Cashing in on Cryptocurrency? The IRS wants in.

Cryptocurrency investing is both “cool’ and “hot.”. It is a type of digital asset that is traded online. There have been wide fluctuations in value, and this means it is an attractive investment for traders and other investors. But did you know that a transaction with cryptocurrency (Bitcoin for example) may result in a taxable income? Let’s say you purchased 10,000 units of Bitcoin for $20,000. If the Bitcoin appreciates and you purchase a $40,000 yacht with 5,000 units of Bitcoin you would have a taxable income of $30,000.

If you have been investing in cryptocurrency the IRS has been keeping tabs on you. In 2017, the IRS won a lawsuit requiring Coinbase (one of the largest digital currency exchanges) to hand over all information of customers that have been trading over $20,000 on this platform. So, if you have recently had a $20,000 transaction and you think the IRS doesn’t know about it, you are probably wrong.

The IRS has recently sent out 10,000 letters warning cryptocurrency holders that they may have filed their tax returns improperly or may not have done so at all.

The IRS says that virtual currencies are to be treated as property, not currency. What is the significance of treatment as property? There is a lot of significance. In general, when you exchange property for goods and or services a taxable transaction occurs. In the yacht example above, there is a $30,000 gain (on the cryptocurrency, not the yacht). This gain should be treated as either a capital gain or ordinary income depending on the transaction.

If you are a provider of services and get paid in cryptocurrency, you would recognize taxable income based upon the fair value of the cryptocurrency received on the date it is received. But what is the fair value? Cryptocurrencies can fluctuate in value up to 20% in a day.

All US income tax returns are required to be filed in U.S. dollars. In order to file their tax return, taxpayers must figure out the fair market value of their cryptocurrency transactions. The price fluctuation and thin market can make this difficult. 

The IRS is “cracking down” on those trying to get out of paying taxes on their cryptocurrencies and warn that “taxpayers could be subject to criminal prosecution.” The rules are complicated. If you deal in crypto and have questions, please do not hesitate to call us at 212-786-7476.

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Year-end Tax Planning for Individuals

It’s that time of year again to begin taking the steps necessary to reduce taxes on your personal returns.  Below we have put together some tips to ensure you make the most of this planning time.

Bunch your deductions: For example, bunching deductions on your personal income tax return can make sense for 2014. Bunching means you concentrate itemized deductions into the year offering the most tax benefit and claim the standard deduction in alternate years. Even if the current limitation on itemized deductions applies to you, bunching can be effective when combined with other tax planning such as reducing adjusted gross income.

• One category of itemized deductions that lends itself to bunching is charitable contributions. In general, as long as you have written acknowledgment from a qualified charity, you can deduct donations in the year you write the check or put the charge on your credit card.
• Instead of cash, donating appreciated assets before December 31 may be more tax advantageous. When you contribute property you have owned for more than a year, you can usually deduct the full fair market value.
• For instance, say the value of the shares you own in a mutual fund has gone up since you bought into the fund. If you sell those shares and donate the proceeds to charity, you’ll have capital gain. But when you donate the shares to the charity, you can claim a deduction for the value on the date of your donation, garnering a benefit without the related income tax bill.
• Other itemized deductions you can control in order to maximize tax savings include real estate taxes and state income taxes.

Check exposure to the AMT: Just remember to check your exposure to the alternative minimum tax and the 3.8% net investment income tax when deciding in which year to pay these tax bills. Why? Certain itemized deductions – such as taxes – are disallowed under the AMT rules, but can help reduce exposure to the net investment income tax.

• What if you’re not planning to itemize? Taking a look at your deductions is still a useful exercise. One reason: The standard deduction is also disallowed under AMT rules, and you may benefit by itemizing even when your total itemized deductions are under the threshold.
• The standard deduction for 2014 is $12,400 when you’re married filing jointly and $6,200 when you’re single.

