Small Business Lawyer Costs -- When Do You Need a Tax Attorney?

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Keeping a close eye on expenses -- like paying small business lawyer costs when you need a business tax attorney -- is a major consideration when you own a business. If you're like many others, you're probably inclined to err on the side of not spending if and when you have a choice. Understanding the role such an attorney plays in the event of a tax dispute can help you determine whether the expense is worth it. 

What Is a Tax Attorney? 

A tax attorney has a Juris Doctor or J.D. degree and has passed the bar exam in your state. He's been admitted to the bar so he can legally practice law. But tax specialization is something else again. This kind of experience is developed over time as attorneys practice in the field and keep abreast of the many frequent changes in tax law. 

How Much Does a Small Business Lawyer Cost?

When you ask a lawyer just how much his services are going to cost you, he'll probably hem and haw, and with good reason. Your case may seem straightforward at first, then some complication arises that takes much more of the attorney's time than was initially anticipated. 

A better question is to ask him his hourly rate. If he charges $300 an hour and it takes him 10 hours in audit time, court appearances and phone calls to the IRS to resolve your problem, you'll spend $3,000 -- at a minimum, not accounting for unexpected complications. Experienced tax lawyers typically charge $200 to $400 an hour as of 2016, but their rates are subject to inflation just like everything else. Expect to put down a retainer based on how much time the lawyer thinks he's going to have to put into your case.

He'll bill his time against this money until it runs out, then you may be asked to put down another deposit if your case is still ongoing. 

Do You Need a Tax Lawyer? 

Many situations can arise in business that can necessitate the help of a tax attorney, and they're not limited to audit notices from the Internal Revenue Service.  

  • A tax attorney reviews the various legal types of business structures to determine which might be best for your enterprise at startup. 
  • A tax attorney reviews business contracts and may assist in negotiations, such as the purchase or sale of a business, and to determine and advise you on the tax effects of these deals.
  • A tax attorney can advise on the treatment of sales and expenses and deductions at tax time, particularly more complex deductions like depreciation.  
  • Both CPAs and tax attorneys can represent you in an audit, but only a lawyer can represent you in tax court if the audit ends unfavorably and you want to appeal, or if the IRS levels charges against you. 
  • A tax attorney can help determine the best form of bankruptcy for your needs if your business should experience financial difficulties. He can advise you on the potential tax effects of various actions during and after bankruptcy.

If you decide to use or retain a tax attorney, look for one who specializes in working with the Internal Revenue Service. Some attorneys may have considerable experience at the state level but rarely practice at the federal level. You'll want someone who can successfully represent you at an audit, and who has the know-how to negotiate an appropriate settlement in worst case scenarios. Tax law can involve several courts and hearing panels, from administrative appeals to tax court and even to the U.S. Court of Appeals and the Supreme Court.

A tax attorney who specializes in all areas may be pricier, so focus on the expertise you need for your own unique situation. It may be possible to use a CPA for some purposes, such as tax preparation or general guidance, reserving an attorney for more serious questions and issues.