What is Attorney-Client Privilege?

The Attorney-Client Privilege is an evidentiary rule that protects both attorneys and their clients from being compelled to disclose confidential communications between them made for the purpose of furnishing or obtaining legal advice or assistance. The privilege is designed to foster frank, open, and uninhibited discourse between attorney and client so that the client’s legal needs are competently addressed by a fully prepared attorney who is cognizant of all the relevant information the client can provide. The attorney-client privilege may be raised during any type of legal proceeding, civil, criminal, or administrative, and at any time during those proceedings, pre-trial, during trial, or post-trial.

Why is it important?

The purpose underlying this privilege is to encourage full disclosure without fear that the information will be revealed to others, so that clients receive the best and most competent legal advice and representation. 

What is covered by Attorney-Client Privilege?

The privilege extends to agents of either the client or the lawyer who facilitate the communication (e.g., paralegals or secretaries). 

What is not covered by Attorney-Client Privilege?

The attorney-client privilege is fragile, and may be subject to waiver when the content of a confidential communication is disclosed to a third person with no legitimate need to know the information, even in some instances where the disclosure is inadvertent.  A waiver can also occur where the communication takes place in public, or in some less than secure environment.

The attorney-client privilege is probably not available when an attorney is acting as a tax return preparer. Tax preparation is a service intended to result in disclosure to the Internal Revenue Service and some United States courts have held that the work papers and discussions with clients relative to the preparation of tax returns are not protected.

In the United States, communications between accountants and their clients are usually not privileged. The mere fact that the practitioner is an attorney will not create a valid attorney-client privilege with respect to a communication, for example, that involves business or accounting advice rather than legal advice.

Is the initial consultation covered by Attorney-Client Privilege?

The Attorney-Client relationship begins as soon as confidential information is revealed to an attorney.  The privilege attaches even if the attorney or the client decides not to move forward with the representation.  The privilege does not extend to the fact that a consultation between attorney and client occurred, nor to the general subject matter of the consultation.  It protects only the content of the communications in that consultation.

As a small firm, we emphasize one-on-one service between our attorneys and clients. We have learned that clients are often looking for both an advocate and a confidante, and put great emphasis on the strict nature of attorney-client privilege.  Please contact us at (866) 493-5400 to schedule a complimentary initial consultation with one of our attorneys for your legal needs.

In 2010, Mr. Romney had an adjusted gross income of $21,646,507, interest income of $3,295,727 and income from dividends of $4,923,348. About 70% or $3.4 million are qualified dividends taxed at 15% rate. His biggest income element was $12, 573,000+ which was primarily long-term capital gains. About 75% of his income was subject to 15% tax rate per Income Tax Code. Criticism in the press has been that Mr. Romney has over $20 million in income but pays less than $3 million of income tax every year. 13.9% of his adjusted gross income was amount of income tax paid. As President Obama mentioned in his recent State of the Union address, Warren Buffett’s secretary pays more income tax than Mr. Buffett does. Is that fair? It really comes down to perception of what type of income being taxed. Most of Mr. Romney’s income is coming from taxable interest or dividends. Essentially that’s income that’s been taxed twice. Dividends were taxed once at corporate level, then distributed out to shareholders who then pay tax on it again. The interest income is the interest is earned on whatever particular investments he has. It’s consistent with the income tax code, which says what the rate on this type of income is going to be taxed at.

The reason Mitt Romney did not pay that much income tax as a function of his total income were due to the income tax provisions that were only extended for 2 years at the end of 2010, which are due to expire on December 31st, 2012. This includes a 15% maximum tax rate on long-term capital gains and the 15% qualified dividends rate . The income tax provisions affect anybody with long-term capital gains and qualified dividends. Many smaller income earners have both those things, but in smaller amounts than Mr. Romney’s income tax returns.

Also, the other thing that may yet change dramatically is the estate and gift tax exemption, which has grown to $5 million dollars. So this year in 2012, you can give away or die with $5 million dollars and pay no estate tax or gift tax; however, if that provision is allowed to sunset, that exemption amount will only be $1 million dollars and further, the gift tax and estate tax rate will go from 35% to 55%. So there is huge uncertainty in the income tax as well as the estate and gift tax code right now. Certainly, the estate and gift tax exemption only applies to very wealthy people; however, bear in mind that if that gets reduced to $1 million dollars, for husband and wife, that is only $2 million dollars of assets.

Please take a moment to listen to the show and send us your thoughts.  You can reach us through the contact box on our web page at www.allenbarron.com or you can call us at (866) 493-5400 for assistance with your tax returns.

Although Mr. Romney’s foreign holdings are in the millions, anyone who has foreign bank, financial or security accounts, is a beneficiary of a foreign trust, or has signature authority over a foreign financial account must file a “Report of Foreign Bank and Financial Accounts” form with the IRS.

Working with a reputable tax firm ensures that tax returns are as tax-efficient as possible and compliant with the latest tax laws.  For assistance with your tax returns and to ensure you are FBAR compliant, please contact us at (866) 493-5400 today to schedule a complimentary initial consultation with one of our tax professionals.

