Small Law Firms

The End Of The Race (Part III): Tax Advice, Student Loans, And My True Identity

After all these years, it's time to find out who 'Shannon Achimalbe' really is.

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Let’s start by revealing who was hiding behind the curtain all these years.

My real name is Steven Chung. I am a lawyer specializing in tax planning and tax controversy resolution. I graduated from the late Whittier Law School and afterwards got my LL.M. in Taxation from Loyola Law School where I graduated with honors and high distinction.

Afterwards, I did a few stints with a number of small firms before going on my own in 2009. Most of my practice involves helping people get out of tax problems or providing general tax planning advice.

I chose tax as a specialty because taxes play a role in just about every facet of society. Major purchases by regular people require a consideration of the tax consequences. For example, one advantage to purchasing a home as opposed to renting is that the mortgage interest paid is tax deductible which can lower your tax bill. Professional athletes have to demand higher salaries in places like California and New York because of their high state income taxes. One reason why Amazon chose New York, Virginia, and Tennessee as the locations for their new operational facilities was the tax incentives offered by the state and local governments. And emerging technologies require lawyers to provide novel and creative solutions and be ready to challenge the government. For example, cryptocurrency transactions.

In future columns, I’ll write in detail about taxes and small-firm life while telling you a little more about myself in the process. I would like to start with some of the basic tax issues that lawyers should be familiar with.

Steven Chung

Just about every law student should have a basic understanding of federal, state, and local tax laws, particularly when they get their Form 1098 detailing how much student loan interest they paid in the previous year. Some may even consider getting a tax LL.M. after graduation.

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Most law firm associates are W-2 employees and they may actually end up paying higher taxes under the new tax law. First, any unreimbursed employment-related expenses are no longer deductible. Second, only $10,000 of state taxes are deductible as an itemized expense. Finally, the standard deduction has been doubled so you will have to spend more on itemized expenses before they start to become deductible. On the other hand, those who had little to no itemized expenses and used the standard deduction in the past would likely see a tax decrease.

Many new solo practitioners starting out want to see a tax advisor as much as they want to see their dentist. Most prepare their tax returns using Turbotax or some other over-the-counter tax software. While this works for some people, others make some serious mistakes which can result in adjustments by the IRS, or in some cases, a full-blown audit. They should know what kind of expenses are deductible, what kind of expenses may trigger an audit, and how they can establish simple but effective recordkeeping techniques in order to protect themselves from an audit.

Tax planning can become more complex when student loans get involved.

Most lawyers, physicians, and other professionals graduating in the 2000s and later are likely to be participating in some kind of federal income-based repayment (IBR) program to pay their federal student loans. The IBR income rules sometimes cause people to do things regular people would not do.

For example, most married couples file jointly because it usually results in a lower tax bill. But the income-based repayment rules generally state that if a married couple files jointly, then the income of both spouses will be used to determine a debtor’s monthly student loan payment. But if each spouse files separately, then only that spouse’s income will be taken into consideration. So in certain situations, it may make sense to pay a bit more in taxes by filing separately if it results in a much lower monthly student loan payment.

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Also, there is the dreaded “tax bomb” where once the student loans are forgiven, the forgiven amount becomes taxable income. Some people will have hundreds of thousand of dollars of loans forgiven which can result in a very high tax bill. However, there is one way to defuse the tax bomb before it explodes — the insolvency exception. Basically, to be deemed insolvent, your liabilities have to exceed your assets at the time of forgiveness. I’ll talk more about this in a future column, but let’s just say that some people are planning to use their credit cards to pay for lavish vacations just before their loans are forgiven.

Finally, I should point out that I have been with ATL long enough to know what most of the readers want: drama and seeing the elite fall from grace. And in the tax world, there is plenty of that in the form of celebrity tax liens and criminal tax indictments. There are many celebrities and prominent figures who get into serious tax trouble due to ignorance of the tax laws, relying on shady tax advisors, and their desire to play tricks with the tax man.

So while this is the end of one race, this is the beginning of another. One where the journey is more exciting than the finish line. Feel free to reach out to me through my alter ego email address below. Or you can chat with me on Twitter.

Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at sachimalbe@excite.com and via Twitter: @ShanonAchimalbe.

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