Tax Resolution

Correcting Misconceptions About Capital Gains Tax

“The elimination of sanctuary cities, payroll taxes and perhaps capital gains taxes, must be put on the table,” President Donald Trump tweeted on May. 6.

The Democrats, led by House Speaker Nancy Pelosi, did not welcome the idea.

It might seem like a political issue, just something that the Republicans and Democrats just cannot agree with. However, some pundits are saying that the president’s statement was a product of misconception about the capital gains tax.

What the law says

The law provides that when an investor buys at a low price but sells the same property at a high price after a year, the long-term capital gain will be taxed at a rate that has been greatly reduced.

To put it into perspective, the rate of the tax for a top-bracket salary is 37%. However, the long-term capital gain is only taxed 23.8%. That is basically a discount of around 35%.

What would be the implication if Trump has his way?

The implication is that the wealthier individuals are again getting the better of the deal with the government. This is because the people who will enjoy the discount on the capital gains are wealthy individuals who can afford to invest on properties. Now, the president wants to remove that discounted tax altogether.

Basically, when Republicans claim to be lowering taxes, they usually mean lowering taxes for the wealthy. However, they also believe that such move would benefit the economy.

Taxing investment will not turn off investors

The biggest misconception about investment income is that when capital gain is taxed, people wouldn’t want to invest anymore. This is not the case especially with something crucial in terms of income and other related investment matters.

For example, what if the price of water goes up? Does this mean that people will stop buying water? No, it doesn’t. It may mean that people will be more circumspect about their water-buying practices compared to before, but they will still buy.

It’s the same with investment tax. Whether the rate is zero percent or 20%, people who have the money will still buy and sell properties.

There have been various technical models studied related to capital gains tax. The Atkinson and Stiglitz model, for example, was established in 1970. The model implies that capital income should not be taxed. However, the study was based on the premise of how much a person owes through wage and salary. The issue here is that it did not take leisure into consideration.

Another model looked into was the Judd model, which was tackled in the 1980s. It basically means the same thing that in the long run, the tax rate for capital should be zero. The model looks at economic growth over a long period of time.

The Judd model was analyzed to be faulty because it relies on the tenet that taxing investments will lower investments.

What happens now?

The debate between Republicans and Democrats continue. The public should listen to the arguments on how they would benefit whatever happens. In the end, the decision will depend on whether a Republican or Democrat controls the United States Congress.

Tax Resolution

What Is An IRS Wage Garnishment?

If you owe back taxes, the IRS is then authorized to seize your wages or properties and take a portion of your paycheck. However, to do this, strict guidelines must be followed. The IRS will get in touch with your employer and instruct them accordingly to take a portion of your pay.

Your employer will then send the money to the agency. The employer should comply with this right away or else the liabilities could be passed on to him or her. Understanding the rules of engagement with IRS wage garnishment will arm you with the knowledge to file for an appeal or even to stop it.

How Much of Your Salary Can the IRS Garnish?

If you fail to comply or resolve the issue upon receipt of the Notice of Your Right to a Hearing and Final Notice of Intent to Levy, the IRS will then proceed with garnishing your wages.

The IRS has the power to garnish bonuses, salaries, commissions, wages, and even your pension and retirement fund. The IRS will not just take out a specific percentage of your wage. It will instead dictate how much you would need and then garnish the rest. The IRS makes a decision based on a table that helps them to determine the amount that can levy from your salary for each pay period. The amount that is exempted from the IRS levy will depend on the standard deduction imposed on your pay as well as the number of dependents that you have. More so, your filing status, the number of exemptions you have as well as your payment frequency will help your employer determine the specific amount of money that you get from each pay period.

The amount that will be left in your paycheck would most likely be below your spending needs. As of 2017, single individuals with one exemption will be left with only $200 per week or equivalent to $866.67 monthly. Now, if you’re married and filed jointly declaring four dependents, then you get to keep $555.77 weekly or about $2408.33 monthly. So, with that in mind, any excess amount can then be taken by the IRS.

