Florida Tax Attorney Blog

Whether Florida attorneys' fees are deductible depends on the nature of the underlying claim. If the character of the claim brought is for business purposes, the fees are deductible; if the underlying claim is personal, the attorney fees are not deductible.

To recover attorneys' fees from the opposition, the prevailing party must show that the underlying claim was business related. Otherwise, the attorneys' fees are not deductible. Additionally, the ruling in Commissioner v. Banks, clarifies that even if such fees are deductible, they qualify as itemized deduction, and as such, are subject to the 2 percent floor, mandated by I.R.C. Section 68. 543 U.S. 426 (2005).

However, as part of the American Jobs Creation Act of 2004, Section 62(a)(20) was implemented which allows for attorneys' fees incurred in connection with any action for unlawful discrimination to be deducted. Additionally, this section provides that attorneys' fees incurred for this specific purpose are not considered itemized deductions that would be subject to the 2 percent floor.

Continue reading "Are Your Florida Legal Fees Deductible?" »

In today's society, many Florida taxpayers do not file their tax returns simply because they cannot pay their taxes. However, one of the most serious offenses an individual can commit, with respect to the IRS, is failure to file a tax return. Under Title 26 of the United States Code, Section 7203, it is a federal crime or offense for anyone to willfully fail to file a federal income tax return when required to do so by Internal Revenue laws or regulations. A person's willful failure to supply information or pay tax is also punishable as a crime under Section 7203. In some cases, a person convicted of these crimes may be imprisoned for up to 5 years.

In addition to the risk of criminal prosecution, there are severe civil penalties that are imposed for failure to file a tax return. For example, the failure to file penalty pursuant to Section 6651 is assessed by the IRS at a rate of 5% per month or partial month up to a 25% maximum. The failure to pay penalty is assessed by the IRS at a rate of 0.5% per month or partial month up to a 25% minimum. If both the failure to file and failure to pay penalties are assessed, the failure penalty is reduced by the failure to pay penalty. Hence, penalties are greater when a taxpayer fails to file versus when a taxpayer fails to pay.

Similarly, as mentioned above, there are serious underpayment penalties to taxpayers. One example would be criminal fraud, which is your basic example of tax evasion. This can result in imprisonment, fines, or both. Another example would be civil fraud, where the taxpayer fraud does not rise to the criminal fraud level. If this happens, the penalty can be up to 75% of the portion of tax underpayment which is directly linked to the determined fraud. Moreover, there are penalties for frivolous returns. A frivolous return is where the taxpayer omits or is incorrect with respect to information which is required to determine the taxpayer's tax liability. This can result in a penalty for $500 dollars for each and every frivolous return that is filed with the IRS. Furthermore, in the event a refund is owed to the taxpayer, this refund may be given up if not claimed in time (a specific example of this would be the earned income tax credit).

Moreover, interest on underpayments run from the due date of the tax return, i.e. April 15th of the given year. In other words, taxpayers can expect to pay a lot more than they owe to the IRS once interest accumulates. For example, the interest on unpaid balances is around 4% annual interest on unpaid balances. Interest is updated on a quarterly basis, so this number can fluctuate dramatically.

Continue reading "Death and Taxes in Florida: What Happens When You Don't File Your Tax Return?" »

According to IRS Tax Tip 2011-21, if a taxpayer itemizes deductions on a Form 1040, a taxpayer may be able to deduct his or her expenses paid in the year 2010 for dental and medical care expenses. This would include dental or medical care expenses paid for the taxpayer, the taxpayer's spouse, and the taxpayer's dependents. For instance, taxpayers may be able to deduct medical care expenses only if the "total" medical care expenses for the year "exceed" 7.5% of total adjusted gross income (AGI).

It is important to note, however, that a deduction is only allowed for medical or dental expenses when they are "primarily paid for the prevention or alleviation of a physical or mental defect or illness." In other words, medical care expenses generally include payments for "the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body." Similarly, only prescription drugs are deductible when, except that insulin prescriptions are nondeductible.

In addition, a taxpayer, in formulating his or her tax return, may only include medical expenses that are "actually" paid during the year, reduced reimbursements from insurance companies or other like entities. This rule applies regardless of whether the reimbursement is paid to a doctor, hospital, or other like person or entity. Likewise, transportation costs may be deductible as a "medical expense" if they can be linked to being necessary for medical care. For example, things such as transportation by a bus, ambulance, car, taxi, helicopter, and the like may be deductible as a "medical expense." Specifically, in using a car for medical transportation, a taxpayer may be able to deduct "out-of-pocket expenses" which include, but are not limited to, gas, oil, tolls, and parking fees.

Furthermore, taxpayers may include "qualified medical expenses" for the taxpayer, the taxpayer's spouse, and the taxpayer's dependents, which generally also include a person a taxpayer claims as a dependent under a "multiple support agreement." In addition, a taxpayer may be able to deduct medical expenses for a child if either parental taxpayer claims a child as a dependent under that state's standard rules for divorce.

Furthermore, "medical expenses" may also possibly be deductible if the person would have qualified as the taxpayers dependent but for the fact that the dependent did not qualify under the joint return or gross income tests. Finally, it is important to note that withdrawals from Flexible Spending Arrangements, as well as distributions from Health Savings Accounts, may be tax exempt under certain situations.