As a reminder, the April 17th individual tax deadline is upon us. In this edition of our monthly update, we cover cryptocurrencies and taxes, more tax reform changes and planning strategies, the best attributes of a CEO, QuickBooks tips and much more. It is more important than ever to plan ahead.
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Checking Your Federal Refund Status Is Easy
- 24/7 Access
- Quick Posting
- Direct Deposit
- Necessary Information
If you have already filed your federal tax return and are due to receive a refund, you can check the status of your refund online
Where’s My Refund? is an interactive tool on the IRS website. Regardless of whether you have split your refund among several accounts, opted for a direct deposit into one account, or asked the IRS to mail you a check, Where’s My Refund? will give you online access to your refund information 24 hours a day and 7 days a week.
If you e-file, you can use this tool to get your refund information 24 hours after the IRS acknowledges receipt of your return. Nine out of 10 taxpayers typically receive refunds in fewer than 21 days when they use e-file with direct deposit. If you file a paper return, refund information will be available starting four weeks after mailing your return. When you go to check the status of your refund, have a copy of your federal tax return handy. To access your personalized refund information, you must enter
- your Social Security Number (or Individual Taxpayer Identification Number);
- your filing status (single, married filing jointly, married filing separately, head of household, or qualifying widow(er)), and
- the exact refund amount shown on your tax return.
Once you have entered your personal information, one of several personalized responses will come up:
- acknowledgement that your return has been received and is being processed,
- your refund’s mailing date or direct deposit date, or
- a notice that the IRS could not deliver your refund due to an incorrect address, at which point, you can update your address online using the Where’s My Refund? feature.
Where’s My Refund? also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues that are affecting your refund. For example, if you do not receive your refund within 28 days of the mailing date shown on Where’s My Refund?, you can start a refund trace online.
Where’s My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader with a Braille display. Where’s My Refund? is compatible with various modes of this screen reader.
IRS2Go is a free IRS smartphone app that lets taxpayers check on the status of their tax refunds. For download information, visit IRS2Go. It is available for both Apple and Android.
Where’s My Refund? provides the most up-to-date information that the IRS has. There’s no need to call the IRS unless Where’s My Refund? tells you to do so. Where’s My Refund? is updated every 24 hours (usually overnight), so you only need to check it once a day. Please call this office if you encounter any problems.
Can’t Pay Your Taxes by the April Due Date?
- What to Do If You Can’t Pay
- Credit Card Payments
- IRS Installment Agreements
- Retirement Funds
If you aren’t one of those lucky Americans who gets a tax refund from the IRS you might be wondering about your options for paying off your tax liability by the April due date.
The IRS encourages taxpayers to pay the full amount of their tax liability on time, and it imposes significant penalties and interest on late payments. Thus, if you are unable to pay the taxes that you owe, it is generally in your best interest to make other arrangements to obtain the full funds to pay your taxes so that you are not subjected to the government’s penalties and interest. Here are a few options to consider.
- Family Loan – Obtaining a loan from a relative or friend may be the best bet because this type of loan is generally the least costly in terms of interest.
- Credit Card – Another option is to pay by credit card by using one of the service providers that works with the IRS. However, as the IRS will not pay the credit card processig fee, you will have to pay that fee. You will also have to pay the credit card interest on the payment. Caution: Depending on the amount owed, it may be less expensive just to pay the IRS penalties and interest rate on the unpaid balance rather than the normally higher credit card interest rates.
- Installment Agreement – If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement that allows you to make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. In addition, interest will also be charged at the current rate, and you will have to pay a user fee to set up the payment plan. By signing this agreement, you agree to keep all future years’ tax obligations current. If you do not make payments on time or if you have an outstanding past-due amount in a future year, you will be in default of the agreement, and the IRS will then have the option of taking enforcement actions to collect the entire amount that you owe. If you seek an installment agreements exceeding $50,000, the IRS will need to validate your financial condition and your need for an installment agreement through the information you provide in the Collection Information Statement (in which you list your financial statements). You may also pay down your balance to $50,000 or less so as to take advantage of the streamlined option.
- Tap a Retirement Account – This is possibly the worst option for obtaining funds to pay your taxes because it jeopardizes your retirement and because the distributions are generally taxable at the highest bracket, which adds more taxes to the existing problem. In addition, if you are under age 59½, such a withdrawal is also subject to a 10% early-withdrawal penalty that compounds the problem even further.
Whatever you decide, don’t just ignore your tax liability, as that is the worst thing you can do. Please call this office for assistance.
