Latest Federal Tax Overhaul: What CA Business Owners Need to Know

The One Big Beautiful Bill was recently signed into law by President Trump last week on Independence Day and many are curious as to what this entails for Americans. According to White House.gov, this newly enacted law is set to benefit middle and working class Americans who make less than $50,000 per year, making it one of the largest tax cuts in history. For context, this bill proposes approximately $4-4.5 trillion in tax reductions over the next decade, extending the 2017 Tax Cuts and Jobs Act (TCJA). Generous provisions to include elimination of taxes on tips, overtime, and social security. Moreover, increased child tax credits and standard deductions, aimed at positively impacting an estimated 40-million families, while providing relief to seniors, throughout the U.S.

There are also significant provisions, within this bill, that are designed to stimulate small business growth and will attempt to curve operational burdens for pass-throughs, tipped workers, and family-owed companies. Business owners may continue to deduct up to 20% of net income (Quality Business Income Deduction) under IRC § 199A as it relates to income thresholds and SSTB limitations. Under this new bill, businesses might also be eligible to fully deduct qualified capital expenses (equipment, vehicles, software) in the year where these items were first used by the business. In addition, businesses may find more flexibility to invest without complex depreciation schedules as the limit for expensing smaller equipment and software will increase significantly. For service industries, such as salons, restaurants and hospitality, employee tips will be tax free which will help to reduce employer payroll tax liability and simplify reporting requirements on the federal level. However, California may still treat employee tips as taxable income.

Keep in mind, tax law is constantly changing and evolving and this latest legislation is no exception. While the “One Big, Beautiful Bill” presents major opportunities for business owners, it also brings complexity, especially in California. We encourage you to dig deeper and ask the right questions, and consult with your trusted and licensed financial advisor, CPA, and tax attorney before making any strategic moves.

Our firm is closely monitoring developments at both the federal and state levels, and will continue to share insights as the details unfold.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.

 

Microcaptives Unmasked: Several Hidden Hazards Mitigating the Minefield

Under a microcaptive insurance company, California businesses may seek this controllable risk management option to self-insure specific risks as it relates to supply chain interruptions, regulatory shutdowns, loss of key clientele, cyber incidents, etc. which company policies can be customized to fit actual exposures. Another benefit of owning a microcaptive insurance company is the stabilization of costs and cash flow control measures that keep premiums consistent. This reduces the added pressures of unexpected annual rate changes or increases which commonly are associated in working with third parties. There could also be opportunities for tax deferrals or reductions that could lower tax liability so businesses are only paying for the insurance coverage needed and are not battling volatile market conditions. In some instances, any assets held in a properly structured microcaptive may be shielded from creditors of the parent company.

While microcaptives offer significant advantages, they also come with important drawbacks to weigh carefully and merit close consideration. Some potential hazards to consider with microcaptives may include whether it makes sense for businesses to pull away from traditional commercial insurance in favor of flexible and diversified insurance. Without guidance from a licensed financial advisor, CPA and a local tax attorney, California businesses may run the risk of failing to meet Internal Revenue Code §831(b) requirements if unable to demonstrate business purpose beyond tax benefits and cannot prove such business is functioning like a real insurance company (issuing bona fide policies, charging actual premiums, managing claims and distributing risk exposure). Additionally, there are setup fees, actuarial fees, legal fees, and ongoing management costs plus a substantial financial commitment, often into high six figures, to adequately fund a microcaptive insurance company.

Under Internal Revenue Code §831(b), eligible microcaptives may elect to exclude premium income from taxable income at the captive level and deduct insurance premiums as a business expense at the business operating level if premiums are below an annual threshold of approximately $2.85 million for 2025. Microcaptive insurance regulations change frequently and for this reason, California businesses should consider advisement from a licensed tax attorney who will have the legal expertise to assist with understanding the unpredictable and closely scrutinized tax climate for purposes of staying compliant. Despite their appeal, microcaptives present significant risks and obligations that cannot be ignored.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.

 

Strategically Navigating Your Audit and Hiring a Tax Attorney

It is crucial for California taxpayers to be aware that auditors are trained to gather all applicable information to use against you to increase your tax liability if you unexpectedly receive an audit notice from the Employment Development Department (EDD), Franchise Tax Board (FTB), or Internal Revenue Service (IRS). As they go on a fact-finding journey to extend or perhaps refer you or business’s tax matter for criminal tax prosecution, auditors with the IRS, FTB, and EDD are focused on representing federal, state, and local governing authorities in this situations.