For instance, if you juggle two jobs and the other one covers your daily expenses, the IRS may take 100% of your salary from that other employment you have. Also, if your employer gives you a bonus, the IRS may also take that.

This levy stays in effect until you have completely paid off of your tax debt, or if you have made some arrangements or alternative payment options with the IRS. In the same way, the agency will also release or stop the levy once the statute of limitations imposed on collection is in place.

When Will the IRS Implement a Wage Levy and Garnish Wages?

Tax levy follows after a tax lien and when you have been delinquent in tax payments. There are some instances, though, that the IRS would skip the tax lien and rolls out the levy process right away.

A tax levy is the process wherein the IRS seizes your assets in order to satisfy tax owed. The IRS has the authority to collect from your wages, properties, Social Security benefits, bank accounts, property, commissions, retirement accounts, rights to property, and so forth. If you are working for an employer, IRS can go for a wage levy to garnish a percentage or all of your paycheck. In order to levy properties, paycheck, or any form of assets, the agency must adhere with the following rules and requirements.

The IRS has reviewed tax liability and sent taxpayer a notice to demand for Payment.

The taxpayer has refused or failed to settle taxes owed.

The IRS has forwarded you two notices – Notice of Your Right to a Hearing and Final Notice of Intent to Levy which must be sent to the taxpayer 30 days before the levy is in effect.

The IRS has two delivery options: send the notices via registered mail to your home address or employment address or deliver the notices by hand. Either way, once you receive the notices of Final Notice of Intent to Levy and Notice of Your Right to a Hearing, the IRS can now proceed to levy after a period of 30 days.

IRS Levy Exceptions that Do Not Provide a 30-Day Advance Notice.

The IRS will not always give you that 30-day standard notice to remind you of your right to hearing. They may move forward to levying your property or seizing your assets. Below are some scenarios that do not warrant any advance notices:

Jeopardy Levy .

In the event that the IRS feels tax collection activities are in jeopardy, then they can go ahead with levying your property without the need to send out a notice in advance.

A Disqualified Employment Tax Levy.

If in case you have already requested before for a collection due process hearing for employment taxes or payroll for a particular tax period in the last two years, then the IRS can proceed to levy for the other tax periods even without providing you any advance notice of such activities.

Federal Contractor.

Being a federal contractor, the IRS can automatically seize your assets or properties without any advance written notice.

State Tax Refund Levy.

The IRS can go ahead to levy state tax refund without providing you advance notice.

Requesting for an appeals conference at the earliest possible time or within the 30-day period can help deter wage levies or seizure of your assets

The IRS would rather not impose such wage levies because these activities are not cost-efficient. The IRS would rather use such as a threat to evoke action.

However, if all else fails and you do not file any dispute to challenge such levies then IRS will push through with levying your wages or properties.

In order to prevent this, it is advisable to request a free consultation from a licensed tax specialist to help you weigh your options before responding to a final notice.

A licensed tax professional can directly get in touch with the IRS to renegotiate and apply for the most suitable payment plan such as for hardship status or settlement; among others.

Tax Resolution

Justice Department Publishes Cryptocurrency Enforcement

For years, the government has been at a loss on how to regulate cryptocurrency. It seems like it is making some headway as Attorney General William Barr announced the release of “Cryptocurrency: An Enforcement Framework.”

This was released by the Cyber-Digital Task Force of the Attorney General. The framework tackles the challenges associated with cryptocurrency, which is a form of online exchange of payment. There is an emerging trend and the Justice Department realized that there are threats linked to the use of cryptocurrency in the market.

Among the subjects of the publication is the relationships that the Justice Department has with other regulatory and enforcement organizations in the U.S.

What will the Justice Department do in regards to the growing cryptocurrency? The strategies are indicated in the framework.