What Makes a Great CEO? Personality, Perseverance and Perspective
If you ever wanted proof that quality company leadership is critical to an organization’s success, look no further than the old saying of “people don’t quit their jobs. They quit their leaders.” To that end, being an efficient CEO involves a lot more than just “having a vision” or “barking orders.” It’s not about commanding anyone to follow your lead – it’s about showing, beyond a shadow of a doubt, that your lead is worth following in the first place. People won’t work hard, put in long hours and dedicate themselves to your dream because you told them to – they have to want it for themselves, too.
This simple idea generates a massive ripple effect that impacts an organization in nearly every area and in every way that you can imagine. In fact, recent research conducted by TINYpulse even revealed that strong management quality and transparency leads to 30% better employee retention across the board.
But at the same time, all of this demands the question – what makes a great CEO in the first place? If the chasm between a good CEO and a great CEO is truly as deep as it appears, what qualities do you need to work on to guarantee that you end up in the latter category and not the former?
The answer to that particular question requires you to keep a few key things in mind.
The Three “Ps” of a Great CEO
If you had to make a list of all the core qualities that set great CEOs apart from the rest of their contemporaries, personality, perseverance and perspective would undoubtedly be right at the top. Let’s assume for a moment that as an entrepreneur in the first place, you have a clear vision for your business – a course that you’re setting out on where success is the proverbial pot of gold at the end of the rainbow. The three “Ps” will absolutely impact your ability to get from one end of that journey to the other.
In terms of personality, this quality is essential because you need to get buy-in from your employees and other key stakeholders or your business is finished before it’s even truly had a chance to start. Essentially, you have a vision that you believe in wholeheartedly – your personality will get other people to believe in it, too.
According to the Harvard Business Review, this means being able to balance keen insight into your stakeholders’ priorities with an absolutely unrelenting focus on delivering business results day in and day out. Essentially, you need to be able to deeply understand who needs to be onboard, what those people’s needs and motivations truly are AND what you can do to get them on board by aligning those motivations around the ultimate goal of value creation.
Madeline Bell, CEO of Children’s Hospital of Philadelphia, says that when it comes time to make any big business decision she first begins by making a list of all the key people who NEED to be on board to guarantee success. She says that she identifies “the detractors and their concerns, and then I think about how I can take the energy that they might put into resistance and channel it into something positive. I make it clear to people that they’re important to the process and they’ll be part of a win.” Without the right focused personality by your side, this will be an uphill battle on the best of days.
On the subject of perseverance, one of the major factors that goes into creating a great CEO involves both the ability to embrace appropriate risks and a desire to act and capitalize on opportunities when they present themselves. To put it simply, this means that the CEO is usually less cautious and more likely to snap into action than other senior executives simply because they must be – that’s literally part of their job.
But at the same time, this doesn’t mean that a great CEO somehow manages to hit a home run each and every time they step up to the plate. Far from it. Being willing to take risks means being willing to fail, which itself means accepting responsibility and finding valuable learning opportunities inside every strike out scenario. Risk for the sake of it is not what goes into making the type of CEO that people feel compelled to follow. Instead, it’s being willing to take a big risk and still fail, yet, at the same time, finding a way to come out stronger on the other side.
But out of the three Ps, perhaps the most important one is also the final one: perspective. Being a great CEO and a great entrepreneur are two very, very different things and should always be treated as such. As a great entrepreneur, you have a vision and a clear path for success and you’re going to start that business you’ve always dreamed of come hell or high water. You’re going to lay every brick on the road to success yourself if you have to because you simply can’t help yourself. In a lot of ways, it’s the reason why you get up in the morning – you CAN do it all yourself because you MUST do it all yourself so you WILL do it all yourself if you have to.
The first step towards becoming a great CEO involves the realization that this is no longer the case.
This, in turn, is where perspective will come in handy – it’s the realization that you can no longer do it all yourself because your company has grown into something far larger than you could have ever hoped for. This means that you’ll need to do more than just get comfortable with the idea of delegating responsibility. It means coming to terms with the idea that you are no longer the single master of your own destiny – you’re simply one of many voices that are trying to accomplish the same thing, albeit one of the most important ones.
This means that to be a great CEO, you need the courage to not only hire the right people but also do whatever you can to help them succeed. This means going out of your way to NOT surround yourself with sycophants and “yes” men and women. It means hiring people who will challenge you. Who will argue with you. Who will tell you to your face that you’re making a huge mistake and then back that statement up with a laundry list of reasons why.
