Tag: IRS

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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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A Special Dispensation For Farmers and Fishers

Both the Internal Revenue Service and Minnesota’s Department of Revenue agree.  Taxpayers who farm or fish for a living deserve a break this time around!

Most Individual farmers and commercial fishermen make a single estimated tax payment on Jan. 15 each year. If they don’t pay by March 1, they normally can be hit with penalties.

But, the IRS changed some rules for 2018 returns and apparently sowed some confusion into the mix for many of those taxpayers.  Specifically, the IRS says it “anticipate(s) that farmers and fishermen may have difficulty accurately determining and paying their tax liability for the 2018 taxable year by March 1, 2019.”

So, now, if they missed that estimated tax payment, it’s OK. Farmers and fishers won’t face any federal penalties if they pay their full tax load by the normal April 15 deadline.  The waiver does come with another form, though.  Taxpayers invoking it must add IRS Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen, to their 2018 tax returns.  There’s a box to be checked for a waiver.

We should note that, to qualify as a commercial farmer or fisherman, at least two-thirds of his/her gross income must come from farming or fishing.  For more information, see IRS Notice 2019-17 at https://www.irs.gov/pub/irs-drop/n-19-17.pdf

Following the feds, Minnesota Revenue also is willing to waive penalties.  But the state tax agency is telling those taxpayers NOT to file the normal state forms for underpayment (Forms M15 or EST).  Instead, they can just file their normal Minnesota M1 or M2 returns and attach the federal form – plus any tax payment, of course.

To navigate the new tax break, feel free to contact Eric and EricJohn Ltd. who is an Enrolled Agent accredited by the IRS.

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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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YOUR CHILD MAY PAY LOWER PAYROLL TAXES BY WORKING IN THE FAMILY BUSINESS

Thinking of introducing the next generation to the family business early, maybe through a summer job?

Enterprising parents can find some encouragement waiting in federal tax codes, of all places. While their children do pay income taxes on earnings, they often need not pay Social Security (FICA), Medicare or federal unemployment taxes (FUTA) through most of their teens – under the right circumstances.

Yes, there are a couple of conditions necessary to qualify your children for those exemptions:
o Type of business – The family enterprise must be a sole proprietorship operated by a parent or a partnership of parents with no other partners, including other family members or non-parent spouses. Corporations and estates also do not qualify, even if they are operated entirely by the parents, according to the Internal Revenue Service.
o Ages of the employees – The children are exempt from Social Security and Medicare taxes until age 18; they are exempt from federal unemployment taxes until age 21.

Standard withholding for income tax on the child’s wages still applies.

Why might a small family business be interested in the exemptions for children? For one thing, if his/her child is not liable to those payroll taxes, the parent doesn’t have to pay the standard employer’s portions of them, either. Another advantage is that a sole proprietor can lower his or her own income – and tax – by paying his son or daughter for their work. CPA firm Riley & Associates PC of Newburyport, Mass., points out these and some other more complex advantages online at http://cpa-services.com/special_hir.shtml.

For the IRS’s take on family workers – including employing spouses and parents – see Publication 15 under “Family employees.”

We at EricJohn Ltd. also can guide parents through the intricacies of employment taxes.

Maybe this is the year your child can jump into the family business for learning and profit!

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WARNING: TAX SEASON PREDATORS NOW ON THE PROWL

The Internal Revenue Service and the Minnesota Department of Revenue are warning taxpayers about identity theft scams circulating through emails and text messages.

Both tax collection agencies say they know of phishing schemes, which use unsolicited notifications to steal personal or financial information. The bogus notices typically try to lure taxpayers to fake Web sites or email addresses, where thieves actually steal the information.

“The IRS won’t send you an email about a bill or refund out of the blue,” IRS Commissioner John Koskinen warned in an announcement.

Minnesota Revenue said one new phishing fraud now is coming through text messages. The messages refer to filing a return with the “Minnesota state tax office.” Be wary of texts from tax preparation services or tax software companies – especially those that you have not used to file a return, the agency said.

One recent phishing scam tried to trick tax preparers into revealing user names and passwords used to enter the IRS’s electronic filing and services system. An email asked them to update their individual IDs with the agency, the IRS said.

In another scheme last fall, taxpayers received phone calls from identity thieves posing as IRS workers. They gave out fake IRS badge numbers and altered caller IDs to make it appear that it was an IRS call.

The IRS has opened an email address for tax pros and taxpayers to report phishing scams. It is [email protected].

Here are some other signs of a scam. The IRS says it will NOT:

o Call or email to demand immediate payment, or call about any taxes owed without first sending a bill.
o Require prepaid debit cards or any other specific type of payment.
o Ask for debit or credit card numbers on the phone.
o Threaten to bring in local police to arrest you for not paying taxes.

EricJohn Ltd. is ready to file safe, online returns for you or your business!

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