Types of Legal Entities

Before you can form or restructure your business properly, it is essential that you understand the different types of business structures, partnerships and corporate systems that you can form. After you’ve familiarized yourself with these entities, you can begin working with a local law firm, such as Allen Barron, Inc., to make the best choices for the formation of your business. Forming the right entity will ensure additional protection and the most beneficial and flexible liability and tax structures for you, your employees and your shareholders. 

A corporation is considered to be a distinct legal entity, with liabilities and privileges that may be different from those of its members. There are different types of corporate structures into which your business might fit. One such structure is the limited liability corporation, which ensures that employees and shareholders will not be responsible for the debts of the corporation if it fails, although they might lose their jobs and investments. There is also a difference between S and C corporations, which mainly has to do with tax structures. S corporations pass corporate credit, deductions, income and losses to shareholders. Businesses choose this model because it may offer some federal tax benefits. On the other hand, C corporations are recognized as separate taxpaying entities. This may be a more beneficial structure for other companies.

If you don’t form any sort of entity, on the other hand, you will be considered a sole proprietorship. This can make it very difficult to bring investors onboard and will leave the largest tax and liability burdens on your shoulders. If you are in the process of forming or restructuring a business, Janathan L. Allen, APC can help to form a solid business plan.  Please give us a call at (866) 493-5400 for a complimentary initial consultation for your business needs.

BBB Warning:

If you have received your W-2 form from your employer, the Better Business Bureau has a warning for you about a new identity theft scam involving emails from the ‘IRS’ that the BBB has not seen before. This new scam is ‘phishing’ for your W-2 form information.

The BBB wants you to know the red flags that immediately signal scams:

1. The IRS is NOT going to email you. They will send you a letter if they need more information from you.
2. This also applies to your bank, the FBI, or your credit cards. None of these companies or agencies are going to email you and instruct you to click on a link to provide personal information.
3. W-2 forms are NOT submitted by individual taxpayers until you file your income tax return, they are submitted to the IRS by your employer.
4. You should NEVER click on any links in unknown emails. Clicking on the links could infect your computer with viruses and spyware.
5. You should NEVER give out personal information such as your wages, social security number, home address and birth date to anyone who emails you or calls you.  These pieces of information are like GOLD to scammers because they would have everything they need to steal your identity.
6. Misspelled words – In this email, the word ‘submission’ is spelled incorrectly which means that English is probably not the first language for the sender who is probably located in another country.

For more information or to check out a company online, please visit www.bbb.org.  If you need help preparing your W-2 forms for your business, please contact us at (866) 493-5400 to schedule a complimentary initial consultation with one of our accounting professionals.

• Individual Tax Rates
• Capital Gains Rates
• Section 179 Expense Deduction
• Start-Up and Organizational Expenses
• Worker Retention Credit
• Small Business Health Insurance Credit
• Adoption Assistance
• New 1099 Reporting Requirements and Penalties

The San Diego North Chamber of Commerce is located at 10875 Rancho Bernardo Road, Suite 104 in Rancho Bernardo.  To register, please call Linda Tice at (858) 487-1767 or you can get more details online at http://chamber.sdncc.com/Events/details/business-workshop-series.

Running a business can be confusing in many aspects. One common conundrum is in understanding how long it is necessary to keep documents around. With most businesses, files pile up fast and storage may run low. No need to worry—here’s a guide to legal files that you should hold onto, as well as an incremental timeline.

1. Documents to Keep Forever

Some documents should never be thrown away. These include the following:

• Patents
• Articles of Incorporation
• Licenses and permits
• Copyrights and trademarks
• Capital stock and bond registers
• Tax returns
• Deeds
• Mortgages
• Property records

2. Documents to Save for Seven Years

The following documents are definitely important, but you don’t need to keep them for the rest of your life. For seven years, save documents relating to the following:

• Sales tax returns
• Purchase orders
• Invoices to customers/from vendors
• Personal property tax returns
• Accident reports/claims (that are settled)
• Logs for automobiles
• Cash books
• Bills of lading
• Inventory reports
• Employee personnel records post-termination
• Employment tax reports
• General journals
• Payroll records

3. Documents to Store for Three Years

Some items aren’t as important as those that are kept permanently or those kept for seven years, but they still could be needed to refer back to for a while. A number of these documents are bank-related, while others have to do with inventory and more. What documents to save for three years include the following:

• Logs of any physical inventory
• Vouchers relating to petty cash
• Bank reconciliations
• Expired policies for insurance
• Correspondence in general
• Duplicate deposit slips from the bank
• Working papers or internal audit reports

4. What to Hold Onto for Just One Year

You may be glad to discover that certain documents only need to be kept for one year. Some of these include the following:

• Stockroom withdrawal forms
• Notebooks that stenographers have used
• Any purchase orders (excluding those that are part of purchasing department copy)
• Personnel employment applications

Most of these items aren’t required for tax purposes, so even if you were to be audited, the IRS would not need them for any reason. You can go ahead and toss these items without fear.

