An IRS tax attorney is a lawyer who represents clients in numerous situations involving state and federal income taxes. IRS tax attorneys, in addition to being barred lawyers, are usually accountants as well. An IRS attorney will help a client with situations ranging from filing their taxes to representation against the federal government for violations of the tax code.
What situations will I need an IRS tax attorney for?
An IRS tax attorney may be necessary for a number of issues that involve representing a client who is being prosecuted by the government for tax evation, as well as those individuals, or entities, who wish to lower their taxable income.
The use of an IRS tax attorney is recommended in any situation involving taxes, even when you have done nothing illegal. An IRS tax attorney is, in many ways, a more specialized accountant. An IRS tax attorney can help you avoid tax liability by looking at you income, assets, and other financial data to determine how you should allocate your assets to best avoid specific tax liabilities.
Income taxes in the United States are a progressive tax. This means that an individual is taxed at a certain rate until they reach a specific level of income. For income that is made above that initial tax level the percentage of tax will increase for any amount above that level. This continues until an individual reaches the next tax bracket. As of 2011 these are the current income tax levels.
Gross Yearly Income Percentage of Tax paid to federal government
$0 – $8,500 10%
$8,501 – 34,500 15%
$34,501 – $89,600 25%
$89,601 – $174,400 28%
$174,401 – $379,000 33%
$379,001 and over 35%
As an example of the progressive tax in the United States let us assume that an individual makes $100,000 a year in gross income. For the first $8,500 the individual will be taxed at 10%. For amounts above $8,500 to $34,500 that person will be taxed at 15/%. For the next $55,099 that individual will be taxed at 25% and then at 28% for the final $10,399. By adding this all up the individual will be subjected to a total tax of $20,671.
One of the jobs of the IRS tax attorney is to help you put your assets in a certain way to avoid increasing your taxable income. As you can see from the previous example, there is a lot of money to be saved by adjusting your income in a way that will avoid your current tax liability. One of the main reasons to decrease your tax liability is called the “time value of money.” This essentially means that by avoiding paying taxes income now you will be able to invest that money in an asset that will produce higher gains than the eventual tax liability that the individual will be subjected to once they redeem that asset.
Some of the issues that an IRS tax attorney will deal with are capital gains, tax shelters, and estate taxes. Capital gains are a profit that results from investments in capital assets such as stocks, bonds and real estate. In capital gains assets, once you sell them, assuming that it increases your income, will be taxed as a capital gain. Before 2012 the capital gains tax is 0% for those who are in the 10% – 15% tax bracket. For 201 ordinary income tax rates apply. After 2012 long term capital gains tax rates will be 20%; 10% for taxpayers in the 15% tax bracket. The way this works is that the capital gains is treated as a lump sum amount. Your IRS tax attorney will be able to give you advice about how to properly handle your capital gains to avoid a high tax penalty.
One of the most popular forms of tax avoidance is through a retirement plan. When you invest in a retirement plan you invest your money in certain account that is not considered in your taxable income. For example, if you make $100,000 a year in gross income and you put $5,000 into your retirement plan it will effectively lower your taxable income to $95,000. This does not mean that an individual never has to pay taxes on that money. Once you are able to take the money out of your retirement account is when it will be taxed. This is advantageous for a number of reasons. First of all, you can decide to take the money out of your retirement account when the tax rates have been changed so that you are effectively paying a lower amount of taxes upon removal than if you never put the funds into the account. Secondly, upon retirement, most individuals will be in a lower tax bracket than when they were when they retired. This will automatically lower the amount of money that they would have to pay. Lastly, is the time value of money. As noted before, rather than paying taxes on that money now you can invest it in a retirement account that will allow you to gain interest at a higher rate than the tax rate.
Another major reason to have an IRS tax attorney is to deal with the estate tax. When an individual dies his entire estate is subject to an estate tax. This can be a devastating financial burden to many. One of the jobs of the IRS tax attorney is to help you allocate your resources into certain investments, non-testamentary assets, that will not be subject to estate taxes. These include irrevocable trust, life insurance, joint tenancies, etc.