“Cryptocurrency is a technology that could fundamentally transform how human beings interact, and how we organize society,” Barr said about the digital currency technology. “Ensuring that use of this technology is safe, and does not imperil our public safety or our national security, is vitally important to America and its allies.” The framework created by the task force is one of a kind, said Barr.

There are worries that cryptocurrency is being used for criminal activities, which is why the government, for years, has been trying to study ways to introduce regulations for this tech innovation.

“At the FBI, we see first-hand the dangers posed when criminals bend the important technological promise of cryptocurrency to illicit ends,” said FBI Director Christopher Wray. “As this Enforcement Framework describes, we see criminals using cryptocurrency to try to prevent us from ‘following the money’ across a wide range of investigations, as well as to trade in illicit goods like criminal tools on the dark web.”

As an example, Wray talked about the ransomware attacks. This is when criminals hack a person or an organization’s data. They will either threaten to release the victim’s data to the public or block the victim from accessing their personal files unless they get paid, hence, the reference to ransom.

Wray explained that to hide their identities, the criminals will use cryptocurrency to purchase the malware and other tools to succeed in their ransomware intent. They will also ask that the ransom be paid through cryptocurrency so authorities will have a hard time tracing the money’s movement.

The FBI is working hard to find a way to evolve with the criminals. With the latter using cryptocurrency, the FBI has to be in step with them.

Assistant Attorney General for the National Security Division John C. Demers, who is also a member of the task force, said that the U.S. has been successful in curbing terrorists from funding violent activities using traditional money.

“As the Cryptocurrency Enforcement Framework explains, we will adapt our strategy and tools to 21st century financing, including to combat the use of cryptocurrencies to evade enforcement and harm our national security,” said Demers.

Authorities acknowledge the importance of cryptocurrency as it presents an innovative way to do business without leaving the house.

Task force member Brian C. Rabbitt, also the assistant attorney general for the Criminal division, explained that the framework provides critical information to the public so that they will understand and comply with the legal requirements to enjoy “fast-developing technologies.”

The Cryptocurrency Enforcement Framework opens with an essay penned by Associate Depute Attorney General Sujit Raman, the chair of the task force.

Part one of the framework presents the threat overview of cryptocurrency. The framework identifies three categories of criminal activities that are transacted through cryptocurrency:

  1. Financial transactions associated with the commission of crimes.
  2. Money laundering and the shielding of legitimate activity from tax, reporting or other legal requirements.
  3. Theft.

Part II cites the countermeasures to the criminal or illicit uses of cryptocurrencies. This part also highlights the collaborative partnership among the following agencies: Department of Justice, Securities and Exchange Commission, the Commodity Futures Commission, and agencies within the Department of Treasury.

The goal is to work together to enforce the law within the cryptocurrency space.

Part III is also the last part and it summarizes the government’s challenges and limitations when it comes to cryptocurrency enforcement.

The Cryptocurrency Enforcement Framework is the second comprehensive report from the Attorney General’s Cyber-Digital Task Force.

Tax Resolution

IRS Extends Economic Impact Payment Registration to Nov. 21

Good news to those who have yet to receive the Economic Impact Payment (EIP) as the deadline for registration has been extended to Nov. 21. 

The Internal Revenue Service (IRS) earlier announced the new deadline, which is five weeks later than the original schedule. 

People who haven’t received the EIP and typically don’t file tax returns are encouraged to register for it as soon as they can. They can use the Non-Filers tool on the, the official website of the IRS. This tool will no longer be available by Nov. 22.

“We took this step to provide more time for those who have not yet received a payment to register to get their money, including those in low-income and underserved communities,” IRS Commissioner Chuck Rettig said. 

The EIP is an aid authorized under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in order to help U.S. residents cope with the pandemic. Millions have already received such payments. The IRS usually calculates the EIP itself and automatically sends the payment to the constituents. 

However, there may be some who need to provide additional information to the agency as proof of eligibility. 

Non-filers portal

“The IRS is deeply involved in processing and programming that overlaps filing seasons. Any further extension beyond November would adversely impact our work on the 2020 and 2021 filing seasons,” continued Rettig. 

