When Do I Need a Tax Attorney?

Two people who sit together are reading a document to determine whether they need a small business tax attorney

Tax challenges, audits, and complexities in determining the tax liabilities for your small business are some of the most common reasons for working with a qualified tax attorney. However, there are many other circumstances in which you can benefit from a small business tax attorney’s knowledge.

In this article, we’ll cover some of those circumstances, and we’ll help you find an attorney who can help you with the challenges you face.

 

When do I need a tax attorney?

You may need a tax attorney in any of the following scenarios:

You are starting a business.
Tax attorneys can help you understand the tax implications of every business structure you may consider. For instance, an attorney can help you compare the ramifications of choosing to organize as a C-corporation, an S-corporation, a partnership, or a sole proprietorship and understand how your business or personal tax situation may change with each option. Further, they can help you navigate through—and guard against—future tax concerns you may face.

 

Read: Where to Start When Starting a Business

You are beginning to accept work in other states or countries.
If your business is expanding to new locations or is accepting orders from clients in other states or countries, a tax attorney can help you understand the tax registration processes you must follow, your new tax liabilities, whether reciprocities exist across jurisdictions, and whether you need to rework your contracts or policies to protect your business.
You plan to buy a business.
A tax attorney can help you understand the tax considerations you should keep in mind when acquiring an existing business. They may recommend restructuring your business to a more tax-advantaged structure or counsel you to categorize purchases as ordinary income rather than capital gains, which can help you realize some important tax advantages.

 

Read: The Fundamentals of Buying a Business

You owe back taxes.
Most business owners owing back taxes can arrange repayment plans without a tax attorney’s help. The IRS website makes it relatively simple to set up monthly installment payment plans. However, if you owe a significant amount of money, you may want to work with a tax attorney who can help you arrange an “offer in compromise” to pay less than the full amount of taxes, interest, and penalties that are owed.
You need to appeal the findings of a federal audit or negotiate a payment plan.
In most cases, your accountant can help you work through the complexities of a federal audit. However, if the IRS finds that your business owes a substantial amount of money, you may wish to work with a tax attorney who can either help you appeal the audit or arrange a financially feasible plan for repayment.
You have been accused of a tax-related wrongdoing.
Actions such as claiming deductions or credits your business wasn’t eligible for or underestimating the income it earned can be difficult to defend alone. If the IRS is investigating your business for a tax crime such as fraud or evasion, you will need to work with a tax attorney who can help you defend your business and the people who represent it.
You are preparing to sell your business.
Similar to buying a business, there are tax concerns you’ll want to keep in mind when you go to sell. A tax attorney can help you work through those concerns, which may include closing state tax accounts and handling the distribution of assets, and they may discuss treating your asset sales as capital gains to help you realize some tax savings.

 

Read: How to Reduce Your Tax Liability When Selling Your Small Business

You want to work through the tax concerns of passing assets to your heirs.
After exiting your business, you may want to work with a tax attorney and an estate planning attorney to reduce your estate’s tax liability. Both attorneys may recommend strategies to stay below the federal threshold, set at $11.58 million in 2020, and any relevant state exemption thresholds.

 

Read: Strategies Every Business Owner Should Consider to Reduce Estate Taxes

 

Can my accountant handle these issues?

Highly qualified accountants, including those holding a CPA designation, can help with many of your business’s tax-related issues. With more than 150 hours of formal education, intensive assessments, and rigorous commitments to continuing education, CPAs have the experience and knowledge that’s required to work within federal and state laws to help you reduce your tax liability and navigate thorny tax concerns such as audits.

 

Read: Thinking of Hiring an Accountant? Start Here.

 

More complex matters require a tax attorney’s help. For instance, if you are facing allegations of fraud, receiving debt collection notices, dealing with tax collection agents, or about to receive a levy on your business’s bank account or personal wages, you should connect with a tax attorney who has experience in dispute resolution. Additionally, if you would like counsel on tax planning, minimizing tax burdens, or avoiding future tax issues, you should opt for a tax attorney rather than a CPA to address your needs.

 

How much does it cost to work with a tax attorney?

Payment is a huge consideration, especially for new entrepreneurs and owners facing hefty tax bills. Most charge rates of at least $200 per hour. Some of the most experienced and most highly esteemed attorneys charge rates that exceed $500 per hour, especially in certain large metropolitan areas.

Be sure to ask any attorneys you consider about their preferred payment arrangement and whether they offer any of the following payment structures that could help you minimize or defer your legal costs:

Flat fee. Your attorney may offer a flat rate for certain tax-related tasks, such as advising on a business structure or offering consultations.

Discounts for multiple services. Your attorney may offer you a reduced rate for committing to using the firm for other legal needs.

Contingent fee. Your attorney may be open to receiving payment upon the completion of your audit appeal (or after another specific event takes place) rather than paying as services are provided.

 

The attorney you choose may require an upfront payment or retainer. The retainer can be refunded if the value of the service provided is less than the retainer value, and you may be billed for additional costs that exceed the value of the retainer.

If you can’t afford a tax attorney and operate a sole proprietorship or another business structure that enables you to file your business taxes with your personal taxes, you should look into working with the IRS’s Low Income Taxpayer Clinics or a local legal advocate that provides free or reduced-cost legal services. Take note that their chief focus is on individual taxpayer needs, so the legal practitioners staffing the clinic may not be as well-versed in business taxation issues.

 

How can I find a great tax attorney?

Your tax attorney will play a critical role in the tax concerns of your business, so you must be diligent in choosing one that’s right for you. Start by locating multiple attorneys who have experience with the matter you’re facing and arrange a free in-person consultation.

Would you like to connect with a tax attorney who is familiar with your state’s tax code? Click the button below to get started:

Some tax attorneys are also CPAs. Though they’re often more expensive than others in their field, they offer a unique blend of knowledge that can be tremendously helpful in navigating tax complexities.

When you meet, ask about their experiences, strengths, and styles of communication. The following questions can help you gauge their knowledge and expertise with small business issues:

  • What is your area of expertise with small business taxation issues?
  • Are you able to provide basic small business tax guidance?
  • Do you have experience negotiating with the IRS or arranging offers in compromise?
  • Can you help me work through tax planning concerns and minimize my future tax liabilities?

 

Then, ask about their practice, availability, and style of communication:

  • Who are the members of your legal team, and who will be handling my requests?
  • Would you be able to refer me to another lawyer if an issue emerged that fell out of your realm of expertise?
  • What is your fee structure?
  • Will you have any conflicts of interest in taking on my business?
  • Will you be willing to communicate with me through my preferred medium (in-person meetings, phone calls, or emails)?

 

Pair what you learn with online reviews, verification of licensure, a review of the attorneys’ websites, and web searches to ensure you have enough information about your attorney candidates to make an informed selection.

 

Can a tax attorney handle other business-related matters?

Tax attorneys can be invaluable members of your team, but they’re not the only attorney you’ll need to help your business thrive and endure through challenges. Depending on your business structure, needs, and goals, you may need to find attorneys who can help you with employment agreements, basic terms and conditions, environmental matters, franchise law, acquisitions, or bankruptcy, to name a few. You can connect with attorneys with these specialties by clicking the button below:

 

What’s next?

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