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Even in the simplest financial situation, filing state and/or federal taxes can be a daunting annual task. When it comes to navigating complex tax issues, though, this confusing process can be downright intimidating to tackle on your own.
Regardless of your income, deductions, household demographics, or occupation, working with a tax attorney can be beneficial. He or she can help you avoid potential tax issues or make it easier to stay on top of any existing concerns, ensuring that they don’t get worse. Plus, a tax attorney can talk to the IRS on your behalf, saving you time, energy, and frustration.
Let’s talk about what a tax attorney does and who should consider working with one.
In this article:
- What is a tax attorney?
- What does a tax attorney do?
- Should I hire a tax attorney?
- How to choose a tax attorney
- How much does a tax attorny cost?
What is a tax attorney?
A tax attorney is a type of lawyer who specializes in tax laws and procedures. As with most law professions, tax attorneys often specialize in a specific tax-related area. This may include:
- State taxes
- Local taxes
- Personal taxes
- Corporate taxes
- International taxes
- Tax litigation
- Estate planning
- Tax-exempt organizations
- And more
To become a practicing tax attorney, your lawyer will need to first complete requisite law school courses, take the MPRE (or Multistate Professional Responsibility Exam), and pass the bar exam in their state.
Tax attorneys must first earn a JD, or Juris Doctorate, law degree before they can practice. They may choose to work for various organizations and corporations, federal or state government agencies, law firms, or even tax courts.
What does a tax attorney do?
Depending on the tax attorney’s specialization, he or she can offer many services. Tax attorneys can walk clients through complex tax processes, monitor tax legislation changes, help strategize and structure transactions, and offer guidance and representation to clients facing tax issues or penalties.
Here are some services a tax attorney may provide:
- Help clients file their taxes, taking advantage of tax credits and filing options that may save them or their business money
- Inform clients of pending tax legislation and how the changes might affect them (or their business)
- Help clients structure a tax-advantaged estate plan
- Facilitate transactions such as establishing and managing a REIT (real estate investment trust) or forming a mutual fund
- Represent and advise clients facing an audit, investigation, IRS penalties, wage garnishment, or litigation due to back taxes or errors
- Communicate with the IRS on their client’s behalf
A tax attorney and a certified public accountant (CPA) do many of the same things, but the attorney has also passed the bar exam and is a licensed lawyer. Tax attorneys typically have a deeper understanding of tax laws, regulations, and associated liabilities.
Should I hire a tax attorney?
Hiring a tax attorney may be a good idea if you have a complex tax situation, owe back taxes, are facing tax-related litigation or criminal charges, or are hoping to structure a business or estate to optimize its tax burden. While a CPA can perform many of these tasks, a tax attorney may be a better fit in certain scenarios.
If you have outstanding tax debt with the IRS
Whether due to unfiled taxes or errors in past filings, unpaid tax debt can be overwhelming and scary. The IRS can garnish your wages, put a lien on your home, or freeze certain assets if the balance is not paid by a specified deadline. If you cannot satisfy that debt in time, you may even face criminal charges.
For this reason, outstanding tax debt is a great reason to hire a tax relief attorney. The right tax lawyer can not only communicate with the IRS on your behalf but also represent you in negotiating a settled debt balance (an Offer in Compromise) with the IRS for less than you currently owe.
These lawyers (and the tax relief firms that often employ them) can also assist in developing an installment plan to satisfy your debt. During the negotiation and settlement process, having a proactive IRS tax lawyer on your side can help you avoid litigation and garnishment.
If you want to dispute a tax bill
Even if you keep careful records, consult with a CPA, and file your taxes on time, a time may come when you are audited or receive an unexpected tax bill. In this case, an IRS tax attorney can help explain the situation, determine where the error occurred, and tell you how to avoid it in the future.
A tax attorney can also represent you if you choose to fight the IRS or help create a strategy for paying off or settling the deficit.
If you are making a big business decision
The way you structure and manage your business—from inception to day-to-day operations—can have notable tax implications. And the wrong decisions can be costly.
