Tag: Internal Revenue Service

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Cryptocurrency: It’s “Property” And It’s Taxable, IRS Says

Internal Revenue Service lately has been sending out reminders to people who trade in bitcoins and other financial creations that exist only in the digital world.   The message is:  Yes, this is all taxable.

Bitcoin is perhaps the best known “cryptocurrency,” or virtual currency, being traded in exchanges on the Internet. The digital encyclopedia Wikipedia says there might be 4,000 types out there.

The currencies are used both as assets like stocks and as payment for purchases like money.  Some employees even receive pay in bitcoin. But, while they are not legal tender, they have value. For tax purposes, the IRS classifies all these digital currencies as property, which can be translated in terms of real money.

So. if you make a bundle on a bitcoin trade, the gain is taxable — just as if it were done with stock or any capital asset.  Likewise, employers who pay their workers in bitcoin or another digital instrument must convert them to their money value and issue W-2 forms in terms of U.S.  dollars to their employees.  As you might suspect, those wages also are subject to the same withholding rules as any other paycheck. Ditto for wages paid to self-employed workers and independent contractors

Workers or investors also must use those values when they file their personal tax returns.

The dollar values of many cryptocurrencies can change as they trade on their exchanges. So, the IRS also requires any digital wages to be valued as of the exact date when they are paid.

In July, the IRS announced it was sending letters to more than 10,000 cryptocurrency investors about unreported or improperly reported transactions using virtual currencies.

The tax agency issued its basic guidance about cryptocurrency transactions about five years ago in Notice 2014-21.  View it at  https://www.irs.gov/pub/irs-drop/n-14-21.pdf

EricJohn owner Eric Buechler can provide more specific advice about cryptocurrency transactions and taxes. Feel free to ask!

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2016 S Corp and Partnership Returns: Deadline Quickly Approaches

Taxpayers who pushed off their 2016 returns last spring by filing 6-month extensions now are getting close to the day of tax reckoning. The deadline for completing those extended tax returns looms within six weeks for individuals.

Actually, partnerships and S corporations need to hustle now. Their extensions expire on Sept.15, a month earlier than in the past. The partnership deadline previously had followed the schedule for Form 1040 filed by individuals — April 15 (original deadline) and Oct. 15 (with an extension).

The new due date was set by Congress in a 2015 law. It moved up the original filing date for 2016 returns to March 15.   The change caused enough consternation that the Internal Revenue Service waived penalties for late filings if a partnership had met this year’s original deadline on April 18. (See IRS Notice 2017-47 for more details.) But the IRS has not bent its rules for the upcoming due date for extended returns on Sept. 15.

Individual taxpayers who received extensions last spring can be a little more leisurely. They have until Oct. 16 to finish up their 2016 returns. (The normal due date, Oct. 15, lands on a Sunday, moving the deadline back to the next business day under IRS rules.)

EricJohn Ltd. is ready to assist with the IRS and Minnesota state tax calendars, as well as extended filings. It’s also a good idea to start thinking about end-of-year tax actions for 2017’s returns.

 

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Ramps, railings, doorways and the IRS: Medical write-offs

A home should fit its owner, and many homeowners spend considerable amounts modifying their dwellings to assist with health problems or disabilities.

Wheelchair ramps, wider doorways, lifts to second-story living spaces, grab bars in showers, shortened shelves and lowered cabinets. . . many home improvements can be deductible for federal tax purposes if they are made to accommodate medical conditions or disabilities. The write-offs are a bit more complicated than some other deductions in tax codes, but they also can be very beneficial.

Here’s the key qualifier for placing them on your 2016 tax return: all medical and dental expenses paid last year must amount to more than 10 percent of adjusted gross income. (There is one notable exception – the threshold falls to 7.5 percent of adjusted gross income for taxpayers and spouses who turned age 65 before Jan. 2, 2017.) The expenses being deducted also cannot have been reimbursed by health insurance or another source, the Internal Revenue Service says. In short, you must have paid them personally.

medical write-offs

Claiming medical deductions also will involve filing the full Form 1040. Medical expenses are itemized deductions, and taxpayers take them on Schedule A, which is part of the 1040. The shorter versions, which are Forms 1040 EZ and 1040A, don’t allow itemizing.
Spending for immediate medical treatments is an obvious type of medical deduction. But the IRS and federal tax codes also allow deductions for remodeling a dwelling or adding equipment to it for medical reasons. (Changes for other personal reasons such as appearance or architecture won’t work.)