This is why consulting with and working under the guidance of a trusted licensed financial advisor, CPA and a local tax attorney could minimize your vulnerability for incompliance, civil penalties, and/or interest. Additionally, it would be an advantage and low-risk approach to have expert protection against any possible disputable items on your tax returns that may perhaps otherwise be clarified with legal basis and evidence. This is when you might consider hiring a licensed tax attorney as your biggest form of defense due to their understanding of IRS, FTB or EDD legal interpretations, procedural errors, settlement negotiations or offers in compromise with legal strategy, to assist in more complex situations. Some complex tax matters could lead to court proceedings or hearings, where a licensed financial advisor or CPA alone, cannot represent you or your business, and a licensed tax attorney could.

The largest difference between working with a licensed financial advisor, enrolled agent, and CPA versus a tax attorney, is the reliability of Attorney-Client, Work Product and Kovel protections which also provide a larger net of confidentiality while navigating through your tax matter. The IRS, FTB, or EDD cannot force disclosure of such information and your risk is manageable under such a strategic shield and for the primary purpose of working towards civil resolution. The benefit of working with a well-equipped team like Wilson Tax Law Group, APLC is that we have a diverse team comprised of former IRS trial attorneys, California FTB Attorneys, Assistant U.S. Attorneys, Federal Tax Prosecutors, a Forensic Accountant and dedicated staff, who seek to help protect you and your business when your finances, freedom and future are on the line.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.

 

Qualified Opportunity Zone and Deferred Capital Gains

Congress created the Tax Cuts and Jobs Act (P.L. 115-97) in 2017 to give investors who made investments in economically challenged areas federal income tax benefits. Among other things, this act restricted state and local tax ("SALT") deductions at $10,000 and reduced corporate taxation, pass-through business taxation, and individual tax rates. It also made significant modifications to the federal tax structure. One of the tax benefits includes, the Qualified Opportunity Zone (QOZ) program, created by Congress, to provide investors with capital gains tax deferrals if they meet specific requirements until December 31, 2026, or until the investment is sold. As the conclusion of this program draws near, now is the time to work closely with your financial advisor, CPA and/or local tax attorney on building up your capital losses to help reduce impending tax impacts and prevent potential liquidity issues when this program ends.

Reinvesting capital gains in a Quality Opportunity Fund does not permanently defer them; instead, they retain their original tax nature and will be liable to the capital gains tax rates in effect during the corresponding year. Additionally, investors should consider budgeting for tax liability payments for any capital gains that do not receive income in specific inclusion years so that cash-flow is not impacted and tax payments are timely. You might consider harvesting capital losses to offset capital gains. Keep in mind, long-term losses are first applied to long-term gains and short-term losses to short-term gains, with the excess of either category applied to each type. This strategy cannot be used in managing retirement accounts (401(k) or IRA) because these are tax-deferred.

Legislation could extend the deferral period, but there is nothing on the horizon now. In the meantime, consult with your financial advisor, CPA and/or local tax attorney on what you can do to be proactive and prepared ahead of the closure of the QOZ program.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.

Non-U.S. Directors and Possible Tax Implications for Businesses

When non-U.S. resident directors attend board meetings in the U.S., they can find that their limited attendance may have unanticipated tax ramifications for the business and themselves. The Internal Revenue Service considers any directors’ fees paid to non-U.S. citizens who routinely serve on boards for U.S. based businesses as subject to a 30% withholding, and may require tax reporting on annual federal returns. The Internal Revenue Code (IRC) provides limited alternatives for non-U.S. citizens to have U.S.-sourced compensation exempt from U.S. income tax. For non-U.S. directors, one clause—the de minimis exception of Sec. 861(a)(3)—could be applicable. These directors will frequently have to rely on an income tax treaties between the U.S. and their home country for possible relief, however, given the history and restrictions of this exception.

The de minimis exception of Sec. 861(a)(3) of the U.S. Internal Revenue Code is designed to address specific situations where non-U.S. citizens’ compensation could be treated as foreign-sourced income, which would exempt that income from U.S. federal income tax withholding and possibly reduce U.S. tax liability. Restrictions apply as the following conditions must be met to qualify for such this exception: the non-U.S. resident cannot be in the U.S. for more than 90-days during the tax year, the total compensation for services cannot exceed $3,000 in aggregate and the compensation must be paid by a foreign employer or office maintained in a foreign country or U.S. possession.