Monitor adjusted gross income: Another tax planning strategy is to reduce adjusted gross income (AGI). One way to do this on your personal tax return is to maximize above-the-line deductions. These are expenses you can claim even if you don’t itemize. Above-the-line tax savers include such items as retirement plan contributions, student loan interest deduction, and the health savings account deduction.

Consider shifting income: A planning strategy to help reduce taxes on your personal returns is shifting income among family members.

• An income-shifting technique is to make gifts of income-producing property to family members in lower tax brackets. (Be aware of the “kiddie tax.”) Though you can’t take a tax deduction for gifts, future income is taxed to the recipient, and may mitigate your exposure to the 3.8% net investment income tax.
• Gifts of up to $14,000 per person ($28,000 when you’re married) made before year-end incur no income, gift, estate, or generation-skipping taxes.

Year-end Tax Planning for Businesses

The end of another year is fast approaching, and it’s once again time to take steps to reduce taxes on your business returns.  We know this can be a difficult process so we have put together some information below to help.

Set up a retirement plan. When you have a business, contributions to a self-employed retirement plan also reduce AGI above-the-line. Depending on the plan you choose, you can set up the paperwork before year-end and make contributions by the due date of your 2014 tax return.

• For instance, say you’re the sole owner of your business. Establishing a 401(k) gives you the opportunity to set aside as much as $17,500 in salary deferral (plus an extra $5,500 if you’re over age 50). In addition, you can put up to 20% of your business profit into your plan.

Manage asset policies. Another tax-saving suggestion for your business is to review your asset management policies. Depreciation is probably the first thing you think of when you consider tax benefits for business assets. And you probably already know bonus depreciation expired at the end of 2013 and the Section 179 expensing deduction was reduced to $25,000 for 2014. (Be aware that Congress may reinstate the larger deductions.)

• While accelerated depreciation tax rules affect your current year deduction, remember that changes to these rules have no impact on the total amount you can deduct over the life of an asset. In addition, you still have tax planning opportunities.
• One such opportunity is to take advantage of the new repair and capitalization regulations. These rules, which generally take effect this year, provide safe-harbor thresholds for writing off the cost of certain business supplies, repairs, and maintenance. What you need to do before year-end: Create and implement a written policy to comply with the rules.
• Another potential tax saver involving business assets: Examine the tax benefits of leasing business equipment instead of buying. Depending on the type of lease, you may be able to deduct payments in full as you make them. What’s the downside? Generally you’ll forfeit depreciation deductions. Run an analysis to determine which option will work best for you.

Consider shifting income. A planning strategy to help reduce taxes on your business returns is shifting income among family members. For your business, the strategy could mean hiring family members and paying a reasonable – and deductible – salary for work actually performed. You may be able to provide tax-deductible fringe benefits as well as save on payroll tax expense.

The Affordable Care Act: How will it affect your 2014 taxes?

Staggered start dates. Exceptions. Waivers. Are you still trying to determine how the health care laws will affect your 2014 personal and business federal income tax returns? We can help. Here’s an overview we’ve put together of some current rules. Here’s an overview of some current rules.

Individual penalty. The 2014 Form 1040 has a new line for reporting the “individual responsibility payment.” You’ll owe this penalty if you or your dependents did not have health insurance during the year and don’t qualify for an exemption schweizer-apotheke.de.

• The amount you’ll report on your 2014 tax return is the greater of $95 per adult and $47.50 per child, up to a maximum family penalty of $285, or 1% of your “household income formula.”

Individual premium credit. Depending on your income, you may be eligible for a reduction in the cost of your health insurance premium during the year.

• When you signed up for insurance on the health insurance exchange, you had the option to use the reduction to offset your premiums as you paid them. Alternatively, you can apply for the credit when you file your 2014 federal income tax return.
• The amount of the credit depends on your income and family size.