The portal for non-filers has been available since spring. Millions of Americans have taken advantage of it since then. Still, there are millions more that have yet to register. 

It should be noted that the extension is only for U.S. residents who don’t usually file a tax return. Also, those who have already received their EIP are no longer covered by this extension. 

Therefore, taxpayers who asked for extension of time to file their 2019 tax return do not have a Nov. 21 extension. Their deadline remains on Oct. 15.

The IRS and some organizations recognize that some of the U.S. residents eligible for the EIP may not speak English or may not understand it well. This is why partner groups have been coordinating with the IRS in order to make the EIP available to all those eligible to enjoy it. 

Some of these organizations translated the IRS information and EIP resources in 35 languages. There shouldn’t be any more excuse for the U.S. residents not to receive the payment. 

Further, the government agency also sent close to nine million letters to eligible people in September. These non-filers will receive $1,200 as mandated in the CARES Act. 

There is really no reason for the non-filers not to register as the process is so easy. 

“Time is running out for those who don’t normally file a tax return to get their payments,” said Rettig. “Registration is quick and easy and we urge everyone to share this information to reach as many people before the deadline. 

This is happening because there are people in the U.S. who have little or no income at all. These people don’t have to file a tax return. However, they are eligible to receive the EIP. 

In essence, taxpayers or those who file tax returns, automatically receive the EIP. But the IRS doesn’t have the basis to send the EIP to the non-filers. 

Non-filers need not worry as the tool is secure and is also under the Free File Fillable Forms in accordance with the Free File Alliance’s grant of free products on the

The tool was also designed for people who have an annual income of $24,400 and below for married couples. For singles, the cap is $12,200 in annual income and only if the singles are not dependents of someone else. That would include individuals and couples that are homeless.

People may receive the EIP through bank deposit or through a check. They only need to choose the right option on the Non-Filers tool. Getting it through direct deposit is faster. 

For those who have already registered, they can track the status of their EIP through the Get My Payment tool that is also available on the website. 

Tax Resolution

Working From Home? Consider Home Office Deduction!

Many people have been relegated to a work-from-home situation, while others didn’t have a choice. Since the coronavirus pandemic started, many people lost their jobs while some companies had to adapt to the challenge by implementing a work-from-home order for a lot of people.

There is still no vaccine or cure for the coronavirus, so it’s hard to go back to normal. As such, people and companies have to embrace the new normal.

Now, for people working from home, there is a home office deduction that they could avail themselves of. The Internal Revenue Service (IRS) itself made the reminder during the Small Business Week, a regular conference that was virtually done this year from September 22 to 24.

What is the home office deduction? It is a tax relief that can be imposed on the tax returns of people working from home by deducting certain expenses. Unfortunately, this could not be enjoyed by people who are considered regular employees. This tax feature is only for those in the gig economy.


There are two basic requirements for people to enjoy the home office deductions:

  1. The taxpayer uses part of their house exclusively for work or to do business with clients.
  2. The house is the person’s main business area.

What does it mean when it says that part of the house should be used for business? For one, it should be the main area where business deals are made and when work is actually done. It could also be a separate structure from the house as long as it’s a place where the taxpayer does business. The same area, which is used as an office, should also be where documents like inventory and products are stored.

Now, the term home deduction is used. But what constitutes home? It’s a taxpayer’s lair of course, so it could be a house, apartment, condominium and even a mobile home like an RV or even a boat. Everything that is part of the property can be considered a home. For example, for those living in a house, the entire property might have a garage or barn or greenhouse. These are still part of the home.

Deductible expenses

So, what are the things that could be used as deductions in the tax returns? Taxpayers can deduct certain expenses for that area of the home that is used for business. That includes the following:

  • Real estate taxes
  • Rent
  • Utilities
  • Insurance
  • Casualty losses
  • Mortgage interest
  • Maintenance
  • Repairs
  • Depreciation

A taxpayer may claim the deduction via a regular or simplified method. The regular method allows the taxpayer to divide expenses of the house between personal use and business operations. The simplified method, on the other hand, imposes a rate of $5 per square foot of the area of the home used in business. There is a maximum deduction of $1,500.

