Category Archives: First Time Home Buyer IRA

We are Enrolled Agents “EAs”

Our tax professionals are Enrolled Agents. Enrolled Agents (EAs) are the only tax professionals who are empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service. They are tax specialists, Enrolled Agents are required to demonstrate to the Treasury their competence in matters of taxation before receiving their designation. Unlike CPAs who may or may not specialize in taxation and who are licensed by the states.

For more information about EAs and the history of EAs click hereย 

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 .

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

 

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.

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.

Employee vs Independent Contractor

Would your business be safe from the reclassification of independent contractors to employees if the IRS or Department of Labor (DOL) decided to audit your use and classification of independent contractors? As the cost of having employees has increased over the years, more and more businesses are trying to avoid those costs by replacing services performed by employees with services provided by independent contractors. However, simply calling someone an independent contractor does not necessarily make them an independent contractor.

Misclassification can become very expensive when challenged by the IRS or the DOL. The result can be responsibility for uncollected taxes, penalties, even disallowance of pension plans and health insurance costs.

To help you better understand the proper classification of independent contractors and employees, we have just released a new publication โ€œCan You Pass an IRS or DOL Audit of Independent Contractors vs. Employees?โ€ Itโ€™s available free. To download a copy, simply ย click here.

Tax Savings for First Time Home Buyers.

First time home buyers can take up to $10,000 from an IRA without being subject to the 10% early withdrawal penalty.  Beware that this exemption to the early withdrawal applies only to IRAs and not to 401(k)s or other retirement plans.  This was recently confirmed by the U.S. Tax Court in the following case (Soltani-Amadi, TC Summary Opinion 2019-19).

If you donโ€™t have an IRA but do have a 401(k), or another employer plan, all is not lost. All you have to do is set-up an IRA and roll $10,000 from the employer plan you have to that IRA before you make the distribution. But be careful. You have to be sure the rollover is made before the distribution. If you are under 59ยฝ, doing this could save you $1,000.00 in early distribution penalties.

For help with this or any other tax strategy, just give us a call.

IRS can have your U.S. Passport Revoked

By: Steven J Weil, PhD, EA, President RMS Accounting

Did you know that the IRS can have your U.S. passport revoked if you have delinquent tax debt of $52,000 or more? The Fixing America’s Surface Transportation Act (FAST -P.L. 114-94), enacted on 12/4/2015, gave the IRS the authority to have the passports of those with seriously delinquent tax debt revoked.

The good news is that if your address is up to date with the IRS, you should receive a letter notifying you of the IRSโ€™s intent to request that the U.S. Department of State revoke your passport.  That means that you wonโ€™t have to face finding that out when trying to reenter the country from a business trip or vacation.

To prevent the IRS from taking this action, you can pay the tax or (if this is not possible) enter into an installment agreement and make payments over time.

For more information see IRS Information Release IR-2019-141 or call us at 954-563-1269.

School Wonโ€™t Teach Your Children About Money

By: Steven J Weil, PhD, EA, President RMS Accounting

School Wonโ€™t Teach Your Children About Money. Thatโ€™s your job as a parent, and if you fail at it, or just avoid it, your children will lack the skills to be successful adults. Worse yet, they might just end up living in your house until the end of time.

When do you start teaching them that money is a tool and how to deal with it? For my wife and I, the lessons started early when our children were in elementary school. In those days, money was tight and we had to spend wisely, which meant the kids could not have everything they asked for every time we went to the store. We needed a way for them to understand that buying things was about choices.

Our solution was the creation of the โ€œBank of Mom and Dad.โ€ Each week they got an allowance, and it was deposited to the Bank of Mom and Dad. We kept running balances for each child, and when they wanted us to buy them something at a store, we would tell them how much they had in the bank of mom and dad. If they had enough, they could buy it with their money.  If not, they could save up for it, and buy it when they had enough money.

An interesting development was that often, if they had to spend their own money, they did not think it was worth it. This had never occurred to them when they were spending our money.

Over the years the amounts they received increased, and they had chores to do in order to earn some of the money that ended up in their accounts. At age thirteen, we opened real checking accounts for them. They could not sign, of course; but they had checkbooks and had to keep track of how much was in their account as well as learn to write checks and record them. They also became responsible for more of their expenses, such as school supplies, school lunches and other small items.

I will never forget the look on my oldest sonโ€™s junior high school band teacher when she told me that he needed a band uniform and the cost was $25.00.  I told her that he had his own money and that it was his responsibility, not mine. She looked even more surprised when the kid got out his checkbook.

Yes, our children learned early about money, and they did not all learn at the same rate. My oldest saved his money and bought a TV for his bedroom while his sister, just a year younger, bought toys and junk until she realized that she could not buy a TV since she had not saved her money.

All three of my children are now self-supporting with high credit scores and their own homes. They range in age from 24 to 31 and understand the importance of work and money management. 

All three went to college on a budget where they controlled their own money (and some that their parents contributed) so they had to make tuition payments, pay for housing and food, dating and other personal expenses. They knew that running out of money was not an option. They were expected to budget for their expenses, and they knew how to do that.

I am proud of all three of my children and hope that they will pass on the knowledge they gained about money to their children. I know that the ability to deal with money is one of the best things I did for them, and it gave them a skill that many of their friends donโ€™t have.

If you want to know more about The Bank of Mom and Dad drop me a line at steve@RMSAccounting.com.

IRS Notifies Virtual Currency Owners

Released July 26, 2019

Last week, the IRS began sending educational letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly.

There are three versions of the letter, all of which aim to help these taxpayers understand their tax obligations and how to correct errors in reporting. Recipients are also directed to information on the IRS website that pertains to their situation, including forms, and schedules.

It is estimated that more than 10,000 taxpayers will receive these messages by the end of August.

More information about the tax status of virtual currency and how general federal tax principles apply to virtual currency transactions is available here. Further guidance will likely follow as the IRS continues to consider feedback from taxpayers and practitioners.