Net investment income surtax. You may be familiar with this 3.8% surtax from last year’s return. It applies to net investment income – income such as dividends, interest, and capital gains, less related expenses – when your adjusted gross income (AGI) exceeds certain levels.

• Those levels have not increased for 2014. When you are married filing jointly, the surtax applies if your AGI exceeds $250,000. When you’re single or filing as head of household, the AGI threshold is $200,000.

Medicare surtax on wages. As in 2013, this 0.9% surtax applies to wages, compensation, and self-employment income when your AGI exceeds $250,000 and you’re married filing jointly. When you’re single or filing as head of household, the AGI threshold is $200,000.

Business health insurance premium credit. Did you pay at least 50% of the health insurance premium costs for your employees during 2014? If you employed fewer than 25 full-time equivalent employees and paid them wages of less than $50,800, you may be able to claim a credit of up to 50% of the premiums you paid.

• The credit is available even if you claimed it in prior years. Tax-exempt organizations can also benefit.

Business fee. When you self-insure your business health care expenses, you may have to pay a fee to help fund a healthcare research institute. The fee may also apply to your health reimbursement arrangement or health flexible spending arrangement.

Employer penalties. Depending on the number of workers you employ, you may be penalized for not providing health insurance and/or not providing affordable health insurance.

• Neither penalty applies for tax year 2014. However, you’ll want to review your workforce to determine whether the penalty will affect you in the future.
• Beginning January 1, 2015, the penalty will apply when 100 or more full-time employees work in your business. The penalty applies in 2016 when your business employs 50 or more full-time workers. When you employ fewer than 50 workers, you’re not subject to the penalty.

• Employer reporting. The health care laws included a requirement for reporting on Forms W-2 the cost of the health insurance coverage you provide to your employees. However, reporting is optional for 2014 when you file fewer than 250 Forms W-2.

Get a Head Start on Your 2014 Tax Planning

 

Now is the time to get started on your 2014 tax planning!

Take advantage of the unique opportunity that the beginning of the year brings for your tax planning! By looking back on the still-fresh prior events, you can look forward to determine what you can replicate or improve.

Practical Year-end Tax Cutting Suggestions for Individuals

It’s not too late to consider tax moves that could reduce your 2013 taxes and get you in a better tax position for 2014. Here are some ideas:

• Be aware of higher tax rates. In 2013 the top tax rate has been increased to 39.6% for top bracket taxpayers (with taxable income over $400,000 for singles, $450,000 for married taxpayers). In addition, singles with income greater than $200,000 (or $250,000 for married taxpayers) will be subject to the new 3.8% surtax on net investment income. If you believe that you will be close to this limitation, consider making moves that will defer income into 2014.

• Take advantage of tax-deferred accounts. All of the new tax rates and phase-outs are based upon adjusted gross income or taxable income. The most efficient way to reduce both of those items is to maximize contributions to tax-deferred retirement plans. If your employer offers such a plan, make maximum use of it (such as a deferred compensation plan). If not, see if you are eligible for your own deductible IRA. 

• Consider a health savings account (HSA). Investing in an HSA gives you a current-year tax deduction, while providing a savings account to use to pay out-of-pocket medical expenses currently or in the future. An HSA is not a “use it or lose it” plan. Any funds in the plan can be used in future years. And be aware that you can fully fund your HSA up to April 15th of the following year.

• Make charitable gifts from your IRA. Seniors age 70½ and older can make charitable contributions directly from their IRA. While this won’t be deductible, it can apply against your annual required minimum distribution (RMD), thereby lowering your adjusted gross income.