The simple fact that you’re willing to open yourself up to this type of situation means that you’ve taken one of the biggest steps forward in terms of becoming the CEO you always hoped you could be. There’s a reason why, according to research conducted by Glassdoor, CEOs who are also their company’s founder often generate better results than externally hired or internally promoted CEOs – nobody would choose to fight (and potentially lose) these battles if they had even a remotely viable alternative option. But for you, there isn’t another option at all. You just can’t help yourself. Because you don’t want to be a good CEO – you want to be a great one. Rest assured, this is a very exciting position to be in – both for you professionally and for the company that you’ve already worked so hard to build.
Tax Reform Puts a Cap on Deducting Business Losses
- Excess Business Loss
- Computing the Loss Limits
- Net Operating Losses (NOL)
- NOL Carryovers
Note: This is one of a series of articles explaining how the various tax changes in the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in this article), which passed in late December of 2017, could affect you and your family, both in 2018 and future years. This series offers strategies that you can employ to reduce your tax liability under the new law.
Under the Act, deductible business losses of noncorporate taxpayers will be limited beginning in 2018. Many have misconstrued this new law to mean that no losses are allowed.
Fortunately, that is not the case. The Act does not allow “excess business losses” to be deducted. An “excess business loss” is the excess of the taxpayer’s aggregate trade or business deductions for the tax year (determined without regard to whether the deductions are disallowed for that tax year) over the sum of the taxpayer’s aggregate gross income or gain for the tax year from those trades or businesses, plus $250,000 (200% of that amount for a joint return (i.e., $500,000)). This amount will be adjusted for inflation after 2018.
More simply put, deductible losses for the year are generally limited to $250,000 ($500,000 for married couples filing jointly).
Example: A single taxpayer, in 2018, has two businesses. The combined deductions from the two businesses total $500,000. The taxpayer’s gross income from those two businesses is $200,000. After netting the income and deductions, there is a net loss of $300,000 ($200,000 — $500,000). Prior to the Act, the deductible loss would have been $300,000. However, under the Act the excess business loss is equal to $50,000 ($500,000 — ($200,000 + $250,000)). And since excess business losses are not deductible, the taxpayer can only deduct $250,000 ($300,000 — $50,000) in 2018.
On the bright side, the nondeductible excess business loss ($50,000 in our example) is treated as a net operating loss (NOL) carried forward to the next year’s return, where it is deductible from the taxpayer’s gross income, including nonbusiness income. Under the Act, an NOL is carried forward indefinitely until it is used up. The Act did, however, limit NOLs in the future to offsetting only 80% of a taxpayer’s income for any year.
If you have questions related to “excess business loss,” please give this office a call.
Living Abroad? Here Is How Tax Reform May Affect You
- Foreign Earned Income Exclusion
- Housing Exclusion
- Foreign Informational Reporting
- Foreign Corporation Income
- Foreign Tax Credit
- 1040 Changes
- Moving Deduction
Note: This is one of a series of articles explaining how the various tax changes in the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in this article), which was passed in late December 2017, could affect you and your family, in both 2018 and future years. This series offers strategies that you can employ to reduce your tax liability under the new law.
If you are an expatriate living abroad, you may be wondering how the provisions of the Tax Cuts and Jobs Act (TCJA) will impact you. This is the most extensive tax change in over 30 years, and although it was touted as tax simplification when it was in the planning stages, nothing was simplified related to U.S. citizens and resident aliens working abroad. The following is an overview of how things will play out for you beginning in 2018.
The Foreign Earned Income Exclusion Is Still Alive and Well – The inflation-adjusted maximum exclusion for 2018 is $104,100 (up from $102,100 in 2017). However, the Act did change the measure of inflation so that the inflation adjustments in future years will be lower. The housing exclusion was also retained, and for 2018, the maximum is $14,574 (up from $14,294 in 2017). For certain high-cost areas, the IRS allows higher housing exclusions.
Foreign Information Reporting Remains the Same — The troublesome burden of reporting foreign financial relationships continues unchanged. So if the aggregate value of the foreign financial accounts that you have a financial interest in or signature authority over exceeds $10,000 any time during the year, you are generally required to file Form 114 (commonly referred to as FBAR) with FinCEN. If you have specified foreign financial assets generally having a year-end value of $200,000, or $300,000 at any time during the year (double those amounts for married taxpayers), you are required to file Form 8938 with your tax return. Other reporting requirements include Form 5471 to report ownership or voting power in a foreign corporation, Form 3520 for ownership or transactions with foreign trusts and for reporting foreign gifts or bequests and Form 3520-A when a foreign trust has a U.S. owner.