There are also cases when part of the home is used for short-term rentals or as a daycare facility. When it comes to operating a daycare facility, the taxpayer may be able to claim a deduction for a space that is used for both the daycare and personal activities. In this case, the home or business should have the appropriate papers to indicate its role as a facility.

Tax Resolution

California Tax Changes During the Pandemic

The world is still in the midst of the coronavirus pandemic. It has been a few months now and some countries are still grappling with the effects of COVID-19. What makes the COVID-19 worse than any other illness is that there is no vaccine yet and there is no cure. 

However, the effects of COVID-19 are not limited to health. There are also economical, emotional and psychological effects. But let’s focus on the economic effects. Many people lost their jobs. So, how can these people buy food and pay their rent?

The role of the government is to ensure that disadvantaged people will have help. In this case, everybody is disadvantaged. The 116th Congress then passed the aptly named CARES Act (Coronavirus Aid, Relief, and Economic Security Act), which gave Americans some sort-of allowance to help them out during this trying time. 

Another legislation, the Families First Coronavirus Response Act, complemented the CARES Act. This was mainly for paid sick leave for people who may be affected by the coronavirus. 

Now, some states passed their own complementary legislations. But what about California? The state imposed some new tax changes of their own, but didn’t pass anything new. Still, these changes allowed families to cope with the pandemic better. 

Tax changes

In California, the Net Operating Losses (NOLs) are suspended for three years—from January 1, 2000 to December 31, 2022. 

There were some exemptions to the suspension though. For one, taxpayers whose personal income tax if net business income or modified gross income comes out less than $1 million. The same could be said for those with corporate income tax if business income subject to California taxation is also less than $1 million. 

Now, there may be NOL or NOL carryover that will be disallowed because of the suspension. What happens then? A maximum of 20-year carryover period will be extended by three years for NOL that occurred before 2020. An extension of two years will be imposed on NOLs that happened in 2020. Meanwhile, a one-year extension will be given to NOLs that incurred next year. 

There are also some changes to the business credit limit.

For the same taxable years mentioned in the NOL, business credits in California may not reduce tax by more than $5 million. This limitation may cause some credits not be used. In this case, the carryforward period will be increased. By how much? It will depend on the number of taxable years the credit, or a portion of it, was not allowed. 

Changes were also made for first-year LLC and LP tax exemption. Using the same time period of taxable years, there will be a new first-year exemption starting from the $800 tax on LLPs and LPs that filed a certificate of limited partners or at least have registered with the Secretary of State. The same could be imposed on LLCs that registered with the Secretary of State. 

An exemption of such nature was previously only applied to corporations. 

You know what this implies? If at all possible, taxpayers who want to form a new LLC or LP should wait until 2021 to start their business. 

Tax Resolution

Are You Eligible for Interest Check This Year?

Taxes should be filed on April 15 of every year. However, because of the COVID-19 pandemic, it was understandable that a lot of people failed to file their taxes on time.

The Internal Revenue Service (IRS) moved the due date this year to July 15 to give way to those affected by the pandemic. Those who filed their taxes after April 15 are in luck because they would be getting extra money from the government. It is referred to as an interest check.

Let’s discuss this unusual extra money this year: Every year, the IRS has to pay interest on refunds because the federal government takes some time to actually process them. The IRS admitted that as of June, it has a backlog of 4.7 million returns.

According to the IRS, the accrual period for this interest check will start on April 15. This means that if you filed your tax return later, then you are going to get an interest check. The interest payments will or might be sent as a separate check from the actual refund. Of course, with the backlog, you might receive your refund later. This means additional interest.