Are you still confused about how long to keep certain documents, or would you rather not waste time dealing with these things yourself? Contact Allen Barron today at (866) 493-5400 for professional, all-inclusive tax help with your business.

Happy New Year! REMINDER: All W-2 and 1099 forms are due by January 31st, 2012!

When someone completes work for your business, are they an employee or an independent contractor? Do you issue them a W-2 or a 1099 form?

This is a challenging question faced by many business owners due to the fact that there is no definitive guidance on the issue. The IRS and EDD will look at each case on an individual basis taking into account several factors. Having workers classified correctly is extremely important, given the fact that some independent contractors are now reporting businesses so they can be re-classified as employees and receive unemployment benefits.

How can a business protect itself? Ultimately, the government is looking at control. How much control is the worker able to exercise over their own work? The questions that will be asked during an audit will be:

Does the worker own their own entity? And their own business license?

Does the worker advertise for other clients?

Does the worker have other clients?

Does the worker have the opportunity to control their profit/loss?

Has the worker invested in their business?

How much instruction and training was given to the worker?

Does the worker have control over how they perform the work (hours, location, etc)?

Do the parties have a written agreement between them defining their relationship?

The consequences of misclassification are that your business may be audited. If the audit results find that the workers were actually employees, then your business would be liable for penalties and interest, as well as, potential workers compensation fraud issues. If you believe that you may have employees classified as independent contractors, we can help you apply for an IRS safe harbor program to prevent the IRS from retroactively classifying your workers as employees.

If you would like an assessment of whether you have employees or independent contractors, please call Janathan L. Allen, APC at (866) 493-5400 for a consultation. In the event that your business uses independent contractors, you should have a written agreement that details the relationship of the two parties. Our firm is experienced in drafting employee and/or independent contractor agreements. We also provide assistance for businesses currently under audit for misclassifying workers.

W-2 forms, 1099s and W-9 forms.  Please be aware that all W-2 forms and 1099 forms are due January 31^st, 2012.  Please be sure to have your W-9 forms completed by vendors and contractors by year-end.

Year-End Inventories.  Don’t forget to include office and store supplies in your year-end physical inventories.  You will need the year-end inventory for your business property tax due in April 2012.

Tax Planning.  We can provide tax planning to minimize your 2011 tax liability and potential tax hikes in 2012. As you may know, deductions and tax credits often have a limited life-span and Congress typically includes a sunset provision or expiration date for certain tax breaks. There are several tax breaks, which will expire at the end of 2011 and will not be available for 2012, unless Congress passes a new law to extend these breaks.

California LLC/CORPs.  California LLCs and Corporations (with a 12/31 year-end) have an annual minimum payment of $800.00 which is due by April 15^th of the current tax year (unlike individuals who pay taxes on April 15^th for the previous tax year). For example, if you have a CA LLC, there was a minimum $800 payment due 4/15/2011 for the 2011 tax year. If you haven’t already, please make sure that you have paid your $800 for 2011 as soon as possible, to avoid additional penalties and interest.

Estimated Tax Payments for Individuals or Entities.  In most cases, an individual or entity is required to make federal estimated quarterly tax payments if a tax liability is expected of at least $1,000 or more for the 2011 tax year (after subtracting your withholdings and credits).  Therefore, if in 2010 you owed the IRS more than $1,000 (or the CA FTB more than $500) and your economic circumstances (income, expenses, withholdings, employment, sale of property, etc.) have not changed substantial, you would most likely be required to make estimated tax payments.  To avoid penalties and interest, you must have paid all of your estimated tax payments according to the schedule below: 

1^st payment                  April 18, 2011

2^nd payment                 June 15, 2011

3^rd payment                 September 15, 2011

4^th payment                 January 17, 2012 

Although as an individual, your final 2011 estimated tax payment is not due until January 17, 2012, any payments made to a state agency in 2011 may be deducted on your federal tax return and thus reduce your federal tax liability. Therefore, we advise you to make your final 2011 estimated tax payment to the state prior to midnight on December 31, 2011.

Please contact our office at (866) 493-5400 to schedule a complimentary initial consultation for assistance with any of the aforementioned year-end issues.

Monday, January 2nd, 2012 is a national holiday for New Years.  Please take this day into consideration as our prepare your payroll information.

For those companies that date their checks for the first of the month, you have a decision to make:  Do you want the system to roll your check date backwards to 2011, or do you want your check date ot be January 3, 2012?   Make sure you notify your accountant or payroll service provider with the date your choose.  Your decision will reflect on your payroll taxes for the 2011 tax year.

Monday, January 16th, 2012 is a national holiday (Martin Luther King Day).  All banks, government agencies, schools, etc. will be closed.  Your payroll date may be effected due to the holiday.  Please check with your accountant or payroll provider.

Monday, February 20th, 2012 is also a national holiday (President’s Day).  Again, your payroll date may be effected due to the holiday.  Please check with your accountant or payroll provider.

Allen Barron, Inc. offers these timely reminders to our accounting clients.  If you need assistance with your monthly, quarterly or year-end accounting (including payroll), please give us a call at (866) 493-5400 for a complimentary initial consultation with one of our knowledgable accountants.