Ownership in a Foreign Corporation — The Act transforms the U.S. into a territorial system of taxation for corporations instead of a worldwide system. As a result, all U.S. taxpayers who own at least 10% of a foreign corporation must include in their income pro rata shares of all accumulated post-1986 deferred foreign income that has not previously been taxed. After all of the adjustments, this deferred foreign income is generally taxed at an effective rate of 15.5%. The TCJA allows, by election, for this tax to be spread over a period of 8 years.
Foreign Tax Credit — The foreign tax credit remains unchanged, although the TCJA does not allow it to offset the tax on accumulated post-1986 deferred income, as previously discussed.
Other 1040 Changes — It seems that the Act’s only attempts at simplification were eliminating personal exemptions (which were $4,050 each for taxpayer, spouse and dependent in 2017); limiting itemized deductions (or suspending some deductions through 2025); and increasing the standard deduction to $12,000 for single taxpayers, $18,000 for head-of-household filers and $24,000 for those filing married joint. The Act also suspended the deduction for foreign property tax as itemized deduction.
The new tax law increased the child tax credit to $2,000, and up to $1,400 is refundable. However, if you exclude foreign earned income or the foreign housing allowance, you are prohibited from claiming the refundable part of the child tax credit. You must include the Social Security number of each qualifying child on your return for whom you claim the credit, and the Social Security number must be issued before the due date of your return. The Act added a new $500 nonrefundable credit for qualifying dependents other than qualifying children. The AGI threshold at which the child tax credit begins to phase out was substantially raised: to $400,000 for those filing a married joint return and $200,000 for others.
Moving Deduction — If you are planning a move in the future, the Act did deal you a bad hand. The deduction for moving expenses is suspended until after 2025, and to make matters worse, any moving reimbursement provided by your employer is taxable.
There have been, of course, many other changes brought about by the Act. If you have questions related to taxes and living abroad, please give this office a call.
Tax Reform Limits Exchanges to Defer Taxes
- Deferring Tax with Like-Kind Exchanges
- Changes Made by Tax Reform
- Impact on Trade-ins
Note: This is one of a series of articles explaining how the various tax changes made by the GOP’s Tax Cuts & Jobs Act (referred to as the “Act” in the article), passed late in December 2017, might affect you and your family in 2018 and future years, and offering strategies you might employ to reduce your tax liability under the new tax laws.
Whenever you sell business or investment property and have a gain, you generally have to pay tax on the gain at the time of sale. In the past, the tax code provided an exception and allowed you to postpone paying tax on the gain if you reinvested the proceeds into similar property as part of a qualifying like-kind exchange. These types of exchanges are commonly called Sec. 1031 exchanges (referring to the tax code section that allows them). These rules have applied to real estate, cars, farm animals and other business and investment items that are like-kind property.
However, under the Act, and beginning in 2018, Sec. 1031 exchanges will only be allowed for exchanges of real property that is not held primarily for sale. It is important to note that real property located in the U.S. and real property located outside of the U.S. are not like-kind property for the purposes of these rules. Thus, exchanges of personal property and intangible property will no longer qualify for tax-deferred treatment.
Transition Rule – The provision generally applies to exchanges completed after December 31, 2017. However, an exception is provided for any exchange if the taxpayer disposes of the property disposed in the exchange on or before December 31, 2017, or if the taxpayer receives the property in the exchange on or before this date.
An example of this law change’s impact is when a business property such as a vehicle or machinery is traded in for a replacement. In the past, it was a tax strategy to sell the old property if its disposition resulted in a deductible tax loss and trade it in toward the new property if the disposition would result in a gain, thereby deferring the gain into the future. The Act has taken away that option, and now even trade-ins will result in a taxable transaction, whether it is a gain or loss.
Another example is investors in virtual currency who trade one type of virtual currency for another. They will be required to report their trades as capital gains/losses and won’t be able to use the 1031 tax-deferral rules.
If you have questions about how this change will impact your business or investment transactions, please give the office a call
Is Bunching Right for You?
- Standard Deductions
- Itemized Deductions
- Bunching Strategy
- Medical Expenses
- Charitable Contributions
Note: The is one of a series of articles explaining how the various tax changes in the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in this article), which passed in late December of 2017, could affect you and your family, both in 2018 and future years. This series offers strategies that you can employ to reduce your tax liability under the new law.