Here are examples of some deductible costs:

  • Building wheelchair or walking ramps for entering/leaving your house. Leveling out the ground for home access also may qualify.
  • Installing railings or bars in bathrooms.
  • Modifying hardware on doors, such as replacing knobs with levers.
  • Relocating electrical outlets or fixtures.
  • Adding lifts to different floors in a house or changing stairs.
  • Widening hallways or doorways for wheelchair.
  • Lowering kitchen cabinets.
  • In some cases, moving rooms such as bathrooms, to another floor.
    Ongoing maintenance of these medically necessary improvements also can qualify for the deduction.

medical tax deductionThis deduction gets more complicated if the improvements add value to your home. If so, the taxpayer might only be able to deduct the cost above the increase to the value of the house.
For a deeper look into medical deductions, see IRS Publication 502. It also contains an alphabetical list of various eligible medical expenses and their limitations.

The circumstances for medical deductions are highly individual, of course. We at EricJohn Ltd. can help assess medical spending and make the proper filings for deductions on your tax return.

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Warning! Warning!

 

The Internal Revenue Service says it is especially worried about the spread of an email phishing scheme to schools, hospitals and nonprofit organizations. The federal tax agency today issued an “urgent alert” warning employers about the potential for identity theft from W-2 forms.

“This is one of the most dangerous email phishing scams we’ve seen in a long time” said IRS Commissioner John Koskinen. “It can result in the large-scale theft of sensitive data that criminals can use to commit various crimes, including filing fraudulent tax returns.”

Employees of those institutions – particularly those working in payroll or human resources departments – should be especially wary in dealing with requests for W-2 forms, the IRS announced.

The online thieves typically send an email to a worker in a payroll or HR department, asking for a list of employees and their W-2s.  The main trickery involves email addresses. The thieves “spoof,” or disguise, the address to look like the email came from a company executive.

When the worker sends the list, the scammers get valuable information, such as Social Security numbers, wage data, residential names and addresses, etc., which can be used to file phony tax returns,  open credit cards or steal in other ways,

The phishing ploys were around last year, too, but they occurred heavily in the corporate world. Now they’ve spread to school districts, hospitals, nonprofits, employment agencies and even tribal organizations, among others.  This year, the online thieves not only are bilking a broader range of businesses, but they also are striking earlier in the tax reporting season, the IRS and a group of cooperating tax agencies and industry groups called the Security Summit warned.

Some scammers also have used a more sophisticated version. They’ve teamed up the phishing scam with a wire transfer of money, again supposedly requested by the organization’s executive. “Some companies have lost both employees’ W-2s and thousands of dollars due to wire transfers,” The IRS said in its alert.

Feel free to contact us at EricJohn Ltd. for more information about business and individual taxes.

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BE ON GUARD IF THEY SAY “IRS CALLING”!

The Internal Revenue Service is warning that scammers are getting more sophisticated.

They’re still using past ploys, such as posing as IRS agents and sending emails or letters with official-looking letterhead. Now the thieves also are spoofing the caller IDs on taxpayers’ phones, making it appear that the call is coming from the IRS. Some even are giving panicked victims directions to local banks for money or debit cards to pay taxes. And, in another new twist, some are embellishing their scams by providing a real IRS address for victims to send receipts after a supposed payment.

The tax agency says scare tactics often are part of the con artists’ pitches.

SIGNS OF FRAUD

Here are some ways to tell if you’re being scammed. The IRS says its representatives will NOT:

o Phone you about taxes – even if you do owe money – until the agency has sent you a formal bill. IRS agents also do not demand immediate payment by phone or computer. And they don’t get angry and badger taxpayers.
o Threaten to have you arrested by local police or any other agency for not paying taxes.
o Request credit or debit card numbers over the phone – or require a certain type of payment, such as a debit card.
o Discuss any payment without offering you an opportunity to question or to appeal the amount due.

Also, the IRS says it does not send emails, text messages or social media messages asking for any kind of personal or financial information.

