published March, 2018
OK, you’re hip, you’re modern, you’re buying and selling cryptocurrencies.
Those aren’t traceable, so they’re not taxable, right?
The IRS has determined that cryptocurrency is “property” (IRS Notice 2014-21), and when you exchange out of one currency into something else, you may have a reportable gain or loss.
Let’s say you bought 12 bitcoin on 1/1/17 and paid US$800 per bitcoin (US$9,600). Then you got all excited and sold (good for you!) on 12/15/17, at the peak of US$17,900 (x12 = US$214,800). And, with your $200k, you bought XRP for US$0.861760, or 249,257 on the same day.
Time passes, and you decide to buy a house, so you sell your XRP 249,257 on 3/24/18 and since the value has declined, you convert it back to US$161,073 so you can pay the down payment. You’re still doing really well, you made US$9,600 into US$161k. You expect to pay tax on $151k, the difference.
But, one currency into another is NOT a “tax free exchange” so there are two reportable transactions here. First you’ve got a taxable gain on the bitcoin in 2017 of $205,200. Then, you’ve got a loss on XRP of US$53,727. Because they are in separate calendar years, they do not “net” against each other. You owe tax on the US$205k for 2017, and then you have a capital loss in 2018 of US$53k, which you can take against other income at $3,000/year (unless you have a future capital gain to offset it).
Each time you sell, you have something to report. You need to track when and what you bought, and what and when you sold for, and report this on your taxes.
How will they catch me? Coinbase, the exchange service, will be reporting your transactions to the IRS, and I expect any other reputable exchange to do the same.
Well, what if I pay my contractor with XRP instead of dollars? If you were going to have to report to the IRS if you’d paid with US$, you still have to report at the exchange rate the day you paid (think 1099s denominated in US$).
(Thanks to Peter Schiff for the example.)
published September, 2015
If you’ve done your personal tax return for 2014, you know you need to report that you had health insurance, or pay a penalty. If you haven’t done your personal tax return for 2014, tick tock….
There are several ways to get health insurance: you can buy it individually, the employer can provide it, or you can use the marketplace where there may or may not be a subsidy available to pay for your health insurance.
If you use the marketplace, you receive a Form 1095-A from them showing who was covered and amounts paid, including any subsidy, and then we reconcile a subsidy on the tax return to see if you get more subsidy, or if you have to repay a subsidy.
But let’s say your company provides health insurance. How can the IRS verify you’re covered? Starting in 2016, insurance companies will be required to provide a Form 1095-B for each person covered (for tax year 2015), and a transmittal 1094-B (similar to the 1099 – 1096 set we already know about). There’s a penalty if they don’t do this, or don’t do it on time.
You can find more information at http://www.irs.gov/instructions/i109495b/ar01.html
If you have a “self insured” plan, you have to file forms yourself; there’s a different set of forms for you. I don’t know of any of my clients who fall into this category. Possibly, if you are an employer of household employees, and you pay for their health insurance, you’ll be required to file these forms.
If you have fifty or more full time employees (or FTEs) and are “self insured,” you’ll need to file Forms 1094-C and 1095-C starting in 2016. If you don’t have fifty, ignore this. If you think you might be close to fifty, we need to set up a procedure to calculate this.
published June, 2015
Starting July first, employees who work thrity hours or more are now entitled to paid sick leave. The rate is one hour per every thirty hours worked, but can’t be used (under this program) until the 90th day of employment.
Here is the link for the POSTER that must be displayed:
This can also be found by searching for DLSE Paid Sick Leave Posting.
Employers can limit the use of paid sick days to 24 hours or three days in each year of employment, and it may be capped at 48 hours or six days, but it carries forward if unused.
San Francisco already has a paid sick leave policy. See http://sfgsa.org/index.aspx?page=419 for details. This is only if your place of business is in San Francisco: it doesn’t apply to your business if you are in Alameda.
published April, 2015
One of the tricky bits of the Affordable Care Act is that you may not “just reimburse some expenses” for your employees. If you have been doing that in the past, stop now. (Actually you have a ‘grace period’ until the end of June.) If you reimburse some medical expenses for employees, you have a “non-qualified health plan.” If you reimburse part or all of an individual health plan, you have a “non-qualified health plan.” If you have a COMPANY health insurance plan, you’re good. If you have NOTHING, you’re good.
If you have a “non-qualified health plan,” past June 30th, there is a penalty. It is $100 per employee per day.
If you’ve been reimbursing some employees for some medical expenses, stop now. Give notice to everyone, something like “our plan is terminated as of May 31st.” It has to be a company-wide plan, or nothing.
If you’re a greater than 2% Shareholder of your own S corporation, you may still have health insurance for yourself.
More details can be found in IRS Notice 2013-54. This was further clarified in IRS Notice 2015-17.
Oh, and the rules are different if you have 50+ “full time equivalent” employees.
published January, 2015
Please work on your 1099s, if you need to prepare them for your business. Let me know if you need help, I’m preparing a limited number of 1099s and I have some form stock in house, or you can order the forms from the IRS (don’t forget the Form 1096 “Transmittal” to use as a cover sheet). You can file them on-line, but this is not yet a free service.