The Act increased the standard deduction and placed new limitations on itemized deductions. Beginning with 2018 tax returns, the standard deductions will be:
- $12,000 for single individuals and married people filing separately,
- $18,000 for heads of household, and
- $24,000 for married taxpayers filing jointly.
If your deductions exceed the standard deduction amount for your filing status, you are allowed to itemize the following deductions:
- Medical expenses, to the extent they exceed 7.5% of your adjusted gross income (AGI);
- Taxes paid during the year (for state or local income or sales tax and for real property or personal property taxes), limited to $10,000;
- Home mortgage interest;
- Investment interest;
- Charitable contributions;
- Gambling losses, to the extent of your gambling winnings; and
- Certain infrequently encountered tier-1 miscellaneous deductions.
Are your itemized deductions typically roughly equal to the new standard deduction amount? If so, think about using a tax strategy known as bunching. In this technique, you take the standard deduction in one year and then itemize in the next. This is accomplished by planning the payment of your deductible expenses so as to maximize them in the years when you itemize deductions. Commonly bunched deductible expenses include medical expenses, taxes, and charitable contributions.
To clearly illustrate how bunching works, here are a few examples of deductible payments that generally provide enough flexibility:
- Medical Expenses — Say that you contract with a dentist for your child’s braces. This dentist offers you the option of an up-front lump-sum payment or a payment plan. If you make the lump-sum payment, the entire cost will be credited in the year you paid it, thereby dramatically increasing your medical expenses for that year. If you do not have the cash available for the up-front payment, then you can pay by credit card, which is treated as a lump-sum payment for tax purposes. If you do so, you must realize that the interest on that payment is not deductible; you need to determine whether incurring the interest is worth the increased tax deduction. Another important issue related to medical deductions is that only the amount of medical expenses that exceeds 7.5% of your AGI is actually deductible. In addition, this 7.5% floor will increase to 10% after 2018. There is thus no tax benefit to bunching medical deductions if the total will be less than 7.5% of your AGI (or 10% beginning in 2019).
If you have abnormally high income in the current year, you may wish to put off medical expense payments until the following year (e.g., if 10% of the following year’s income will be less than 7.5% of this year’s income).
- Taxes — Property taxes are generally billed annually at midyear; most locales allow for these tax bills to be paid in semiannual or quarterly installments. Thus, you have the option of paying them all at once or paying them in installments. This provides the opportunity to bunch the tax payments by paying only one semiannual installment (or 2 quarterly installments) in one year and pushing off the other semiannual (or 2 quarterly) installments until the next year. Doing so allows you to deduct 1½ years of taxes in one year and half a year of taxes in the other. However, if you are thinking of making late property tax payments as a means of bunching, you should be cautious. Late payment penalties are likely to wipe out any potential tax savings.
If you reside in a state that has a state income tax, any such tax that is paid or withheld during the year is deductible on federal taxes. For instance, if you are making quarterly estimated state tax payments, the fourth quarter estimated payment is generally due in January of the subsequent year. This gives you the opportunity to either make that payment before December 31 (thus enabling you to deduct the payment on the current year’s return) or pay it in January before the due date (thus enabling you to use it as a deduction in the subsequent year).
Here is a word of caution about itemized tax deductions: Under the Act, a maximum of $10,000 is allowed under itemized tax deductions, so there is no benefit gained by prepaying taxes when your tax total is already $10,000 or more. In addition, taxes are not deductible at all under the alternative minimum tax, so individuals under that tax generally derive no benefits from itemized deductions.
- Charitable Contributions — Charitable contributions are a nice fit for bunching because they are entirely at the taxpayer’s discretion. For example, if you normally tithe to your church, you can make your normal contributions during the year but then prepay the entire subsequent year’s tithe in a lump sum in December of the current year. If you do this for all contributions that you generally make to qualified organizations, you can double up on your contributions in one year and have no charitable deductions in the next year. Normally, charities are very active in their solicitations during the holiday season, which gives you the opportunity to make forward-looking contributions at the end of the current year or to simply wait a short time and make them after the end of the year. Charitable deductions do have a limit, but for most types of contributions, it is high: 60% of AGI, beginning in 2018.
If you have questions about bunching your deductions, or if you wish to do some in-depth strategizing about how this technique could benefit you, please call for an appointment.
