Q&A with Attorney Hong: Masters of Law in Taxation

Attorney Daniel Hong

Attorney Daniel Hong is currently pursuing a Master of Laws in Taxation (LLM) from Villanova University. This is an advanced degree that will allow Attorney Hong to advise clients on tax law and set them up for success as individuals and businesses. We interviewed Attorney Hong to hear more about this area of law and why he’s studying it.

Why are you pursuing an LLM in tax law?

I enjoyed tax classes in law school. The area of tax law is also avoided by a lot of lawyers. I wanted to be one that’s not afraid of tax law. I’ve also noticed a lot of my business and bankruptcy clients have questions about tax that come up and I wanted to be knowledgeable to help out my clients.

Are there any specific areas of tax law that interest you?

Business tax and income tax.

Why those areas?

They seem to be the areas that impact my clients the most. I do a lot of business set ups and they always ask about how their business will be taxed and whether they should be an S-corp. As for income tax, there are a lot of planning and strategic opportunities for clients to save more of their hard-earned money. There are also fun cases in income tax with famous people, like Barry Bonds, Tom Brady, and Conway Twitty which involve the definition of income under the tax code.

What are some common misconceptions people have about tax law?

One misconception is that it’s just purely numbers or preparing forms. Numbers and forms are a big part of tax law, but it’s not the end all be all. And it’s not different from what a lot of lawyers do when they read a statute, analyze it, and apply it to their case. That’s something that I think gets missed by a lot of people because they think taxes are just about numbers and preparing forms. It actually involves a lot more critical analysis of the law than people think.

A second misconception is how much authority the IRS has. The IRC (Internal Revenue Code) is actually the primary authority not the IRS. The IRS just enforces the IRC but sometimes improper enforcement occurs from a misinterpretation by the IRS on the IRC. The IRS can be challenged in court on their interpretation. Though prudence dictates that these challenges should be thought out carefully before proceeding.

Additionally, bankruptcy and tax have a lot more in common than people think. If somebody finds themselves in hot water with the IRS, bankruptcy can be a good tool to reorganize their tax payments based on priority of certain tax debts over others. For instance recent tax debts have priority over tax debts more than 3 years old and tax debt secured by a lien have priority over unsecured tax debt. And they can use the protections that the bankruptcy system offers to help get back into compliance with the IRS.

Why is it important for business owners to speak with a tax attorney before starting a business?

It’s important because a lot of business owners have to see what tax provisions they come under, how much they owe, and what they’re classified as under the IRS. Big, public corporations may have an army of accountants and lawyers, but the average main street business, even with an accountant, may find things confusing. They don’t have the benefit of getting a W-2 like a wage earner does.

Taxation also has an indirect effect on the growth of the business. There are many legal and planning strategies to try to save on taxes while complying with the law. Most business owners are usually just concerned about complying and they don’t realize how many benefits they can find through deductions or other strategies associated under the tax code.

What are some ways that people can get into trouble with taxes and how can they avoid it?

One way people get into trouble is through something called a Deficiency Notice from the IRS. The cases that I’ve seen are people who usually own a small business. They either miscalculate their taxes at the federal or state level or they run into audits from the IRS because what they report doesn’t match what the IRS projects. They can avoid that with good bookkeeping, staying organized, accounting for profits and losses, and keeping good records such as statements, invoices, and receipts in order.

If someone is looking for a tax attorney, what are some questions they should ask them?

How can I plan my estate so that when it passes I don’t run afoul of something like the Gift Tax? How can I set up my business so it brings in the most profit while complying with the tax code, and how can I save as much money as possible through lawful deductions? On the individual side, if they have retirement accounts, there are tax rules associated if you take it out early. Is it better to have a traditional or roth retirement account? To say it another way, would you rather put after-taxed money in or tax-deferred money into the account?

What are some common ways that parents can plan for their kids’ college tuition through strategic tax and financial planning?

They can use something called a 529 Plan. It allows you to grow the money there tax deferred so you can use the growth towards a college education without the gains being taxed. The federal gift tax exemption amounts of $18,000.00 for individuals and $36,000.00 for joint filers also can be applied to the 529 plan.

If you were starting a business in Pennsylvania, what are some tax questions you would answer before starting?

How would my business be taxed based on the entity that I choose? For instance the IRS gives LLCs flexibility in choosing tax classifications and most businesses are LLCs. You should also consider how much income you’ll make. Does an S-corp election make sense? If you do go with an S-corp election, how much will you save compared to your default classification for tax purposes? What are some deductions you can use in the IRC? Look for things like business expenses, depreciation, and qualified business income (QBI) deductions.

If you’re looking for help with starting a new business, the attorneys at Cornerstone Law Firm can help. From corporate formation to drafting bylaws to everything in between, we can work with you to get your business up and running. Give us a call today to schedule a consultation.