Insights

Bitcoin and Other Virtual Currencies


February 23rd, 2018

Bitcoin was created back in 2009. It’s a digital currency system that doesn’t have any central regulatory authority or bank. That means no government or financial institution regulates this currency. Apart from lacking a central regulatory control, Bitcoin is also unique as users can remain anonymous and perform transactions through only an identi

Bitcoin was created back in 2009. It’s a digital currency system that doesn’t have any central regulatory authority or bank. That means no government or financial institution regulates this currency. Apart from lacking a central regulatory control, Bitcoin is also unique as users can remain anonymous and perform transactions through only an identification number. Since it’s a digital currency, there is no physical form available. So don’t expect to ‘see’ a Bitcoin. It only has a digital presence on a digital ledger (Blockchain) that records and saves digital transactions. Due to the fact that there is no centralized network involved in Bitcoin transactions, they are more robust, efficient, and secure compared to traditional currency transactions involving a central bank or government.

Is Bitcoin the only virtual currency available?

Bitcoin payments Today, virtual currencies have become a popular choice for digital consumers. There are nearly 700 different types of these currencies in the market these days. However, not all of them are as popular as Bitcoin. Bitcoin, being the largest digital currency today, represents a market share of $290 billion while other virtual currencies only represent around $70 billion. Ethereum is the largest virtual currency after Bitcoin with a market share approaching $60 billion.

IRS and virtual currency – What are the guidelines for payments?

The IRS has yet to provide comprehensive guidelines regarding taxation of virtual currencies. As of now, IRS has issued summary guidelines through Notice 2014-21. According to this notice, the IRS will consider virtual currency as property for the federal tax purpose. Payments using Bitcoins and other virtual currencies are merely property transactions. They will be taxed as any other transactions involving property.

Payments made to independent contractors and employees

When payments using virtual currency such as Bitcoins are made to independent contractors, they are taxable under the self-employment rules. Similarly, when payments are made to an employee, they are subject to payroll and income tax rules. The payers must issue a 1099-Misc form in case of payment to a contractor and the employer must provide information in a W-2 form in case of payments made to an employee.

Exchange or sell virtual currency

If you exchange or sell virtual currency, you have to pay tax. As a taxpayer, you will have a taxable gain when the fair market value of your property exceeds your adjusted basis of virtual currency. Similarly, you – the taxpayer – will have a loss when the fair market value of such property falls below the adjusted basis of virtual currency. Most importantly, the gain qualifies for capital gain rates on the property when held for more than one year. Since virtual currencies are treated as property for the tax purposes, you could benefit from capital gain rates.

IRS, virtual currencies, and the Coinbase summons case

Coinbase is the largest broker in the US in the digital currency market. It has served over 10 million customers over the past 6 years. In 2017, IRS was granted access to the documents during a case hearing in Coinbase summons case. Due to this court decision, Coinbase is now required by law to turn over records on accounts for transactions involving virtual currencies.

Change The Date Initiative


February 12th, 2018

Each year, unbeknownst to many who are self-employed, business owners, or independent contractors, the City of Los Angeles requires everyone conducting business within the city limits to register his or her business and file a Business Tax Registration Renewal by February 28

Each year, unbeknownst to many who are self-employed, business owners, or independent contractors, the City of Los Angeles requires everyone conducting business within the city limits to register his or her business and file a Business Tax Registration Renewal by February 28th. The major tax filings, Federal and State, on the other hand, are not due until either mid-March or mid-April. This discrepancy is a source of continued and needless confusion for law abiding tax payers throughout the city. Business Tax Registration Renewal During the busy rush toward tax season, as individuals and businesses are preparing their prior year’s documents for their accountants and other tax professionals, the dates foremost in their minds are the State and Federal filing deadlines. They must set aside time to contact, meet with, and confer over the various complexities that arise with regard to their taxes each year. Often, information becomes available and such meetings are held within days of the March or April deadlines. It makes no sense, and can serve no purpose other than to create “gotcha”-type penalties, to have the deadline for the comparatively minor requirement of the Business Tax Registration Renewal fall over a month before the date most people keep in their minds with regard to taxes. This bizarre discrepancy in filing deadline also creates an unnecessary burden for tax professionals who are first in line for the panicked calls and emails from clients who receive contact from a tax authority they have had no prior dealings with. For the forgoing reasons, we are petitioning the City Council to change the deadline for filing a Business Tax Registration Renewal to match the deadline for Federal and State tax filings (generally April 15th). Such a change would allow most filers to organize their yearly tax responsibilities around a single date and would save time and effort for all involved.