Cryptocurrencies and Taxes
- Virtual Currency
- Character of the Gain or Loss
- Foreign Currency Transactions
- Foreign Bank and Financial Account (FBAR) Reporting
- Payment for Goods & Services
- Acquiring Virtual Currency
- Virtual Currency Mining
- Employee Payments
- Independent Contractor Payments
As our world has become more and more “digital,” it was only a matter of time before cryptocurrencies were developed. One of the first of these virtual currencies was Bitcoin, and the Bitcoin network came online in 2009. Since then, additional cryptocurrencies have been developed.
Cryptocurrencies are generally utilized for transactions by tech-savvy individuals and have a comparable value in real currency or take the place of real currency. These virtual currencies can be purchased with or exchanged into U.S. dollars, euros, and other real or virtual currencies.
Valuation — The value of a virtual currency is based upon market value, i.e., what a willing buyer will pay a willing seller — much like trading in stocks. On February 15, 2018, when this article was written and according to Oanda (an online currency converter), a Bitcoin, one of the more popular virtual currencies, was worth $9,025, and one was worth $995 one year earlier.
It took several years for the IRS to come up with guidance on how to deal to transactions involving virtual currencies. It finally issued Notice 2014-21 determining that virtual currency is treated as property and that the general tax principles applicable to property transactions apply to transactions using virtual currency. This can best be illustrated by example.
Example A: Taxpayer buys Bitcoins (BTC) to use when making online purchases without the need for a credit card. He buys one BTC for $2,425 and later uses it to buy goods (BTC was trading at $2,500 at the time he made his purchase). He has a $75 ($2,500 − $2,425) reportable capital gain. This is the same result that would have occurred if he had sold the BTC at the time of the purchase and used U.S. dollars to purchase the goods. This example points to the complicated record-keeping requirement to track BTC’s basis. Since this transaction was personal in nature, no loss would be allowed if the value of BTC had been less than $2,425 at the time when the goods were purchased.
Example B: Taxpayer buys Bitcoin (BTC) as an investment. The same rules apply as for stock transactions. Gains are taxable in the year realized, and any resulting loss, when combined with the other capital transactions for the year, are limited to $3,000 ($1,500 if a married taxpayer filing separate).
Character of the Gain or Loss — The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is held as a capital asset. For example, stocks, bonds, and other investment property are generally capital assets. A taxpayer generally realizes ordinary gain or loss on the sale or exchange of virtual currency that he or she does not hold as a capital asset. Inventory and other property held mainly for sale to customers in a trade or business are examples of property that is not a capital asset.
Foreign Currency Transactions — Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.
Foreign Bank and Financial Account (FBAR) Reporting — The IRS has stated a few years ago that virtual currency transactions need not be reported for purposes of Foreign Bank and Financial Account (FBAR) reporting. But the IRS cautioned that its position could change in the future. However, the IRS has not issued any announcements regarding a change in its position on FBAR filings for years through 2017.
Payment for Goods & Services — A taxpayer subject to U.S. taxation who receives virtual currency as payment for goods or services must, in computing gross business income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.
Acquiring Virtual Currency — One can go to online exchanges and purchase virtual currency. But care should be taken to make sure the exchange is reputable. Once you have the virtual currency in your online wallet, you are free to spend it with anyone who accepts that form of currency.
Virtual Currency Mining — Mining is a term used to describe how cryptographic information distributed within a virtual currency network is secured, authorized, and approved. In essence, it is the processing of payments that have taken place once they occur. It takes the place of banks, merchants’ accounts, and clearing houses like Visa. It essentially eliminates all of the third parties’ cuts of income from the transaction. It involves complex mathematical logarithms that need to be solved, and the mining process completes this task autonomously. For individuals who mine virtual currency, it is a trade or business, and they are subject to self-employment tax.
Apparently, virtual currency miners are also subject to Form 1099-K filing requirements if their transactions rise to the reporting threshold. In general, a third party that contracts with a substantial number of unrelated merchants to settle payments between the merchants and their customers is a third-party settlement organization (TPSO). A TPSO is required to report payments made to a merchant on a Form 1099-K, Payment Card and Third-Party Network Transactions. If, for the calendar year, both (1) the number of transactions settled for the merchant exceeds 200 and (2) the gross amount of payments made to the merchant exceeds $20,000, then 1099-K filing is required.
Employee Payments — If an employee is paid in virtual currency, then the fair market value of the virtual currency, measured in U.S. dollars, paid as wages is subject to federal income tax withholding, Federal Insurance Contributions Act (FICA) tax (Social Security and Medicare A), and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2, Wage and Tax Statement. The U.S. government doesn’t accept virtual currency for tax payments.
