While many taxpayers want to pay less in tax and there are legitimate ways to do so, some of the tax planning concepts that are frequently discussed miss the mark. The so-called Augusta rule is often one of them. Tax planners often cite this rule and provide tax savings estimates based on unreasonable assumptions. This…
Category: Tax
Tax
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What is a Partnership: State Law vs. Federal Tax Law
One of the nuances that come up in tax planning involves the interplay of state law and federal tax law. This brings in all of the nuances and challenges under state law to federal tax law. For example, one common nuance in business transactions arises when the parties to a business arrangement do not document…
Taxation of Variable Prepaid Forward Contracts
Do you own a company and want to sell to de-risk your holdings but don’t want to pay tax now? And when you do sell, do you still want lower capital gains rates? That’s the most common goal for those considering tax planning. Capital gains rates are lower than ordinary income rates. Tax planning focuses…
Court Clarifies Tax Treatment of Loyalty Programs
Programs involving third-party vendors providing rewards, like hotels, airlines, and fuel companies, can amass substantial value over time. The term “substantial” is an understatement. “Massive” is more fitting. The tax law for these arrangements is not clear as it touches on concepts like trust funds, accounting methods, and redemption deductions. Given the size of the…
Forget the 5-Year Rule – Change Entity Classification Early
Many believe that once you elect an entity’s tax classification, you are locked into that choice for at least 5 years. Conventional wisdom says that the tax status cannot be changed within a 5-year or 60-month period. However, a recent IRS private letter ruling shows this is not necessarily the case. In PLR 202341001, the…
Breach of Contract as Theft Loss Tax Deduction
Many people have experienced the pain of an investment gone wrong. You put money into a business, loan funds to a friend, or participate in a real estate venture, expecting strong returns. But instead of profits, you end up suffering losses when the deal unravels. It leaves you wondering – can I at least deduct…
Accounting for Interest Deductions as a Tax Planning Option
Tax attorneys frequently come from an accounting background. This may seem like an unrelated skill, but it often plays a pivotal role in effective tax planning. The ability to navigate revenue and expenses and debits and credits not only ensures accurate financial reporting but also lays the foundation for strategic tax planning. Tax planning often…
Can You Still Owe Taxes on a Loan That’s 10 Years Old?
Our legal system allows people to move on from past obligations under certain circumstances. For example, people can discharge debts through bankruptcy, creditors have a limited amount of time to sue for unpaid debts, and even the IRS allows a fresh start for unpaid taxes. These laws strike a balance between allowing those who are…
Triggering Losses by Selling a Business: NQDC Example
Timing issues are one of the aspects of effective tax planning. There are scores of options for timing and tax deferral and recognition that depend on the taxpayer’s circumstances. For example, for corporate taxpayers, these timing issues may involve timing the receipt of income using the installment rules or the use of losses or foreign…
Tax Deductions for Non-Facilitating Costs for IP, M&A & Real Estate
One of the most common disputes between taxpayers and the IRS revolves around the question of whether certain expenses are deductible in the current year or need to be capitalized and recovered over time. This expense versus capitalization issue arises in various contexts. We have considered a number of these disputes on this site. It…