You Need to Know When You Are Dealing With Crypto / Virtual Currencies?

Dear Client: 

 

Cryptocurrencies have gone mainstream.  

 

For example, you can use bitcoin to buy far more than you would think. To see, try googling "What can I buy with bitcoin?" You will get more than 350,000 hits. 

 

But using cryptocurrencies has federal income tax implications that may surprise you.  

 

With the price of bitcoin having gone through the roof (before its recent decline), and with increasing acceptance of bitcoin and other cryptocurrencies as forms of payment, the tax implications of using cryptocurrencies are a hot-button issue for the IRS.  

 

The 2020 version of IRS Form 1040 (the form you recently filed or will file soon) asks whether you received, sold, sent, exchanged, or otherwise acquired—at any time during the year—any financial interest in any virtual currency. If you did, you are supposed to check the "Yes" box.  

 

The fact that this question appears on page 1 of Form 1040, right below the lines for supplying taxpayer information such as your name and address, indicates that the IRS is getting serious about enforcing compliance with the applicable tax rules. Fair warning! 

 

The 2020 Form 1040 instructions clarify that virtual currency transactions for which you should check the "Yes" box include but are not limited to  

 

1. the receipt or transfer of virtual currency for free (i.e., without having to pay),  
2. the exchange of virtual currency for goods or services,  
3. the sale of virtual currency,  
4. the exchange of virtual currency for other property, and  
5. the disposition of a financial interest in virtual currency. 

 

To arrive at the federal income tax results of a cryptocurrency transaction, the first step is to calculate the fair market value (FMV), measured in U.S. dollars, of the cryptocurrency on the date you receive it and on the date you use it to pay something.  

 

When you exchange cryptocurrency for other property, including U.S. dollars, a different cryptocurrency, services, or whatever, you must recognize taxable gain or loss just as you do when you make a stock sale in your taxable brokerage account.  

 

• You'll have a taxable gain if the FMV of what you receive exceeds your basis in the cryptocurrency that you exchanged.  
• You'll have a taxable loss if the FMV of what you receive is less than your basis in the cryptocurrency.  

 

It is hard to imagine that a cryptocurrency holding will be classified for federal income tax purposes as anything other than a capital asset—even if you use it to conduct business or personal transactions, as opposed to holding it for investment. Therefore, the taxable gain or loss from exchanging a cryptocurrency will be a short-term capital gain or loss or a long-term capital gain or loss, depending on how long you held the cryptocurrency before using it in a transaction. 

 

Example. You use one bitcoin to buy tax-deductible supplies for your booming sole proprietorship business. On the date of the purchase, bitcoins are worth $55,000 each. So, you have a business deduction of $55,000. 

 

But there's another piece to this transaction: the tax gain or loss from holding the bitcoin and then spending it.  

 

Say you bought the bitcoin in January of this year for only $31,000. You have a $24,000 taxable gain from appreciation in the value of the bitcoin ($55,000 - $31,000). The $24,000 gain is a short-term capital gain because you did not hold the bitcoin for more than one year. 

 

Detailed records are essential for compliance. Your records should include  

 

• the date when you received the cryptocurrency, 
• its FMV on the date of receipt, 
• the FMV on the date you exchanged it (for U.S. dollars or whatever), 
• the cryptocurrency trading exchange that you used to determine FMV, and  
• your purpose for holding the currency (business, investment, or personal use).  
  
   

If you have questions about cryptocurrency, don't hesitate to call me on my direct line at 908-300-9193

Sure Financials and Tax Services LLC

Mobile: 908.300.9193 | Fax: 855.753.0066

E-Mail:services@surefintaxsvs.com

Web:https://surefintaxsvs.com/

Where to Find Tax Documents?

Very often I faced questions what document we need for tax preparation and where to find these. Here is the list of documents you may need and source of these documents. 

Follow link => https://app.box.com/s/8la6gchx4lqex6ck25umtwnk93n669eu

Sure Financials and Tax Services LLC

Mobile: 908.300.9193 | Fax: 855.753.0066

E-Mail:services@surefintaxsvs.com

Web:https://surefintaxsvs.com/

Did You Receive CP2000?

What it is?

The Internal Revenue Service’s CP2000 notice is a computer-generated notice received by taxpayers after filing an income tax return. The purpose of a CP2000 notice is to inform a taxpayer that information the I.R.S. received from third parties (employers, banks, brokerages, etc.) does not match the information reported on the taxpayer’s return. Taxpayers often receive CP2000 notices when taxpayers’ income or payment is inaccurately reported or unreported on their tax return.  

There is no reason to panic when you receive a CP2000 notice. The first step a taxpayer should take when a taxpayer receives this notice is to thoroughly examine it. The I.R.S. will propose changes throughout the notice, and a taxpayer needs to understand each change the I.R.S. proposes. These proposed changes come in different ways. For example, the CP2000 notice could propose a change to income for an item left off the taxpayer’s return, or the I.R.S. could propose a decrease to an expense item as the third party reported the expense as less than the taxpayer reported it on their return. Once a taxpayer understands the proposed changes, the taxpayer must determine whether he agrees with the proposed changes. In order to do this, the taxpayer should compare the documents the taxpayer received (such as W-2’s or 1099’s) to the proposed changes from the CP2000 notice. If the taxpayer’s documents agree with the I.R.S.’s proposed changes, then the taxpayer should complete the response section of the notice and return it to the I.R.S. in the envelope provided. 