For guidance with your year-end tax planning, contact our office

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with Treasury Department regulations, we inform you that any U.S. federal tax advice contained is not intended or written to be used, and cannot be used for the purpose of (i) avoiding penalties that may be imposed under the U.S. Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Practical Year-End Tax Ideas for Businesses and Self Employed

If you are self employed, a start up media entrepreneur or a business owner of any sort, it’s not too late to make moves to reduce your 2013 income and self employment taxes. Here are a couple ideas:

• Purchase business equipment. Up to $500,000 (scheduled to be reduced significantly to $25,000 in 2014) in business equipment purchases can be expensed this year, rather than being expensed over a number of years. Additionally, there is also a 50% bonus depreciation allowance (that will not be available in 2014) if your purchases exceed the $500,000 limit. 2013 might be the last year to maximize your equipment purchase deductions to such an extent.You may need the latest Mac or PC, for example. This is great benefit to any company with profits that can be offset or reduced.

• Deduct health insurance. If you are self-employed, you are allowed to claim 100% of the amount paid for health insurance for yourself, your spouse, and your dependents as long as you follow certain conditions.

• Consider credit card purchases. If you want to purchase equipment or supplies for your business before the end of the year, but you are cash-strapped, consider using your credit card. Your deduction occurs this year when the purchase is made, not next year when the credit card charges are paid. Many startups finance themselves through credit card purchases. Beware, this can add a level of risk to your startup.

• Create a retirement plan. It’s not too late to create a retirement plan for yourself and your employees if you have them. The plans can be simple to set up and administer, such as a Simplified Employee Pension (SEP) plan. A 401(k) plan could be established even for a one-person business. While some of these plans must be established by the end of the year, most can be funded up to the extended due date of the tax return.

• Use the new “streamlined” home-office rules. Ocassionally, self-employed taxpayers declined to claim the home-office deduction because it was so complicated to compute. For 2013, the deduction is streamlined, allowing for a deduction of $5 per square foot, up to a maximum of 300 square feet or $1,500. This is last on my list because $5 per square foot, although simple to understand is just a fraction of the cost per square foot in NYC and surrounding areas.

For guidance with year-end tax planning for your business, please contact our office.(516-280-8363)

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with Treasury Department regulations, we inform you that any U.S. federal tax advice contained is not intended or written to be used, and cannot be used for the purpose of (i) avoiding penalties that may be imposed under the U.S. Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

 

 

A Quick Summary of New Tax Law Signed to Avoid Fiscal Cliff

The American Taxpayer Relief Act of 2012 was signed by the President on January 2, 2013. The following is a quick summary of some of the more important provisions.

Payroll taxes. The most visible tax change in the new tax law is the 2% increase in the payroll tax. Everyone who draws a paycheck or has self-employment income will pay more in 2013. If you have $40,000 in wages in 2013, you will pay an additional $800 of payroll taxes over what you paid in 2012 on the same amount of wages.

Tax rates. The new law keeps the income tax rates the same as they were in 2012 for most taxpayers and makes them permanent. The new 39.6% tax rate will apply to single taxpayers making over $400,000 and couples making over $450,000.
Itemized deductions. The law puts limitations on the itemized deductions and personal exemptions for singles making over $250,000 and married couples making over $300,000.

Long-term capital gains.  The long-term capital gains rate will be 20% for singles making over $400,000 and couples making over $450,000. The prior 15% and zero rates will continue to apply to those in the lower brackets as they did in 2012.

Tax-free distributions to charity. The tax-free distribution to charity from an IRA by a taxpayer age 70½ or older is extended through 2013. Special rules apply to December 2012 and January 2013 distributions if the transfer is made to the charity by January 31, 2013.

Education. A number of education tax incentives were extended or made permanent in the new tax law.

Child tax credit. The new law makes permanent the $1,000 child tax credit.

The alternative minimum tax (AMT) has been permanently patched with a 2012 exemption amount of $50,600 for unmarried taxpayers and $78,750 for married taxpayers. The exemption amount will be adjusted annually for inflation.

Depreciation. On the business front, the 50% bonus depreciation and the $500,000 business expensing option are extended through 2013. There are also numerous business tax incentives extended through 2013.

There is much more in the new tax law. Please contact us for a review of your tax considerations under the American Taxpayer Relief Act of 2012.