Stimulus payment

Note that this is different from the stimulus payment from the government. The Coronavirus Aid, Relief and Security Act, which is wittily referred to as the CARES Act, is a law signed by President Donald Trump to give financial assistance to the millions of Americans affected by COVID-19.

Don’t be confused considering that the stimulus check is also issued by the IRS and is based on a person’s adjusted gross income. If you already received a stimulus check, then expect another check coming. Of course, that is granting that you are eligible for it.

If you are a taxpayer who didn’t receive a refund by April 15, then the months that you didn’t get it will incur an interest. The total amount of the interest will be sent to you as a second check.

Wondering how much you will get?

The IRS will pay an annual interest of 5% that will be compounded each day until June 30. By July 1, the interest rate would have decreased to just 3%. What would this entail? This means that for every $1,000 that should have been refunded to you, you will get 14 cents as interest every day from April 15 to June 30. This would decrease to just 8 cents every day starting on July 1.

The IRS, though, is yet to announce the date of the release of the interest checks. It is hoping that it will be out later in the summer.

Of course, the interest is taxable. It will be part of your taxable income in your 2020 tax return. At least, it will be available at a time when a lot of people really need the money. COVID-19 affected a lot of people and not just in terms of health. A lot of people also lost their jobs while some experienced shorter work hours.

Tax Resolution

Offer In Compromise & COVID-19

The novel coronavirus (COVID-19) has resulted in a serious plunge in America’s economy. According to the advance estimate of the Bureau of Economic Analysis, the real Gross Domestic Product (GDP) dropped at an annual rate of 32.9 percent in the second quarter of 2020 the worst ever recorded in history.

The Labor Department reported that unemployment insurance claims totaled 17 million ending July 18, 2020.

In response to the alarming effects of the COVID-19, the Internal Revenue Service (IRS) had made some adjustments in Offer in Compromise (OIC) which took effect until July 15, 2020.

The IRS provided below Frequently Asked Questions on the OICs: 

Q. What about taxpayers trying to apply for an Offer in Compromise (OIC)?

Taxpayers may still submit an Offer in Compromise if paying the full amount will trigger a financial hardship on their end. The OIC Pre-Qualifier tool must be considered before submitting an offer. 

There are other payment options that can be explored: Installment Agreement and a temporary delay in the collection process. Taxpayers who are amenable to using the payment plans can do it via the IRS online application.

Sending mails to the IRS is being discouraged. However, if a taxpayer receives a returned mail from the US Postal Service, he or she should keep a copy of the returned offer and resubmit it once the IRS is back to accepting OICs.

Q. What is the status of Offer in Compromise payments? 

Taxpayers with pending or accepted offers are encouraged to continue making the required payments. Temporary relief is available for those affected by COVID-19.

Offers Under Investigation: 

If a taxpayer skipped payments between March 25 through July 15, 2020, while his or her application is still under investigation, the taxpayer must resume the payments after July 15, 2020. Once the offer has been accepted, the taxpayer’s offer will be amended, which will allow him or her to settle the missed payments.

Already Accepted Offers: 

If the taxpayer is still incapable of paying the skipped payments and also the agreed amount in their accepted offer because of COVID-19 hardship, he or she must contact the IRS through its phone number.

Q: What should I do if my OIC is under consideration and I received a request for documents, payments, or non-filed tax returns prior to the end of the suspension period (July 15, 2020)?

Taxpayers must provide the requested information to have their OICs approved even if the suspension period is over. Those who are unable to submit the documents or returns must contact the IRS employee found on the correspondence

The Offer in Compromise is an agreement between the IRS and the taxpayer that allows the latter to pay the tax debt for less than the amount owed. The OIC is usually offered to those taxpayers who are unlikely to pay the full amount and will experience more serious financial burden.

The goal of the OIC is to collect the amount at the earliest possible time. Those months of lockdowns and quarantines have obviously crippled a lot of businesses in all sectors and also the workforce, making it more difficult for some taxpayers to settle their tax debts.