FAQs

Tax Planning

When is a tax attorney’s advice helpful?

Almost all business transactions and real estate transactions have income tax consequences. Important questions include: Is there a gain or loss? Is my gain ordinary income or capital gain? Is the income active or passive? Similarly, gifts between family members and the death of an individual may trigger gift tax or estate tax liabilities and will certainly have income tax consequences. A qualified tax attorney can guide you through the tax law as it applies to your situation.

What are the tax consequences of my real estate transaction?

Owning, operating, or developing real estate brings with it special tax planning opportunities. Losses from operating rental real estate may or may not be deductible against other income, depending on the sources of the income and the level of income earned by the taxpayer. Developers of real estate can dramatically change their tax results by careful tax planning before buying the first tract. Similarly, a sale of investment or business real estate is the time for tax planning. Should you take all cash and pay tax on all of your gain or should you engage in a like-kind or Section 1031 exchange to avoid current taxation (in whole or in part) and reinvest your proceeds in other real estate? Should you use the installment sale rules, or even consider one or more charitable trust vehicles? Tax planning in advance of the sale will help you make the best business and tax decision.

I received a sizeable gift – how do I determine the tax implications?

With proper planning, the tax law provides a number of opportunities for reducing or eliminating any gift or estate taxes, especially if you start planning early and implement your plan over time. Part of any good estate plan for individuals with assets (including life insurance and retirement plans) worth over $5,250,000 is evaluation of the tax consequences and deciding whether steps are necessary or advisable to reduce the estate tax. Proper planning will allow you to make an educated decision about what steps make sense for you.

How is business entity selection relevant to taxation?

Tax planning includes choosing what sort of business entity (if any) to form. For example, a C corporation pays its own income taxes; its shareholders owe no tax on its earnings unless and until dividends are paid.  In contrast, an S corporation, a partnership or an LLC will generally be treated as a pass through entity. Owners of these entities will owe taxes on the profits of the business whether the profits are distributed to them or not. Similarly, if a business suffers taxable losses, a C corporation can use its losses to reduce its tax liabilities (through so-called loss carrybacks or carryforwards), but its shareholders generally receive no benefit from current tax losses. If, however, the business is operated by a pass through entity, the owners may be able to offset their losses against income from other sources (subject to a number of possible technical limitations). Good tax planning explores all of these options before creating the entity.