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.

Learn Workers Classification Rules For Federal Tax Purposes

Written by IRS | Posted in Workers Classification Rules

Significant tax consequences result from the classification of a worker as an employee or independent contractor. These consequences relate to withholding and employment tax requirements, as well as the ability to exclude certain types of compensation from income or take tax deductions for certain expenses. Some consequences favor employee status, while others favor independent contractor status. For example, an employee may exclude from gross income employer-provided benefits such as pension, health, and group-term life insurance benefits. On the other hand, an independent contractor can establish his or her own pension plan and deduct contributions to the plan. An independent contractor also has greater ability to deduct work related expenses.

Under present law, the determination of whether a worker is an employee or an independent contractor is generally made under a facts and circumstances test that seeks to determine whether the worker is subject to the control of the service recipient, not only as to the nature of the work performed, but the circumstances under which it is performed. Under a special safe harbor rule (sec. 530 of the Revenue Act of 1978), a service recipient may treat a worker as an independent contractor for employment tax purposes even though the worker is in fact an employee if the service recipient has a reasonable basis for treating the worker as an independent contractor and certain other requirements are met. In some cases, the treatment of a worker as an employee or independent contractor is specified by statute.

Significant tax consequences also result if a worker was misclassified and is subsequently reclassified, e.g., as a result of an audit. For the service recipient, such consequences may include liability for withholding taxes for a number of years, interest and penalties, and potential disqualification of employee benefit plans. For the worker, such consequences may include liability for self-employment taxes and denial of certain business-related deductions.

Click Here To Access Federal Rules On Worker Classification

or

Employee or Independent Contractor

5 Ways to Increase Profits

Eliminating unnecessary expenses can be one of the fastest ways to add profits to the bottom line. ย This is because while only a percentage of any additional sales is available to increase the bottom line, depending on the direct costs of the services or products you sell, every dollar of any reduction or elimination of an expense goes right to the bottom-line โ€” increasing profits.ย 

For example, if you sell an additional product for $100.00 and have a margin of 50%, then $50.00 is the most that can go to the bottom line. But reduce your monthly bills by $100.00 and $100.00 goes to the bottom-line month after month.

Here are 5 things you can do to increase your bottom line.

1) Review your bank and credit card statements to ensure there are no recurring payments for services you are no longer using.

2) Review the fees being charged by your business account; if they seem out of line check with your bank on ways to reduce your bank charges. If your bank will not work with you shop other banks.

3) Review credit card processing fees and other charges. Are you paying to rent a credit card processing terminal you could easily buy for a fraction on the annual rent you are paying?

4) Eliminate unnecessary overtime. Getting on top of your payroll and employee hours worked to ensure that unnecessarily clocking in early and out late donโ€™t result in a few hours of overtime each week.

5) Review pricing of your products or services. Small increases can often have large results as the additional revenue feeds right in to the bottom line.

Need help finding additional way to increase your profitability? We can help, just give us a call.

Do You Know Where Your Accountant Hangs Out?

It has happened again; I got a call from someone that wanted to know if we could get their S-Corporate return done by Monday, as the โ€œperson I have been working with just stopped returning my calls and emails.โ€  When I asked if they went by the personโ€™s office to ask what was going on, they said: โ€œas far as I know they, donโ€™t have an office, and the only time I met them it was at Dennyโ€™s.โ€

Itโ€™s never a good idea to do business with an accountant, or any other business, that does not have or will not tell you where their business office is located. This sounds like another case of somebody doing accounting and tax work while they are looking for a job, and leaving their clients high and dry when that job comes along.

This โ€œcheapโ€ tax return is now going to cost a lot more – as itโ€™s a rush job, that is, IF we can get all the information, and complete it by close of business on Monday.

Donโ€™t be fooled into using an accountant that has no office so he comes to you and works out of his home or a PO box, in the end, cheap services always end up costing more than using a true professional.

Illinois Passes New Law Changing State Income Tax Withholding Requirement For Nonresidents.

The state of Illinois signed SB 1515 into law on August 26, 2019. It repeals the previous law pertaining to state individual income tax withholding requirements for out-of-state residents. Now, nonresidents who spend 30 days or more working in Illinois during the calendar year are considered to have been compensated in the state and are subject to Illinois income tax.

SB 1515 requires employers with nonresident employees working in the state to:

  • Maintain record of the number of days worked in-state by their nonresident employees, or
  • Have the nonresident employees submit a written statement that includes the number of days that they reasonably expect to spend working in the state during the year.

This law will be applicable to tax years ending on or after December 31, 2020.

Dead Horse Kills Deductions

United States Tax Court ruled in the case of Denise Celeste McMillan v. Commissioner of Internal Revenue on August 26, 2019. That her horse business no longer existed with the death of her last horse. Ms. McMillan challenged the IRS on disallowing her deductions for her horse showing/breeding business. Ms. McMillan was self-employed, both as a horse breeder and trainer and as an independent IT professional. During the 2010 tax year, she claimed a deduction for her horse business, which functionally no longer existed due to the death of her last horse. Proving that not only can you not beat a dead horse but also that a horse business lives and dies with the horses.

For the complete decision see T.C. Memo. 2019-108.

Cowboy on a dead horse

Questions About Converting an IRA To A Roth IRA

Question: โ€œDoes it make sense to convert my IRA to a ROTH IRA?โ€

Answer: We need a lot more information to answer that question. The answer will depend on your marginal projected tax rate for the year, along with your projected marginal tax rate at retirement. It also depends on how long you project between conversion and beginning withdrawals. While Roth IRAs can be a great choice, the conversion should not be done without fully understanding the tax ramification and what your plans and needs will be for the money in the account. If you know that you will be in a low tax bracket this year due to being out of work or having deductible business losses it can make a lot of sense to convert some or all or your IRA to a Roth IRA. Just how much to convert depends on your projected income and how much you can get in at the projected lower marginal rate.

We welcome your questions. Just email them to Info@RMSAccounting.com or call us at 954-563-1269.