were spent residing in each state so that the appropriate tax rate may be assessed. Without requiring such proof, people who travel often for work might try to file income taxes only in the state with a lower marginal rate even if they might not strictly qualify.

Tax filing extension comes with a catch

As tax day approaches, many Atlanta readers are probably finding themselves awake at night, worrying about gathering the right information and figuring out how to meeting the April 15th filing deadline for their federal income taxes. Filing taxes is probably everyone’s least favorite time of year, since there can be so many questions that arise and concerns about tax compliance. This is for a good reason – the United States Tax code is incredibly complex. Even with the help of an accountant, people who own business, hold assets abroad, or have other complex tax situations may need to look deeper into tax compliance and tax law issues in order to create the best plan. 

Update: IRS issues guidance on virtual currency

In our previous post we discussed the murky legal standing of the virtual currency bitcoin, which is still in the early stages of adoption by tech-savvy investors. Tax law experts had been awaiting guidance from the Internal Revenue Service about how to categorize bitcoin holdings for tax purposes. As we discussed previously, one option was to consider bitcoins to be a foreign currency and another was to categorize it as a capital asset.

The new guidance from the IRS clears this issue up, saying definitively that taxpayers should categorize bitcoins as property. The virtual currency should not be taxed as foreign currency, the IRS says, because although it can be exchanged for goods, no sovereign nation accepts it as legal tender.

Tax situation remains murky for virtual currency

Georgia readers may already know a little bit about bitcoin, a virtual currency created by an anonymous group online. Bitcoin has been in the news a lot lately as mystery and scandal surrounds the buying, selling, and potential theft of the online commodity. However, for most users of bitcoin the concerns at the moment are more practical and are centered around how to assess the proper tax situation of bitcoins for the upcoming April 15th federal income tax filing deadline.

A tax law attorney cannot help Georgia residents to actually file their income tax return. However, they can help answer some of the big tax compliance questions that come along each year when taxpayers are assessing their income, assets, and potential deductions for their federal and state income tax returns.

Georgia Senate approves state income tax cap

Lawmakers in the Georgia State Senate approved a cap on the state income tax late last month. If their measure is approved by the House and approved by voters there will be no further increases in the state income tax beyond the current rate of six percent. The measure is a proposed constitutional amendment, which means that once in place it would be very hard to reverse.

Experts say that it is unlikely that the constitutional amendment will be successful for a variety of reasons, including a procedural issue that requires revenue-related bills to start in the House of Representatives. The senator who sponsored the measure said that he intended to start a conversation about keeping Georgia as a low income tax state.

Proposal expands tax breaks for low income workers

As many people who follow the news and politics are aware, Congress and President Obama are in the first rounds of negotiations and proposals for a tax code overhaul. As we discussed in a previous post, there are many unresolved issues in the tax code that need to be addressed, particularly in the area of tax breaks for low income families and small business owners (among others). One area of contention is the Earned Income Tax Credit, which provides a tax credit for people who earn less than $14,790 per year. This tax credit along with the Child Tax Credit currently applies to 32 million families nationwide.

At the present time, the tax credit is available mainly for the working poor who have children and offers a maximum refund of $503 per year. In addition to adding eligible taxpayers who do not have children, the proposal also includes more workers by widening the age range by several years on either side and by increasing the income cap for claiming the credit.

Uncertainty lingers over taxes for small businesses

Small business owners typically have a more complicated tax situation than others. In addition to managing personal income tax issues, owners of small companies must also take tax laws into account when making important decisions throughout the year because nearly everything will have a tax implication that impacts the bottom line of the company.

For example, hiring an employee means more productivity and possibly more profits, but it also means contributing to the payroll tax, so that cost is typically included as a part of the evaluation of whether a new employee is desirable. Other decisions implicate possible deductions, such as spending capital on new equipment or expending resources for research and development. Unfortunately at the end of 2013, deductions for various types of business expenses expired and have not yet been renewed. With no vote currently scheduled or in sight, many are worried that small businesses may not have access to these important deductions for the 2014 tax year.

New tax rules in effect for same-sex married couples

Currently 17 states throughout the nation recognize same-sex marriage. Many same-sex couples who reside in those states were probably ecstatic with the United State’s Supreme Court decision this past summer regarding the Defense of Marriage Act. In finding that the act violated the U.S. Constitution, certain rights available to heterosexual married couples were extended to same-sex married couples as well. 

Federal tax overhaul remains elusive

There has been a lot of discussion in the past few years about reforming the United States tax code. Two lawmakers had even undertaken a comprehensive reform plan, working across partisan lines to figure out how to simply the tax code and balance the budget. This was certainly a lofty goal that many experts now believe is even further out of reach, since one of those lawmakers is no longer a member of Congress.

Even though there was no big overhaul, there were some small changes last year. For the top of the tax bracket, for example, the marginal income tax rate increased from 35 percent to 39.6 percent for individuals with an income of at least $400,000 and couples filing jointly earning at least $450,000.

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