Understanding New Tax Law Changes in 2018


January 23rd, 2018

SUMMARY OF NEW TAX LAW CHANGES

Recently, the President signed the most substantial tax reform in over 30 years, the Tax Cuts and Jobs Act (TCJA).  While your 2017 tax returns will be prepared under the old laws, your 2018 tax return will look ver

SUMMARY OF NEW TAX LAW CHANGES

Recently, the President signed the most substantial tax reform in over 30 years, the Tax Cuts and Jobs Act (TCJA).  While your 2017 tax returns will be prepared under the old laws, your 2018 tax return will look very different.  Since most of the changes don’t happen until 2018, we have time to look at the new laws and plan for next year. We have summarized the most significant and common changes that may affect you in 2018.
  1. Tax Rate Changes. The maximum individual rate will be reduced from 39.6% to 37%. The corporate rate will be decreased from 35% to 21%.  These rate changes may benefit you but, in certain cases, may also cause your taxes to go up.
  2. Standard deductions and exemptions. The deduction will double from $12,700 (married filing jointly) to $24,000, from $9,350 to $18,000 (filing head of household) and from $6,350 (filing single or filing married separately) to $12,000. However, personal exemption deductions will no longer be allowed.  This may help or hurt you.
  3. Increased Child Tax Credit and New Dependent Credit. The credit will increase to $2,000 per child, of which up to $1,400 is refundable for each child. Each dependent who is not a qualifying child will receive a credit of $500.  However, you will no longer be able to claim the exemption credit or deduction for yourself, your spouse or your dependents.
Many more taxpayers will be able to claim these credits in 2018 because the phaseout thresholds have been dramatically increased.  For example, taxpayers filing married jointly, can claim the full credits if their adjusted gross income is $400,000 or less (compared to $110,000 or less) while all other filers can claim the full credits if their adjusted gross income is $200,000 or less (compared to $75,000 or less).

Deductions that will disappear.  Beginning in 2018, you will no longer be able to deduct:

  • State income tax and property taxes above $10,000 per year in total;
  • Moving expenses (except for certain military members);
  • Employee business expenses such as mileage, travel, entertainment, home office expenses, union dues, tax preparation fees, and investment fees;
  • Mortgage interest beyond interest on $750,000 of acquisition debt, if you purchase a new home;
  • Mortgage interest on equity debt;
  • Alimony payments (for separation and divorce agreements executed after January 1, 2018, (and modifications, executed after January 1, 2018 if the modification states that TCJA rules apply.)

New benefits for individuals.

  • Alimony received is no longer included in income (for separation and divorce agreements executed after January 1, 2018, (and modifications, executed after January 1, 2018 if the modification states that TCJA rules apply);
  • The medical expense AGI threshold will temporarily decrease to 7.5% (for 2017 and 2018) from the 10% threshold for 2016 (except for seniors);
  • The AMT threshold is increased so fewer middle-income taxpayers will be subject to AMT. For example, the phase in amount for taxpayers filing married jointly starts at $109,400 and phases out at $1,000,000 (compared to $86,200 and $164,100), single and head of household filers phase in at $70,300 and phase out at $500,000 (compared to $55,400 and $123,100), while taxpayers filing married separately phase in at $54,700 and phase out at $500,000 (compared to $43,100 and $82,050);
  • The estate tax exclusion has nearly doubled to $10 million;
  • The annual gift tax exclusion remains the same at $14,000 for 2017 and $15,000 for 2018. However, the maximum tax rates on gifts is 35%.

Small Business Benefits.

Beginning in 2018, there will be up to a 20% deduction from net business income for a sole proprietorship, LLC (excluding those taxes as a C Corporation), partnership, S Corporation and rental activity.  The rules for small businesses are very complex but we can help you plan so that we can maximize this deduction for you. Beginning in May, 2018 (after the tax season), we will discuss any other changes that may affect you.  As these changes are not simple, we suggest a separate appointment to go over the changes that apply to your situation and to talk about how to maximize your benefits under the TCJA. We look forward to working with you this year.

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