Danbury Tax Law Blog

Are you sure it's the IRS on the other end of the line?

On behalf of Baker Law Firm, P.C. on Friday, December 13, 2019.

As the end of the year approaches, many Connecticut residents are considering what their tax situation will look like when it comes time to file their federal income tax returns. As such, it may be a good time to review how the IRS contacts individuals who have tax issues.

The fact is that there are people who would take advantage of you given the chance. Fraudsters know that people tend to fear what the nation's taxing authority could do to their financial situations if they can't pay their taxes, so they take advantage of that anxiety for their own financial gain. You can avoid becoming the victim of such a con artist by better understanding how the IRS contacts and communicates with individuals.

The ins and outs of tax-free exchanges

On behalf of Baker Law Firm, P.C. posted in Income Tax on Friday, December 13, 2019.

Most Connecticut residents are always on the lookout for ways to lower their tax liabilities. No one wants to pay Uncle Sam more than they have to, so it is understandable. Unfortunately, there are only so many ways that one can do this without raising any questions over legality. For business owners or those who have investment properties, tax-free exchanges are one way to avoid overpaying taxes on capital gains from the selling of property.

How do tax-free exchanges work? Generally, when a property is sold, capital gains tax applies to any proceeds earned -- over a certain amount. With tax-free exchanges, capital gains tax can be avoided if there is an exchange of what is considered like-kind properties -- which means the money from the sale is reinvested. So, say a person owns a home as an investment property. Under the 1031 exchange program, if he or she sells the home, capital gains taxes can be avoided if the proceeds are invested in a new home or similar investment within a specific time frame.

What to expect if accused of tax evasion

On behalf of Baker Law Firm, P.C. posted in Tax Evasion on Friday, December 6, 2019.

Being investigated by the Internal Revenue Service can be quite intimidating. This is particularly true if one stands accused of committing a crime -- such as tax evasion. What can Connecticut residents expect if they find out they are being investigated for tax evasion?

If the IRS has questions about a tax filing, an audit will be performed. A lot of information is looked at during the audit process. If, during audit proceedings, information comes to light that suggests a person knowingly included false information on his or her tax return, a criminal investigation into the matter may be opened.

Homeowners have options when dealing with tax liens

On behalf of Baker Law Firm, P.C. posted in Tax Liens on Wednesday, November 27, 2019.

When Connecticut residents do not or are unable to meet their tax obligations, the Internal Revenue Service is not going to take the matter lying down. Placing tax liens on homes is a way for the IRS to ensure it gets paid, eventually. When tax liens are put in place, homeowners may feel they have few options, but that simply is not true.

According to the IRS, there are a few ways to clear tax liens. First, it suggests paying one's taxes in full -- which is not an option for everyone. Second, if one has equity in the home, it suggests selling and using the proceeds to pay one's tax debt. Third, if one has no equity but selling the house is necessary, one may sell and request the tax debt be discharged. Fourth, one can ask for the lien to be removed.

Tax audits are not necessarily a bad thing

On behalf of Baker Law Firm, P.C. posted in Tax Audits on Friday, November 22, 2019.

The word audit can strike fear into the hearts and minds of just about anyone. No one wants to get a letter from the Internal Revenue Service saying they are being audited. The simple truth of the matter is, tax audits are not necessarily a bad thing, and Connecticut residents who find their taxes being picked apart by the IRS may not have anything to worry about.

Considering all of the people in the United States who pay taxes, the number of them who are audited every year seems quite small. The IRS is not looking for a reason to audit every taxpayer. There is no realistic way that it could do that. IRS agents are only looking for very specific red flags when reviewing tax returns. On occasion, random people may be selected for audits, even if their tax returns seem in order.

Tax considerations when it comes to your cryptocurrency

On behalf of Baker Law Firm, P.C. on Sunday, November 17, 2019.

When the IRS realized that cryptocurrency was here to stay and provided significant income for those with it, it issued a notice making it taxable property for income tax purposes. That was in 2014 before this virtual currency, which includes cryptocurrency, truly exploded on the scene.

If you have virtual currency and are not sure how to deal with it at tax time, the information below may help. This article cannot explore all of the nuances associated with this type of asset, but it can give you a starting point. More than likely, it would be wise to seek out the assistance of a tax attorney to fully explore all of your questions and tax responsibilities.

Sales tax issues hitting online sellers

On behalf of Baker Law Firm, P.C. posted in Sales Tax on Friday, November 15, 2019.

A small business owner in another state -- who focuses on selling products online through Amazon -- recently received a tax bill that has turned his whole world upside down. He supposedly owes roughly $1.6 million in sales tax to the state of California because his product was stored at a facility there. He is currently fighting the matter, as he claims the storage location of his items was not made known to him, so it is unclear how his story will end. His experience, though, can serve as a cautionary tale for Connecticut residents who are also online sellers.

More states are going after sales tax for products sold online, so this tax bill is not entirely surprising. However, the amount being sought in this case is extreme, and the state seeking it is not even the seller's home state. It is simply the state Amazon chose to store his product. Retailers on Amazon have no say in where their product is kept.

Investment property tax issues to think about

On behalf of Baker Law Firm, P.C. posted in Income Tax on Friday, November 8, 2019.

Owning investment property can be a good way for Connecticut residents to build wealth. Before diving into the investment property world, though, it is good to understand the tax consequences that come along with doing so. Not all are bad, but some are misunderstood.

First, let's cover the bad. If an investment property is ever sold, one will have to pay taxes on either long- or short-term capital gains. This can really add up, as the tax rate may be pretty high.

Did paying back taxes or tax debt just become easier?

On behalf of Baker Law Firm, P.C. posted in Back Taxes or Tax Debt on Sunday, October 27, 2019.

Owing money to the IRS is not an attractive prospect for anyone here in Danbury or elsewhere. Even so, many people do. The agency now uses private debt collection agencies to collect back taxes or tax debt, and recently instituted a new way to set up multiple payments with one phone call.

Danbury taxpayers wanting to use this system would authorize the private collection agency to make payments to the U.S. Department of the Treasury in certain amounts on certain dates. The IRS says the preauthorized direct debit program gives taxpayers the opportunity to make one phone call and one authorization. They will not have to think about making their payments again.

Estate taxes, what you need to know

On behalf of Baker Law Firm, P.C. posted in Estate Taxes on Friday, October 25, 2019.

Getting through the probate process when a loved one passes away is challenging enough without having to figure out how much one has to pay Uncle Sam because of that individual's death. It may not seem right, but estate taxes must be paid to the federal government, as well as to the state of Connecticut, if an estate's value reaches a certain point. What is that point? What happens if one messes up the tax filing or fails to file on time?

An estate tax is assessed on the fair market value of an estate for anything above the exclusion limit. According to the current laws in place, estates that value over $11.4 million are subject to federal estate taxes. The state threshold is much lower, coming in at $3.6 million.

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