A tax attorney can offer guidance, help you determine how much your business can expect to pay in taxes, and advise you of strategies for reducing your tax burden, which can help you avoid costly mistakes and unexpected tax bills while taking advantage of certain regulations and tax rules.
If you are making a large investment
Whether it’s an inheritance, lottery winnings, or selling appreciated stock options, a time may come when you want to make a big investment. When it’s a large sum of money, though, ensuring you make the right investment(s) in the right accounts to avoid unnecessary tax implications is important.
A tax attorney can help you determine where and how best to invest your funds and manage their growth over time.
If you have a large estate
If you have a large estate that will be passed on to your loved ones, working with a tax attorney can help ensure a significant portion of its value is not needlessly consumed by taxes.
A tax attorney can offer guidance regarding strategies that may reduce estate and inheritance taxes, such as forming a family trust or maximizing annual gift exclusions for your loved ones now.
How to choose a tax attorney
Choosing a tax attorney should be done carefully. Here are some ways to increase your chances of finding the right person for the job:
- Evaluate your situation. Before hiring a tax attorney, knowing what you need that attorney to do is important. Are you looking to reduce your small business’s tax burden each year or develop a tax-advantaged estate plan for your family? Or do you owe a significant debt to the IRS but cannot pay? You’ll want a tax attorney who specializes in your particular field of need.
- Know your budget. Each tax attorney, law firm, or tax relief agency will have its own pricing, and the costs can vary wildly. It’s important to understand your situation’s complexity and the cost of the attorney(s) you’re considering, as the bill could vary wildly.
- Ask how they bill for services. Some tax relief agencies offer packages that provide tax services at a flat rate. Other tax attorneys may bill by the hour. There is no right or wrong, but it is important to know what you’re walking into and what service type you can expect for the price tag.
- Find out if a retainer is required. Many attorneys require an upfront retainer before services can begin, with any remaining balance due later. Find out what sort of payment arrangement your tax attorney offers and determine whether you can afford to retain their services.
- Ask around. Finding a tax attorney that meets your needs, falls within your budget, and comes with trusted recommendations might be tough, but it’s wise to try. Browse review sites (Google, Yelp, etc.) and ask friends, extended family, or colleagues when looking for a new tax attorney or agency. They may offer recommended names or tell you who to avoid.
- Do your research. Once you’ve narrowed down a list of potential tax attorneys, see if any formal complaints have been filed against them in your state. You can typically do this by visiting your state’s bar website and searching by name for an attorney’s discipline records.
How much does a tax attorney cost?
An attorney’s cost is based on factors ranging from location to years of experience, tax law specialty, and workplace (such as a law firm versus a tax relief agency). How they charge is also important in determining your price; an hourly rate may be more costly for a complex tax situation than a flat rate.
With tax attorneys who bill hourly, you can expect to pay between $200 and $400 per hour on average. Your final cost will be determined by the complexity of your situation, how quickly it is mitigated, and whether continued services are necessary.
For instance, a basic tax audit may run you around $2,000 on average, while completing an Offer in Compromise may cost closer to $6,500. You may be able to get a free consultation with a tax attorney in your area (usually around 15 minutes), or you could organize a quick phone call to determine compatibility.
Working with a tax relief firm may be a more cost-effective option if your situation allows it. Many of these firms offer low up-front fees to begin working on your tax situation—usually just a few hundred dollars. However, costs can balloon depending on your situation so make sure to get a cost breakdown before moving forward.
While most firms require a minimum amount of debt before they will accept your case, some offer money-back guarantees. Free initial consultations are common to determine whether a firm is a right fit for you and your specific needs.
Hiring a tax attorney can be a notable investment. However, whether you face outstanding tax debt, want to find ways for your business to save money on taxes, or simply need to structure your estate in a tax-advantageous way, the right tax attorney or tax relief firm may be well worth the cost.
Author: Stephanie Colestock