Are you a sole proprietor or business owner? Have you ever thought of hiring a tax attorney?
You have worked hard to start your own small business. You won’t feel pleased, if your efforts were to go to waste, right?
That’s the reason your business needs a tax attorney. Many sole proprietors and business owners don’t think about hiring a tax attorney or a tax lawyer. You may be hesitant to hire one, but hiring a tax attorney or tax lawyer can be one of the wisest things for your business.
Many of you may think that all you are an accountant in the tax season, but that may not be a good decision. ‘Why?’, you must be thinking. So, here in this post, we will talk about why it’s good to have a tax attorney and how to choose one.
What Are Tax Attorneys
Before we talk about why you need a tax attorney, let’s discuss what exactly is a tax attorney.
A tax attorney is like a tax professional who specializes in the interpretation and application of tax laws and policies. Tax attorneys can offer you a wide range of services and that includes preparation and filing of your taxes.
Tax attorneys guide and advise clients on different tax topics. They help their clients navigate and comply with the complex tax law and how to legally take advantage of the deductions, exemptions and credits. They can also represent their clients in the tax court relating to any tax disputes.
Tax attorneys advise clients about the tax implications of estate planning, undoing property liens and acquisitions, business transactions, and the different structures of businesses.
Many tax attorneys are also Certified Public Accountants (CPA). Tax attorneys who are also CPAs are ideal for situations that involve both complex accounting and legal tax matters.
Benefits Of Having A tax Attorney For Your Business
Here are reasons, why you should get a tax attorney or tax lawyer for your business:
1. Prevent Legal Mistakes
As a sole proprietor or a small business owner, you can make a lot of mistakes unknowingly. Sometimes, these kinds of mistakes can result in a lot of pitfalls and can even act as a stumbling block in your business journey. A tax attorney can help you avoid such mistakes. This will help you save a lot of time and money, at the same time, get you complete peace of mind.
2. Protecting Your Intellectual Property
Many startups and businesses start because they’ve created a product or service that is new and unique to them. You need someone to help you apply for a patent or trademark to make sure your trade secrets and copyrights are confidential.
The worst thing that can happen to you is a copycat business opening and discovering you inadvertently made a mistake that allows them to steal your intellectual property. There are also other aspects of your business that need protection, for example, your business name, logo design or your business taglines.
A tax lawyer keeps you safe from copycats trying to steal your hard work. If you discover someone using your name or products, a tax lawyer knowledgeable in business law can help you sue them to stop selling the product and introduce legal action if they don’t.
3. Tax Payment When They Come Due
One of the most obvious benefits of having a tax lawyer for your business involves telling you when and how to pay taxes as they come due. The amount and types of taxes you have to pay will depend on factors like the scale, type (sale of goods or services), size and location of your business. Often, you may even have to pay some taxes like an employee tax, every quarter even though you do not have any employees working under you.
However, a tax lawyer can advise you on how to file and pay state and federal taxes, along with taxes that are charged by the municipal corporation, county, or city where your business is located. Lawyers can also advise you, what tax documents to use and file and what verification will you have to submit along with your business’s tax returns.
Another benefit of hiring a tax attorney is knowing when to file and pay your taxes. You might owe them every quarter, or the Internal Revenue Service (IRS) may allow you to pay them annually. Your tax attorney will tell you what the deadlines are for filing and may help you obtain an extension if you require so.
4. Avoiding Penalties And Interests
As I mentioned above, a tax attorney can help you with getting an extension for tax filing or payment and tax laws related matters. Obtaining a tax-filing extension for your business can be important if you want to avoid costly Internal Revenue Service (IRS) penalties and interests on your tax debt.
If you fail to file a tax return on time or leave out crucial information on your tax returns, this could delay the processing of your taxes. Because of this, you could incur fines or penalties, and additional interest on what you already owe to the Internal Revenue Service (IRS).
When you have a tax attorney, you can get the help that you would require with filing on time and submitting all of the documents required to prove your income and expenditures. Your tax attorney can also act as a link between the Internal Revenue Service (IRS) and you.
Tax attorneys can answer letters and phone calls from the Internal Revenue Service (IRS) and handle any tax disputes or tax controversy that might arise with tax authorities and potentially end with you being fined or penalized.
5. Tax Deductions And Exemptions
You as a business owner have the right to claim tax exemption and tax deductions, which you are legally entitled to take. Even so, you might not be fully knowledgeable about what they are and how you can claim them on your tax return. That’s why you need the help of a tax attorney to take advantage of the many available business deductions and exemptions. A tax attorney can help you optimize your deductions.
Tax lawyers can identify what exemptions and deductions you can claim and make sure they are utilized lawfully. Some of the expenses you can deduct from your taxes include:
- Plant and machinery purchase
- Capital expenditure u/s 35AD
- Equipment purchases
- Insurance Premium
- Employee benefits like bonuses and commission
Your tax attorney would also make sure that you do not claim expenses like:
- Income taxes
- Traffic tickets
- Payments in cash except for some exceptions
- Payments in the form of interest, royalty etc.
