Monthly Archives: October 2019

Qualified Joint Ventures Vs Partnerships When Spouses Share a Business

Married to your business partner? As far as the IRS is conserned when two people are in business together and they donโ€™t set-up an enity with their state they are a partnership reguardless of wheather they have a written partnership agreement and need to file a partnership return on IRS form 1065.

So just want makes a business a partnership? When two or more people operate a trade or business together, share assets, profits and losses the business is a partnership, unless some other enity Corporation, LLC Limited partnership or trust has been set-up under state law. If the partners happen to be a married couple the couple may be able to make an election to treat the partnership as a Qualified Joint Venture.
Spouses may elect treatment as a qualified joint venture instead of a partnership. Where a a trade or business where is conducted by a married couple jointly and:
They are married and will file a joint return; and
…Both spouses materially participate in the trade or business; and
…Both spouses elect not to be treated as a partnership.
Spouses electing qualified joint venture status are sole proprietors for federal tax purposes. Each spouse must file a separate Schedule C to report their share of profits and losses.

๐—œ๐—ฅ๐—ฆ ๐—œ๐˜€๐˜€๐˜‚๐—ฒ๐˜€ ๐—”๐—ฑ๐—ฑ๐—ถ๐˜๐—ถ๐—ผ๐—ป๐—ฎ๐—น ๐—ฉ๐—ถ๐—ฟ๐˜๐˜‚๐—ฎ๐—น ๐—–๐˜‚๐—ฟ๐—ฟ๐—ฒ๐—ป๐—ฐ๐˜† ๐—š๐˜‚๐—ถ๐—ฑ๐—ฎ๐—ป๐—ฐ๐—ฒ:

The IRS has issued guidance on the federal income tax treatment of hard forks (protocol changes to cryptocurrency that result in a permanent diversion from the legacy distributed ledger) and airdrops (distributions of cryptocurrency to multiple taxpayers’ distributed ledger addresses). According to the agency, a taxpayer doesn’t have gross income as a result of a hard fork if he or she doesn’t receive units of a new cryptocurrency. However, a taxpayer will recognize ordinary income as a result of an airdrop following a hard fork if he or she receives units of new cryptocurrency. The IRS also has published a list of Frequently Asked Questions (FAQs) that covers other virtual currency topics, such as methods for calculating and assigning cost basis, the tax consequences of a soft fork, and receiving virtual currency as a gift. The FAQs are available at www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions . Rev. Rul. 2019-24 .

Be Tax Smart

In another case of failure to ask the consequences before taking action, we recently had to tell a client that gifting a rental property to their parents locked up the suspended passive activity losses they had on the property until the property is disposed of by their parents.

What this means is that a passive loss carry forward of over $100,000 (which would have become currently deductible had the property been sold, reducing their current tax bill $22,000) would not apply, at least until the property was sold by their parents.
Had they asked, they might have decided to sell the property and buy something more fitting to gift to their parents, or just sell the rental and then purchase a second home for their parents to live in.

Being tax smart means asking the right questions before you take action, not after.

 

Crypto & Virtual Currency IRS Want You On The Record

10/16/2019 — The IRS is not kidding around when it comes to crypto and other virtual currency and tokens! It can easily be seen just how hard the IRS is working to get a handle on these transaction by taking a look at the draft copy of the new 2019 Schedule 1. The first question on the revised form is โ€œ๐—”๐˜ ๐—ฎ๐—ป๐˜† ๐˜๐—ถ๐—บ๐—ฒ ๐—ฑ๐˜‚๐—ฟ๐—ป๐—ถ๐—ป๐—ด ๐Ÿฎ๐Ÿฌ๐Ÿญ๐Ÿต, ๐—ฑ๐—ถ๐—ฑ ๐˜†๐—ผ๐˜‚ ๐—ฟ๐—ฒ๐—ฐ๐—ฒ๐—ถ๐˜ƒ๐—ฒ, ๐˜€๐—ฒ๐—น๐—น, ๐˜€๐—ฒ๐—ป๐—ฑ, ๐—ฒ๐˜…๐—ฐ๐—ต๐—ฎ๐—ป๐—ด๐—ฒ, ๐—ผ๐—ฟ ๐—ผ๐˜๐—ต๐—ฒ๐—ฟ๐˜„๐—ถ๐˜€๐—ฒ ๐—ฎ๐—ฐ๐—พ๐˜‚๐—ถ๐—ฟ๐—ฒ ๐—ฎ๐—ป๐˜† ๐—ณ๐—ถ๐—ป๐—ฎ๐—ป๐—ฐ๐—ถ๐—ฎ๐—น ๐—ถ๐—ป๐˜๐—ฒ๐—ฟ๐—ฒ๐˜€๐˜ ๐—ถ๐—ป ๐—ฎ๐—ป๐˜† ๐˜ƒ๐—ถ๐—ฟ๐˜๐˜‚๐—ฎ๐—น ๐—ฐ๐˜‚๐—ฟ๐—ฟ๐—ฒ๐—ป๐—ฐ๐˜†?โ€ Looks like they want to get taxpayer on the record as whether or not they have any dealings in virtual currency. Itโ€™s important to remember that lying on a tax return can be considered a criminal act.