TAKING IT FURTHER

If you actually do owe taxes, call the IRS at 1-800-829-1040 for official help.

If you’re sure you don’t owe taxes, you can report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484. You can also contact the Federal Trade Commission at https://www.ftccomplaintassistant.gov and include “IRS Telephone Scam” in your complaint.

Sadly, these illegal tax scams sometimes do succeed. The U.S. Treasury reports close to 4,000 taxpayers nationwide have lost about $20 million to tax thieves since fall 2013.

For more information, visit www.IRS.gov and type “scam” in the search box.

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DOWN-TO-THE -WIRE TAX ACTION

If you won’t have your federal (and state) tax returns ready by the end of the day on Wednesday (April 15), it’s probably time to join the millions of taxpayers asking for an extension.

The extension adds another six months to the deadline, making it Oct. 15. The IRS won’t ask you why you need it. BUT – and it can be a big “but” – the IRS still expects you to estimate income and pay any taxes by the normal deadline.

You accomplish that on Form 4868 or “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” The extension generally is automatic. For a copy, see http://www.irs.gov/pub/irs-pdf/f4868.pdf.

The clock is ticking with this. Whether you’re sending it electronically or by “snail mail,” it must be recorded or postmarked by the end of the day on April 15 to avoid penalties.

Now, from a technical standpoint, if you are absolutely certain that you will not owe any income taxes, you don’t need to file Form 4868. You can file your normal 1040 return later in order to capture your refund.

However, to be safe, we at EricJohn Ltd. advise filing the application for extension, whether or not you think you need it. Miscalculations can happen, and there is a late filing penalty in addition to late payment penalties for any unpaid tax.

WHAT THE IRS WANTS
In a nutshell, an extension is not valid unless your tax liability is estimated properly, using available information. Don’t break out in a sweat just yet! You can come up with a reasonable estimate. As a starting point, did you make more or less money than a year ago?

If you have some figures, work with that information, even if you are missing some income or expenses. Then make a good faith estimate of what you owe. Spending the time to pull together realistic figures could save you hundreds – maybe even thousands – in tax penalties.

Next, send a tax payment based on your estimate! You can do that electronically at the IRS web site (www.irs.gov) or enclose a check in the envelope. But don’t omit that step, even if your estimate is shaky.

Finally, don’t forget any state taxes you owe. In Minnesota, you don’t have to file an extension form. BUT – just as with the federal return – you must pay tax due to avoid penalties.

Minnesota Department of Revenue also accepts tax payments through its Web site. Here’s a pointer about extensions and payments: http://www.revenue.state.mn.us/individuals/individ_income/Pages/Filing_Extensions.aspx.

We at EricJohn Ltd. wish you easy and accurate filings for Tax Day!

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EXTREME COMMUTE, BUT NO TAX SYMPATHY

An engineer working on a remote, federal project in the Nevada desert drove 160 miles to and from work each day – three hours behind the wheel.

William Cor, who worked for a government contractor, figured Uncle Sam would help pay for the abnormally long commute. So, he wrote off $150 for each day’s travel from his federal tax return, claiming it as an unreimbursed business expense.

He discovered the hard way that, from a tax standpoint, commuting doesn’t pay.

The U.S. Tax Court not only rejected Cor’s deduction for commuting but also upheld an Internal Revenue Service penalty for negligent tax reporting. Almost all of the $29,457 in unreimbursed business expenses he claimed on his 2010 tax return was due to commuting.

Cor, who acted as his own attorney, didn’t help his case much. He didn’t show any mileage or expense logs. He merely charged $50 an hour for his commute, arguing that the government benefited from his unpaid time on the road. The Tax Court judge was unimpressed. Cor’s arguments simply “are not persuasive,” the judge said.

Issues involving Schedule C business expenses and unsubstantiated charitable deductions also contributed to the penalty on his joint return. You can look up the ruling for William L. Cor and Jana K. Cor v. Commissioner of Internal Revenue at the U.S. Tax Court’s Web site. It’s TC Memorandum Opinion 2013-240, dated in October 22, 2013.

Whether it’s two miles or 200, across town or across the desert, a worker’s commute is not deductible under IRS codes. Exceptions are very narrow.

Call us at EricJohn Ltd. to put those business expenses in perspective.

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