The biggest takeaway regarding the de minimis exception of Sec. 861(a)(3) is to note that any compensation that exceeds $3,000, the entire amount could be considered U.S. income and subject to tax withholding. This is the main reason why most non-U.S. citizens rely on income tax treaties with their home country to find tax relief. Additionally, if a U.S. state does not adhere to the federal treatment of a specific foreign income tax treaty, the applicability of the treaty may be limited based on which U.S. state the non-U.S. resident director provides services in.

For a modern non-U.S. resident board member whose meeting fees and retainers frequently surpass $50,000 in a tax year, the de minimis exception is of limited utility due to the natural rate of inflation from the beginning of the twentieth century to the new century. Contact a reliable financial advisor, CPA and/or local tax attorney for more guidance on this exception.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.

 

Summer Activities and Next Year’s Tax Return

As we head into the summer season, it is critical to consider which activities may qualify for a deduction and which may affect your personal or business tax return for the next year. Ahead of tax season, the Internal Revenue Service encourages taxpayers to consider a few common summer-based activities that could have an impact on your return and how much you will or will not owe before tax season begins.

If you or a loved one are planning a wedding, there are a few things to keep in mind which include reporting any name changes to the Social Security Administration and Employer, as your social security number must match your name used when filing your tax return. Secondarily, you must notify the Internal Revenue Service when your home address has changed. Additionally, your tax withholding and filing status may change the tax bracket which can be updated by revising your Federal W-4 form and State Tax Withholding Form (if you are subject to income tax) and submitting to your employer before the end of the tax year.

If you or a loved one is planning to send a child or children to summer day camp, the costs associated may qualify for a tax deduction on your next tax return. Overnight summer camps do not qualify). However, summer day camp can include babysitter or daycare fees, preschool fees, etc. Read more about what qualifies as a Child and Dependent Care Credit as parents or guardians may elect for this tax credit if they have earned income during the tax year and the child or children are under thirteen years of age.

If you or a loved one has a side job, work part-time, or have a seasonal position, there might be tax implications regardless of how much income was earned or if no federal income tax is owed. It is critical to file a tax return anyway and early to avoid any potential, unforeseen tax penalties. This will also ensure that any possible and qualifying tax refunds are processed timely.

If you or a loved one has filed a tax extension, it is crucial that you submit your tax return as soon as you can, while you can continue to recall every detail of that particular tax year. Extensions generally run from April to October, depending on your circumstances, so stay the course and cross this task off your list before the final quarter of the year.

Lastly, don’t forget to have fun this summer without worrying too much about your taxes. Leave the worries to your local  tax attorney. We're here to help.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s) or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.

 

CA Pass-Through Entity (PTE) Elective Tax Payments Due June 16th

For eligible and qualifying pass-through entities (PTEs), this is your friendly reminder that the deadline for submitting your elective initial tax payment is rapidly approaching and must be submitted to the FTB by June 16, 2025, at the latest. This pertains to taxable years beginning January 1, 2021 and before January 1, 2026. PTE elective tax payments can be paid using the FTB’s Web Pay application or by locating the Pass-Through Entity PTE elective tax Payment Voucher. and mailing with check payment to FTB. As a reminder, tax payments and tax filings have separate deadlines which more information these FTB deadlines can be found on the FTB website.

Qualifying PTE’s include entities that are taxed as a partnership or S corporation and generally do not include publicly traded partnerships or entities that are permitted or required to be in a combined reporting group. For Qualified taxpayers, you could receive a credit for your share of the entity level tax which may reduce your state personal income tax if filing in the state of California. This means that qualified taxpayers can choose to pay 9.3% tax on income and be eligible to receive a credit for the same amount on their personal income tax returns. The FTB defines a qualified taxpayer as a partner, member, or shareholder of an electing qualified entity as individual, trust, estate, or fiduciary that is liable for personal income tax in California.  This also includes a disregarded single member LLC that is liable for California personal income tax and owned by an individual, trust, estate, or fiduciary.

We recommend consulting with a reliable financial advisor, CPA and/or local tax attorney to find out if your California business(es) may qualify for PTE tax and benefits.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s) or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.