Paul Jones | Utah Attorney

When you file a joint income tax return, the law makes both you and your spouse responsible for the entire tax liability. This is called joint and several liability. Joint and several liability applies not only to the tax liability you show on the return but also to any additional tax liability the IRS determines to be due, even if the additional tax is due to the income, deductions, or credits of your spouse or former spouse. You remain jointly and severally liable for taxes, and the IRS still can collect from you, even if you later divorce and the divorce decree states that your former spouse will be solely responsible for the tax.

If you believe that only your spouse or former spouse should be held responsible for all or part of the tax, you can request relief from the tax liability, plus related penalties and interest. To request relief, you must file Form 8857. The IRS will use the information you provide on the form and any attachments to determine if you are eligible for relief.  There four types of relief are available. They are:

• Innocent spouse relief
• Separation of liability relief
• Equitable relief
• Relief from liability arising from community property law

Each type has specific criteria by which the IRS will grant relief. If you need assistance completing Form 8857 or if you have been denied relief contact Paul to discuss your situation by clicking here.

There are no shortage of people who think about the need to have a will in preparation for their inevitable departure from this life. Many of those people also wonder if they need a trust as well.  In general, people just want to know the best way to handle their affairs while they are alive so their loved ones don’t have to worry about it (too much) when they pass away.  Preparing for that time is called estate planning. As you can imagine, there are a lot of issues to consider in putting together your estate plan. One of the most confusing aspects of estate planning are the tax effects of your estate planning decisions. There are actually several types of taxes that must be considered in a properly executed estate plan, such as income tax, estate tax, gift taxes, and generation skipping transfer taxes. For that reason it is important to choose a attorney who understands the tax implications of your estate planning decisions. As an attorney specializing in tax issues, Paul Jones understands how these taxes will affect your estate planning decisions. Understanding these tax issues will help you make better decisions. If you would like to review your own estate plan or get one started click here to contact Paul.

Depletion is the using up of natural resources by mining, quarrying, drilling, or felling. The depletion deduction allows an owner or operator to account for the reduction of a product’s reserves. There are two ways of figuring depletion: cost depletion and percentage depletion. For mineral property, you generally must use the method that gives you the larger deduction. For standing timber, you must use cost depletion.  Cost depletion is computed on the basis of initial capitalization costs. Over the life of the well, a portion of these costs can be recovered each year based on the percentage of the production for the year as compared to the estimated recoverable oil and gas reserves at the beginning of the year. Percentage depletion is computed on the basis of the income from the property rather than capitalization costs. The tax shelter provided by percentage depletion may result in a larger deduction than cost depletion. Percentage depletion allows a tax deduction equal to 15% of the gross revenue from and oil or gas producing property. If you have questions regarding depletion or related issues click here to contact Paul.

Foreign companies often form U.S. subsidiaries when they enter or expand their U.S. operations. If your business involves a foreign entity and US related entity your business will have to file IRS Form 5472 for every transaction with its related business entity. Form 5472 is an information return and does not impose a tax, but rather the form is used as a reporting mechanism to ensure compliance with US tax law. In short, it is a audit tool for the IRS. It becomes very important to properly report on Form 5472 so that the IRS does use this audit tool as a weapon against its filer. If you need assistance in preparing or reviewing your company’s 5472 and related party transactions click here to contact Paul.

On March 18, 2010 the Hiring Incentives to Restore Employment (HIRE) Act was enacted. The HIRE act contains two new tax benefits that are available to employers who hire certain previously unemployed workers (the Act calls them “qualified employees”).

The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.

The payroll tax compliance issues here are a bit daunting.

The second tax benefit is that for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.

If you have questions about qualifying for the tax credits under the HIRE Act, contact Paul by clicking here.