Independent Contractor Payments — The fair market value of virtual currency received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt, constitutes self-employment income to the independent contractor and is subject to the self-employment tax. Payments are subject to the normal 1099-MISC reporting requirement when the payments for the year measured in U.S. dollars are $600 or more.
IRS Enforcement Actions — Because fewer than 900 taxpayers reported virtual currency gains and losses each year on their tax returns from 2013 to 2015, the IRS is stepping up enforcement of the rules. Recently, the IRS won a court’s approval for a summons to obtain account and transaction information on more than 14,000 customers from Coinbase, a company that services buyers and sellers of Bitcoins. Based on the success in the Coinbase case, the IRS will likely expand its efforts to obtain information about cryptocurrency account owners from other companies dealing in Bitcoins and similar virtual currencies.
Also, beginning with 2018 returns, Sec. 1031 tax-deferred exchanges will only apply to real property; thus, investors in virtual currency who trade one type of virtual currency for another will be required to report their capital gains/losses and won’t be able to use the 1031 tax-deferral rules.
If you are investing, trading, or dealing in virtual currency and have any questions about how those activities will affect your tax situation, please give this office a call.
QuickBooks Tip: Get Paid Faster Using QuickBooks
Are your customers slow about paying their invoices? QuickBooks can help accelerate your receivables.
Your company’s cash flow depends largely on how quickly your customers pay the invoices you’ve sent. And if you’re like most small businesses, those checks tend to dribble in close to—and after—the due date. If you operate on a slim margin, this often means that you’re late at paying your own bills.
It’s essential, then, that you do what you can to get incoming revenue moving as quickly as possible. QuickBooks offers numerous ways to help you accomplish that critical goal.
Simplify the Payment Process
The single most effective step you can take to speed up customer remittances is to allow payment by credit card or electronic check. If you’re currently only accepting paper checks, you already know what problems that option can create, like mailing time, trips to the bank, and insufficient funds.
To establish this capability, you’ll have to sign up for a merchant account that will connect your bank to the financial institutions used by your customers. There are fees associated with this, and the initial setup will be unfamiliar to you. We can help with this.
Once you sign up for a merchant account, you’ll be able to accept payments from customers by credit card and bank transfer.
Having a merchant account will accelerate your receivables and improve your company’s cash flow, but it has other benefits, too. For example:
- Your customers will appreciate the convenience, and may even be more likely to make a purchase.
- In 2018, customers and prospects expect to be able to pay for items and services electronically. Not allowing this affects
- You’ll save time, which translates to money. Instead of chasing payments, you can be working on ways to meet your goals and help your company grow.
their perception of you as a forward-thinking, progressive business.
Always Know Where You Stand
If you’re conscientious about keeping your records and transactions updated, you’ll always have access to the most current data about your company’s financial status. You’ll be able to answer questions from customers and vendors quickly and accurately, and your daily accounting tasks will be much easier to accomplish.
There’s another benefit, though: reports. One of the five best things about QuickBooks is its ability to create dozens of reports using pre-formatted templates. You only have to choose the one you want to see, and the software will display it using your company’s data. You also have the option to customize these reports extensively, so they contain the exact cross section of data that you want to see.
QuickBooks contains dozens of templates for pre-formatted reports that you can customize and create very quickly.
You can see in the image above that several of QuickBooks’ reports are focused specifically on the status of your customers’ invoices and payments. We strongly recommend that you run these reports regularly. The more you know about who is behind and by how much, the more targeted your collections efforts will be.
You’ll also notice that there’s a category of reports called Accountant and Taxes. You can certainly create these yourself, but some, like Trial Balance, will be unfamiliar to you. There are others listed under Company & Financial that are quite complex, but quite important. We’d be happy to analyze these for you on a regular basis (monthly or quarterly) and provide insight that will help you make better business decisions.
Remind Late Payers
There are all kinds of reasons why customers pay invoices late. Their bills may have been lost in the mail. They may have ordered so much that they’re confused about which invoices haven’t been paid. And they may just be low on funds.
You can’t do much about the latter reason, but QuickBooks provides a way for you to update customers about their past due payments: statements.
Sometimes, customers just need a full accounting of what they owe in the form of a statement.
It’s not difficult to follow QuickBooks’ customization options for statements, but we’re here to help if you run into difficulties. In fact, we’d be happy to sit down with you and talk about these as well as other options for improving your company’s cash flow. It’s a multi-faceted problem with many solutions; we can go over the options with you. Contact us now to work on making the rest of 2018 more profitable.
