Tax Law in Hawaii

Tax law refers to the regulations governing the calculating, filing, and paying of taxes. When handling tax law cases, attorneys may manage taxes at various levels, such as local, state, and federal. The practice of this type of law involves understanding, defending, and resolving issues related to payment or non-payment.

If you hire a qualified Hawaii professional to handle your business or personal taxes, you may feel protected from disputes. However, even a misplaced comma or added zero can cause the IRS to believe you owe more than you do. In some instances, accountants might also take deliberate actions that result in legal and financial repercussions.

According to Hawaii’s Department of Taxation, as of 2021, the standard deduction amount for Hawaii is $2,200 for separate filers, and $4,400 for joint filers. In addition, head of household filers qualify for a $3,212 standard deduction. Furthermore, Turbotax reports that Hawaii has the second highest state income tax after California. Specifically, Hawaii’s highest income tax rate is 11% for individuals earning $200,000 or more.

Tax Law Topics to Understand

If you find yourself facing Hawaii taxation issues, understanding tax law and how it works can help. Most Americans have only basic knowledge of how the tax systems work, and with good reason. They are complex. Small business owners need to understand tax law and how it impacts their business. Here are some essential tax law topics to get you started.

IRS Audits

An IRS audit is a review of an experienced Hawaii individual’s or an organization’s finances and accounts to ensure accuracy. The audit may also uncover discrepancies business owners were not aware existed.

These are just a few of the things the IRS looks for when conducting an audit:

• Does your lifestyle match your income?
• Are you passing off personal expenses as business expenses?
• Are you overstating any of your business expenses?
• Did you fail to report any business income or did you inflate that income?
• Do your payroll taxes match that of your employees?
• If your business handles a lot of cash,  are you diverting any of this into your own pocket?

If you are about to have your business audited, consider hiring a qualified Hawaii tax law attorney. They can help you to navigate the complex process ahead and offer advice as issues arise.

Tax Evasion

Tax evasion refers to any activity an individual or business in Hawaii engages in to reduce or avoid their tax liabilities. There are two types of tax evasion: evasion of assessment and evasion of payment.

Evasion of assessment means the taxpayer performed an action with the goal of defeating the assessment of a tax. The under-reporting of taxes is a common example of this. Evasion of payment means that you avoid paying the IRS by hiding money or assets that should become taxed.

Here are some examples of tax evasion:

• Keeping a double set of books
• Overstating deductions
• Destroying financial records
• Concealing sources of income
• Filing a false return
• Making false invoices
• Holding property in another person’s name to avoid taxation

If you are found guilty of tax evasion in Hawaii, you can face hefty fines, prison time, or both.

Income Tax Fraud

Income tax fraud is the willful attempt to evade or defraud the IRS and Hawaii tax laws. Tax fraud occurs when an individual or business does any of the following:

• Prepares and files a false tax return
• Willfully fails to pay taxes
• Intentionally fails to file an income tax return
• Intentionally fails to report income received
• Makes fraudulent or false claims on the tax return

In 2009, the Department of Taxation formed the Special Enforcement Section (SES). The SES serves as tax fraud referral specialists on developing criminal tax fraud cases. The Department of Taxation Criminal Investigation Section then handles all criminal tax fraud cases. Tax fraud in Hawaii is a felony offense punishable by up to 5 years in jail. According to Hawaii’s Attorney General, the court can also impose up to $100,000 in fines.

When Would You Need an Experienced Hawaii Tax Law Attorney?

Facing Legal Issues Regarding Taxes

If you’re under investigation from the IRS or planning a lawsuit against, you will need a Hawaii attorney who practices tax law. To illustrate, counsel can help collect the information you need and create a viable defense.

When Starting a Business

There’s more to starting a business in Hawaii than selling products or services. You also need to determine the business type and structure. This status, in turn, determines how the business and your earnings get taxed. Choosing the wrong business structure can cost you.

In Hawaii, the type of business structure you choose will create tax implications. For example, as a sole proprietor you will not need to file an additional tax return. Instead, the business activity is listed on the individual’s 1040 tax return. However, corporations must file a separate tax return and pay taxes at a rate ranging from 4.4% to 6.4%. Hawaii’s Department of Taxation provides the relevant forms required for filing corporate income tax.

If You Have a Taxable Estate

If your estate is worth more than $11.58 million, or $23.16 million if you’re married, your estate might get taxed up to 40% for surpassing that threshold. No one wants a huge portion of their estate going to the IRS instead of their heirs. This is why wealthy people involve tax lawyers in their estate planning process.

According to the Hawaii Department of Taxation, the threshold for estate tax is $5.49 million. This rule applies if the decedent was a resident of Hawaii. If the decedent was a nonresident of Hawaii, the rule still applies if the decedent was a US resident or citizen. Hawaii’s estate tax is progressive, ranging from 10% to 20%.

Work with an Experienced Tax Law Lawyer in Hawaii

Facing issues related to tax law can feel overwhelming. No one wants to go head-to-head with the IRS. Experienced Hawaii tax law lawyers have the expertise you need, from conducting audits to defending you in court.  We can even help you connect with an attorney across Hawaii state lines.

Submit a request online or call us today at (866) 345-6784 to get in touch with an experienced lawyer in your area!