2019 Draft 1040 Schedule 1

 

Virtual Currency Update and Frequently Asked Questions

IRS-investigates

The IRS releases a the first update on Virtual Currency since the 2014. The newly released guidance includes Revenue Ruling 2019-24 and a list of Frequently Asked Questions on Virtual Currency Transactions.

The guidance helps clarify things like, the tax consequences selling of virtual currency (FAQ 4), receiving virtual currency for preforming services (FAQ 8), date and time of receipt of virtual currency (FAQ 11), and many others answers can be found in the IRSโ€™s Frequently Asked Questions on Virtual Currency Transactions.

The Frequently Asked Questions on Virtual Currency Transactions can be found on the IRS web site or by clicking on this link.

Just who is a real estate professional when it comes to tax filing?

Real Estate Professionals

Real estate professionals must treat rental real estate activities in which they materially participate as nonpassive activities. Therefore, they can deduct these rental real estate losses from other nonpassive income. The $25,000 special allowance does not apply to these taxpayers.

Real estate professionals are individuals who meet both of these conditions:

  1. More than 50% of their personal services during the tax year are performed in real property trades or businesses in which they materially participate and
  2. They spend more than 750 hours of service during the year in real property trades or businesses in which they materially participate. Depending on the facts and circumstances, a real property trade or business for this test may consist of one or more of the trades or businesses listed at Real property trades or businesses below. [Reg. 1.469-9(d)]

Real property trades or businesses. Any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage trade or business.

Is Starting a Business Right for You?

Business Start Up Graphic

Thinking about starting a business? Here are some tips you may want to consider before investing your time and money.

        • Are you doing it for the right reasons? Many times, people tell me they are thinking about starting a business so they can work less, not have a boss to report to or just want to be in charge. All of these are bad reasons to start a business. Anyone who has owned a successful business can tell you they work all the time not less than when they were working for someone else. Donโ€™t like reporting to a boss as a business owner you have lots of people to report including your customers. Like being in charge, starting out in many businesses the only one you will be in charge of is yourself.

       

        • Just how much money do you have to invest and how much risk are you willing to take. For example, you might have $50,000 to invest; but in addition to that, you could be grantor on a lease, have a bank loan or even owe suppliers for goods. Knowing how much you are willing to risk can help you avoid putting yourself in a hole that you can never get out of.

       

        • Will you be starting a business from scratch coming up with a concept and deciding what to sell, how to sell it and how to market, or would you be best suited to buying and operating a franchise that has established products, selling, market and operating procedures?

       

        • Then there is choosing the type of business entity that best fits your needs now and into the future. What kind of business entity is best for you depends on many options, includingย  whether you will have investors, additional owners who will also be working in the business and the kinds of liabilities the business could create. It will also depend on your plans to distribute profits or keep them in the business for expansion.

       

        • Other important choices include location, required licensing, sales and use tax responsibility, required leasehold improvement and bookkeeping requirements.For assistance with all these things and much more, itโ€™s important to have a team of professionals you can trust to turn to.

       

    • Remember that itโ€™s this team ‘ s job to see all the bumps and traps in the road ahead. Donโ€™t be upset when they donโ€™t seem as enthused about your plans as you do, because it not their job to get you excited itโ€™s their job to be sure you are prepared. Your team should include an accounting and tax professional, an attorney and others depending on the kind of business you are starting.