April 2018 Individual Due Dates
April 1 – Last Day to Withdraw Required Minimum Distribution
Last day to withdraw 2017’s required minimum distribution from Traditional or SEP IRAs for taxpayers who turned 70½ in 2017. Failing to make a timely withdrawal may result in a penalty equal to 50% of the amount that should have been withdrawn. Taxpayers who became 70½ before 2017 were required to make their 2017 IRA withdrawal by December 31, 2017.
April 10 – Report Tips to Employer
If you are an employee who works for tips and received more than $20 in tips during March, you are required to report them to your employer on IRS Form 4070 no later than April 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.
April 15 – Taxpayers with Foreign Financial Interests
A U.S. citizen or resident, or a person doing business in the United States, who has a financial interest in or signature or other authority over any foreign financial accounts (bank, securities or other types of financial accounts), in a foreign country, is required to file Form FinCEN 114. The form must be filed electronically; paper forms are not allowed. The form must be filed with the Treasury Department (not the IRS) no later than April 15, 2018 for 2017. An extension of time to file of up to 6 months is automatically allowed. This filing requirement applies only if the aggregate value of these financial accounts exceeds $10,000 at any time during 2017. Contact our office for additional information and assistance filing the form.
April 17 – Individual Tax Returns Due
File a 2017 income tax return (Form 1040, 1040A, or 1040EZ) and pay any tax due. If you want an automatic six-month extension of time to file the return, please call this office.
Caution: The extension gives you until October 15, 2018 to file your 2017 1040 return without being liable for the late filing penalty. However, it does not avoid the late payment penalty; thus, if you owe money, the late payment penalty can be severe, so you are encouraged to file as soon as possible to minimize that penalty. Also, you will owe interest, figured from the original due date until the tax is paid. If you have a refund, there is no penalty; however, you are giving the government a free loan, since they will only pay interest starting 45 days after the return is filed. Please call this office to discuss your individual situation if you are unable to file by the April 17 due date.
Note: the normal April 15 due date is a Sunday, and the following Monday is a federal holiday in the District of Columbia, so for almost all individuals their 2017 Form 1040 returns aren’t due until the next business day, which is Tuesday, April 17.
April 17 – Estimated Tax Payment Due (Individuals)
It’s time to make your first quarter estimated tax installment payment for the 2018 tax year. Our tax system is a “pay-as-you-go” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. These include:
- Payroll withholding for employees;
- Pension withholding for retirees; and
- Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.
When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis.
Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the “de minimis amount”), no penalty is assessed. In addition, the law provides “safe harbor” prepayments. There are two safe harbors:
- The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty.
- The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%.
Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can’t avoid the penalty under this exception.
However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.
This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible.
CAUTION: Some state de minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.
April 17 – Last Day to Make Contributions
Last day to make contributions to Traditional and Roth IRAs for tax year 2017.
April 2018 Business Due Dates
April 2 – Electronic Filing of Forms 1098, 1099 and W-2G
If you file Forms 1098, 1099 (other than 1099-MISC withan amount in box 7), or W-2G electronically with the IRS, this is the final due date. This due date applies only if you file electronically (not paper forms). Otherwise, January 31 or February 28 was the due date, depending on the form filed. The due date for giving the recipient these forms was January 31.
April 2 – Large Food and Beverage Establishment Employers
If you file Forms 8027 for 2017 electronically with the IRS, this is the final due date. This due date applies only if you file electronically. Otherwise, February 28 was the due date.
April 17 – Household Employer Return Due
If you paid cash wages of $2,000 or more in 2017 to a household employee, you must file Schedule H. If you are required to file a federal income tax return (Form 1040), file Schedule H with the return and report any household employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2016 or 2017 to household employees. Also, report any income tax that was withheld for your household employees. For more information, please call this office.
April 17 – C-Corporations
File a 2017 calendar year income tax return (Form 1120 or 1120-A) and pay any tax due. If you need an automatic 6 -month extension of time to file the return, file Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, and deposit what you estimate you owe. Filing this extension protects you from late filing penalties but not late payment penalties, so it is important that you estimate your liability and deposit it using the instructions on Form 7004.
April 17 – Social Security, Medicare and Withheld Income Tax
If the monthly deposit rule applies, deposit the tax for payments in March.
April 17 – C-Corporations
The first installment of 2018 estimated tax of a calendar year corporation is due.
April 17 – Partnerships
Last day file 2017 calendar year fiduciary return or file an extension.