Expatriation and being termed an “expatriate” have very specific meaning in the Internal Revenue Code.  Expatriation tax provisions apply to U.S. citizens who have relinquished their citizenship and long-term residents who have ended their residency (expatriated). You are an long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your status as an long-term resident ends. Expatriation includes the acts of relinquishing U.S. citizenship and terminating long-term residency. Many people think of expatriation as living abroad for a period of time that would allow for the Foreign Earned Income Exclusion. Recent changes in the law state that until you file Form 8854 and notify the Department of State or the Department of Homeland Security of your expatriating act, your expatriation for immigration purposes does not relieve you of your obligation to file U.S. tax returns and report your worldwide income as a citizen or resident of the United States. Because US Citizens are subject to income tax on their worldwide income a person expatriating for non-tax avoidance purposes must act carefully or they may remain liable for US income tax on income earned after expatriation without realizing it. If you would like to discuss expatriation or any other matters relating to the US tax consequences of foreign income contact Paul by clicking here.

To be eligible for the credit, the small business employer must contribute at least 50% of the total premium cost per employee (not including employee salary reduction) of a qualified health plan offered by the employer through an Exchange or a benchmark average premium. Small businesses eligible for the credit must have fewer than 25 employees and average annual wages of less than $50,000 for 2010 through 2013, adjusted for inflation beginning in 2014. Employers with 10 or fewer employees and average annual wages of less than $25,000 are eligible for the full credit.

Lower credit amounts apply for 2010 through 2013. For those years, small employers receive a small business tax credit for up to 35% of their contribution toward employee health insurance premiums. Eligible tax-exempt small employers receive a 25% tax credit for those years.

For 2014 and beyond, small employers that purchase coverage for their employees through an Exchange will receive a tax credit of up to 50% of their contribution to premiums. Tax-exempt small employers will receive a tax credit of up to 35% of their contribution to premiums. The credit period will have a two consecutive year limit.

The Form 706 is a snapshot of a decedent’s financial situation on the date of death or at a special valuation date 6 months after the date of death . The Form 706 return is due nine months after the date of death (or 15 months if extended).  The purpose of the Form 706 is to provide a complete detailed listing of the decedent’s assets and liabilities, as well as current and future estate expenses. The Form 706 is not required for all estates, just those estates which value exceeds a threshold set by congress must file. This threshold has changed frequently over the years. For persons dying in 2010 there is no estate tax. However, in 2011 the estate tax threshold is an estate valued over $1,000,000.  If you potentially have a taxable estate the time to plan for mitigating those taxes is now. Contact Paul to discuss strategies and alternatives by clicking here.

A deceptively simple prospect in tax reporting is a US citizen working abroad. There are many pervasive misundertandings in this area of US tax law. Generally speaking, gross income, for US tax purposes, does not include the foreign earned income and a “housing cost amount” of a qualified individual who makes the appropriate exclusion election. A “qualified individual” has a “tax home” in a foreign country and meets one of two tests. Under the first test, the person must be a U.S. citizen who establishes that he has been a bona fide resident of a foreign country or countries for an continuous period within an entire taxable year. Under the second test a person must be a U.S. citizen or resident who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in that period. The election is made by completing Form 2555, “Foreign Earned Income.” There are a great many nuances and circumstances to be considered in this area as well. If you need assistance in this area or help in preparing your tax return that deals with Foreign Earned Income, please contact Paul for assistance by clicking here.

Form 1042-S is, conceptually, much like Form 1099 for US citizens and persons residing in the US. The difference being that the payments reported on Form 1042-S are amounts paid to foreign persons (including persons presumed to be foreign) that are subject to withholding, even if no amount is deducted and withheld from the payment because of a treaty or Code exception to taxation or if any amount withheld was repaid to the payee. Examples of payments to foreign persons include, but are not limited to: Corporate distributions; Interest; Rents; Royalties; Compensation for independent personal services performed in the United States; Compensation for dependent personal services performed in the United States (but only if the beneficial owner is claiming treaty benefits); Annuities; Pension distributions and other deferred income; Most gambling winnings; Cancellation of indebtedness; Effectively connected income (effectively connected income to the US);  Notional principal contract income; and REMIC excess inclusions. To state the obvious, each situation is different and should be carefully analyzed. If you or your business needs assistance preparing Form 1042-S and 1042, or just discussing withholding requirements, contact Paul by clicking here.