- Personal expenses
- Expenses are used to determine the cost of goods sold
These deductions are disallowed for you to claim. Tax attorneys can help you make sure they are omitted from your returns.
6. Handling Business Contracts
Tax lawyers can be valuable allies when it comes to handling business contracts. For example, if you want to negotiate new contracts for your business, you might want your tax lawyer to review them to make sure you avoid taking on useless expenses.
So, if you have plans to renew or modify your contracts relating to your business, you should let your tax lawyer check them before you sign any of them. Their assistance can help you avoid taking on a tax burden you cannot afford and cannot escape because of the legalities found in the contracts.
Tax attorneys can also come in useful if you plan on acquiring or selling a business. These transactions most of the time come with taxation implications for you as the proprietor or business owner. Your attorney can help you make sure your tax burden is low and you avoid taking on a tax debt that legally belongs to the other party in the transaction.
7. Tax Planning
A lawyer with a taxation background can also help his/her clients with tax planning and tax representation. The most difficult part of being a small-business owner is to defend themselves against tax litigation and complicated tax situations, which they can often avoid if they would use tax lawyers from the start.
The tax attorneys can help you design an optimal tax plan to minimize or even eliminate taxes for your business.
8. Defending Your Case
There are many cases when a businessman is suspected of breaking a tax law. So, what would you do in that case, well obviously hire a lawyer. But not all lawyers are helpful in taxation related matters. That is why, one should look for a tax lawyer, in such cases.
Sometimes, the mistake can be intentional, whereas it can be unintentional because of a lack of knowledge or some error or omission. But in case you do one of the following, these actions will be considered illegal:
- Making false entries or keeping two sets of books.
- Hiding or undervaluing your income.
- Claiming false deductions or exemptions, using false evidence.
How To Select A Good Tax Attorney
What to look for in a tax attorney? Here are some things you should watch out for while hiring a tax attorney:
Clients should insist on seeing and verifying attorneys’ licenses before hiring them. Every attorney ought to have a law license to practice law. You can also verify whether a tax lawyer has a license to practice law in your city and state by searching your state’s bar association website.
Signs of advanced education. In many places, you should be a graduate of law school to get a law license. Some tax attorneys have a master’s degree in taxation. Nowadays many tax attorneys also have a CPA license, which means they can also work as certified public accountants. Lawyers who are also CPAs, are more helpful and preferred in many cases.
Tax attorneys who handle Internal Revenue Service (IRS) related issues and tax controversies are familiar with the agency’s inner workings. Interacting daily with tax practices and IRS offers gives them unique insight in handling a variety of issues. Clients should consider these experts as great assets.
Many of these lawyers have websites. Doing thorough research on such sites can reveal their experience levels, office location, licensure, and many other important details about potential lawyers available for you to hire.
Analyzing customer reviews of the prospective attorney is also crucial. Customers who have received their legal services usually leave their comments on online sites.
Preparer Tax Identification Number (PTIN)
Anybody who prepares tax returns for their clients in exchange for compensation must have a Preparer Tax Identification Number (PTIN). The preparer must sign your tax return and provide a PTIN.
Consider Professional Organization Lists
Tax Law Association and the National Association of Tax Professionals are some organizations that provide important lists of tax lawyers or attorneys. The associations only register lawyers who are qualified, experienced and reputable lawyers. Their websites contain directories, which provides the searches that help people find experts who handle specific legal and tax issues.
How Much A tax Attorney Costs
Usually, legal work isn’t cheap. The attorney’s length of experience also affects the figure to move higher or lower.
In general, tax attorneys usually charge either an hourly rate or a flat fee for providing their services.
Flat fees are a one time charge regardless of how many hours the lawyer spends on your tax case. Not many attorneys use flat fees, occasionally, on simple or routine matters.
The majority of tax lawyers charge by the hour. Every attorney charges a different hourly rate, but most rates are between $200 to $400 per hour. Highly experienced attorneys or attorneys working in big firms in large cities can charge more than $1,000 per hour.
Which is better? Well, it depends on the total cost as well as the qualification and experience of the attorney.
How To Get Free Legal Help
You might be able to get low cost or sometimes free help from a tax attorney or lawyer by visiting a low-income tax clinic, known as a Low Income Taxpayer Clinics (LITC), in your area (if there is). Low-Income Taxpayer Clinics (LITC) represent people who are small businessmen or sole proprietors who have income below certain levels and who need to resolve complicated tax situations with the IRS. Low-Income Taxpayer Clinics (LITCs) can represent clients in auditing the books of accounts, appeals and tax collection disputes before the IRS and in tax court.
LITCs also provides information about taxpayer rights and responsibilities in many languages for those individuals who can speak English as a second language. Low-Income Taxpayer Clinics (LITC) can also help people respond to IRS notices or fix account problems. To locate a local clinic, you can use the Taxpayer Advocate Service website.
So, if you are a small business owner or a sole proprietor, try to hire one. It can be helpful for your business and yourself.
Read more articles on our website.