FAQ: Tax Law

Why Should My Business Consult with a Tax Attorney?

It is important for business owners to stay on top of tax issues. Complying with the tax laws is of the utmost importance and the amount of taxes your business is required to pay may affect your bottom line. An experienced tax attorney can help your business adhere to the requirements of the Internal Revenue Code (IRC) and federal tax regulations.

The IRC, Treasury Regulations and other federal tax laws change frequently, and tax attorneys are aware of these changes and how they can affect your business. Generally, amendments to the IRC are made every year. In addition, throughout the year, the Internal Revenue Service (IRS) and Treasury Department issue rulings, regulations and other published guidance interpreting the IRC.

Ideally, you should consult with an attorney or other tax professional when you are forming your business. Even your choice of business entity - corporation, partnership or sole proprietorship - will affect the tax liability of your business. Discuss the different possible entities with a tax attorney so you can select one that best suits your business' needs. In addition, having the proper procedures in place at the beginning will help your business deal with tax issues that may arise in the future. For example, your business will need to decide which tax year it will use. An attorney can help your business create a record retention policy so that documents related to income, expenses and potential deductions are kept for a sufficient period of time in case they are needed for a future audit or tax dispute.

Another area in which an attorney should be able to assist your business is with clarifying its income-reporting responsibilities. Business income may come in many forms. The IRC refers to gross income, which is defined as all income from whatever source derived and includes compensation for services, interest, royalties, commissions and a number of other things. It is essential that your business know what is considered gross income, so that all of its income is accurately reported. Failure to report income can result in additional taxes, interest and penalties.

A tax lawyer can also help your business maximize the available deductions. Taking advantage of all the available deductions will help your business minimize its tax liability. There are a number of deductions available to businesses and an attorney can explain them to you and determine whether they apply to your business.

In addition to federal income tax, if your business does business in states other than where it is located, it may have to pay state income tax in those states. Many businesses derive income from doing business outside of the state where they are located. It is as important to be aware of the tax obligations of conducting business outside of your home state, as it is to be aware of your in-state obligations. An attorney can guide you through this potentially confusing area.

Business taxation, unlike some other business issues, is an area where there really is almost no room for error. Tax-related mistakes can result in additional taxes, interest and penalties. An audit can be a disruptive and expensive process. Organizing and compiling records before an audit, particularly if the business' record-keeping practices were not up to par can be difficult. An attorney who can explain the examination process and walk you through the steps can help ease your tax worries so you can focus on the business.

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