If the proposed changes do not agree with the taxpayer’s documents, then the taxpayer has the right to contest the proposed changes. The taxpayer must draft a response and provide documentation supporting their position. The documentation supporting their position can range from forms received from financial institutions showing the correct amount of income received to self-prepared schedules and the underlying documents supporting the numbers on the self-prepared schedule. Once the taxpayer drafts their response and compiles their support, he must send the package of documentation to the I.R.S. with a copy of his CP2000 notice.  

The I.R.S. will then process the taxpayer’s response and either accept or deny the response. If the I.R.S. accepts the response, no other action is necessary from the taxpayer. However, if the I.R.S. denies the response, the taxpayer still has the right to appeal the decision. A taxpayer facing a CP2000 notice should consult with a tax attorney to advise and assist them with the CP2000 process, especially if their response has been denied. Taxpayers have a limited amount of time to exercise their appeal rights. 

Contact us to resolve your IRS matters. 

Sample CP2000

 

Did you receive CP79(CTC Denial Letter)?

This is denial letter for Child Tax Credit or Additional Child Tax Credit or Credit for Other Dependent 

• If the IRS examines a taxpayer's return and disallows all or part of an EITC, AOTC, CTC/ACTC, ODC or Head of Household claim on a return, the taxpayer: 
• Must pay back the amount in error with interest, 
• May need to file Form 8862, Information To Claim Certain Credits After Disallowance 
• Cannot claim the credit for the next two years if the IRS determines the error is because of reckless or intentional disregard of the rules, or 
• Cannot claim the credits for the next ten years if the IRS determines the error is because of fraud. 

Refer https://www.irs.gov/individuals/understanding-your-cp79-notice. Let us know, if you need any help.

Understanding Your CP79 Notice | Internal Revenue Service POPULAR FORMS & INSTRUCTIONS; Form 1040; Individual Tax Return Form 1040 Instructions; Instructions for Form 1040 Form W-9; Request for Taxpayer Identification Number (TIN) and Certification www.irs.gov

Do You Know Failure to Pay Penalty?

As per IRC 6651(a)(2)

If a taxpayer fails to pay the tax shown as due on the return, a penalty of 0.5% per month (up to a maximum of 25%) is imposed on the tax due. The penalty amount is doubled if the taxpayer fails to pay the tax once a deficiency assessment has been made.

This penalty does not apply during the automatic 6-month extension of time to file period if at least 90% of the actual tax liability was paid in on or before the due date of the return and the balance paid when the return was filed.

If a notice of intent to levy is issued, the rate will increase to 1% at the start of the first month beginning at least 10 days after the day that the notice is issued.

Sure Financials and Tax Services LLC

Mobile: 908.300.9193 | Fax: 855.753.0066

E-Mail:services@surefintaxsvs.com

Web:https://surefintaxsvs.com/

IRS Record Keeping Requirement.

Source : IRS

1. Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
2. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
5. Keep records indefinitely if you do not file a return.
6. Keep records indefinitely if you file a fraudulent return.
7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Refer this Url for more information

Sure Financials and Tax Services LLC

Mobile: 908.300.9193 | Fax: 855.753.0066

E-Mail:services@surefintaxsvs.com

Web:https://surefintaxsvs.com/

HSA Inflation Adjusted Amounts for Tax Year 2022 , Tax Year 2023

HSA Inflation Adjusted Amounts Cross References

IRC §223

Rev. Proc. 2022-24

Rev. Proc. 2021-25

Rev. Proc. 2020-32

The IRS recently announced inflation adjusted amounts for Health Savings Accounts (HSAs) for 2023. These amounts are reflected in the chart below in comparison to previous years.

HSA Limitations

Annual contribution is limited to:	2023	2022	2021
Self-only coverage, under age 55	$3,850	$3,650	$3,600
Self-only coverage, age 55 or older	$4,850	$4,650	$4,600
Family coverage, under age 55	$7,750	$7,300	$7,200
*Family coverage, age 55 or older	$8,750	$8,300	$8,200
Minimum annual deductibles:
Self-only coverage	$1,500	$1,400	$1,400
Family coverage	$3,000	$2,800	$2,800
Maximum annual deductible and out-of-pocket expense limits:
Self-only coverage	$7,500	$7,050	$7,000
Family coverage	$15,000	$14,100	$14,000
*Assumes only one spouse has an HSA. See IRS Pub. 969 if both spouses have separate HSAs.

Sure Financials and Tax Services LLC

Mobile: 908.300.9193 | Fax: 855.753.0066

E-Mail:services@surefintaxsvs.com

Web:https://surefintaxsvs.com/