I went to a class in December and was able to ask an IRS expert specifically about reporting requirements for paying Foreign Persons for Services.
We all know if we pay an individual for services who is a US person or US resident, with some exceptions, they should probably get a Form 1099. These people have an SSN, a nine-digit number issued by the Social Security Administration.
If you pay someone for work DONE in the US who is a “non resident”—which means they are not a US citizen nor a resident alien, they should complete Form W-8BEN and you’ll issue them a Form 1042S. The question about who is a “Resident Alien” for purposes of this test, is complicated. These people have to get an ITIN, a nine digit number issued by the IRS which begins with the number 9, and has a range of 70-88 in the fourth and fifth digit.
If you pay a foreign person, who never comes to the US, does not do the work in the US, and doesn’t plan to come to the US, they get nothing: no 1099 and no 1042S. Keep copies of cancelled checks and an invoice to prove payment, in the event of audit.
published October, 2013
There is NOT currently a penalty if you don’t provide these notices, but they say we’re supposed to provide the notices by October 1, 2013, or whenever you hire a new employee.
The link to the notice if you DO NOT provide health insurance to your employees is here: https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/model-notice-for-employers-who-do-not-offer-a-health-plan.pdf
The line to the notice if you DO provide health insurance to your employees is here: https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/model-notice-for-employers-who-offer-a-health-plan-to-some-or-all-employees.pdf
There is some information you’ll need to fill out on these forms—perhaps download, fill in the info, and copy?
published August, 2013
Employer with fewer than 50 employees? No.
A Person? Yes.
Small businesses may get health coverage in the Small Business Health Options Program (SHOP) Marketplace. No employers are required to offer health coverage.
Starting in 2014, businesses with 50 or fewer full-time equivalent (FTE) employees can use SHOP to offer coverage to their employees. This applies to non-profit organizations as well. You control the coverage you offer and how much you pay toward premium costs.
Individuals ARE required to have health insurance, with some exceptions, or face a penalty of $95 per adult in 2014, $325 in 2015 and $695 in 2016 and beyond, with some adjustments and exceptions and general hand waving. Here is a link to a chart: http://kff.org/infographic/the-requirement-to-buy-coverage-under-the-affordable-care-act/
Health coverage through SHOP starts as soon as January 1, 2014. Open enrollment begins October 1, 2013. You can sign up and begin offering coverage any time during the year. If you already have insurance or your employer provides health insurance, you may continue with this.
Thanks to Peggy Hall, EA for her help with this section.
published July, 2013
PPACA, also known as “Obamacare” has different rules depending on your company size.
There are two classes: “Large” and “Small.” Large employers have more than fifty full-time employees for Full Time Equivalents (FTEs) on average for the previous year.
Owners, partners, greater than 2% shareholders and their family do not count.
If you are a small employer, there is potentially a tax credit available through the end of this year if you’re voluntarily providing health care insurance for your employees. BUT, the owners don’t count for the credit, family of owners don’t count, and average annual wage has to be less than $50,000 per FTE. I ran some calculations for a couple of my clients last year, and no one qualified, and it just made me cranky to have spent several hours calculating for no benefit. (I suppose the benefit is that we know for sure there is no credit available.) I hold little hope for most of my clients. (The cost of living is generally too high in the Bay Area, or my clients just pay too much in payroll!) Oh, and if you were eligible for the credit, the amount of the credit is also reduced by 8.7% due to sequestration.
This Act is also the one that put in the extra 0.9 Medicare Tax on wage and self-employment income for individuals with income higher than $200,000 or married filing jointly couples with incomes higher than $250,000. If you’re paying someone more than $200k, your payroll service or software should do this calculation correctly. If both spouses make $199k, they’ll have an extra tax to pay on the joint return (MFS is $125k each—so no magic relief is available by filing separately).
For more information, try http://www.irs.gov/taxtopics/tc763.html
published March, 2012
You may have received a letter from the CA EDD about an available credit for health insurance premiums paid.
Excluded from the credit are business owners, partners, and more than 2% shareholders, so most of us will not qualify for the credit.
When you do qualify, the credit is reported on Form 8941.
There is a three part eligibility test. First you have to have paid at least 50% of the premiums for health insurance coverage, and you have to pay uniformly (like 100% for everyone). Second, you have to have fewer than 25 “FTE” employees for the tax year, “FTE” is full-time equivalents. To calculate this, we take the hours of service divided by 2080 hours in a year, rounded down. Third, and this is the “killer” for most of my clients who offer health insurance, average annual wages for the year of less than $50,000 per FTE.
Health insurance does not include workers compensation insurance, or HSAs.
There is a reduction to the credit if your average is over $25k (but must still be under $50k), and there’s also an upper limit to the amount of coverage cost allowed in figuring the credit—in California the coverage limits are $4,790 for single and $11,493 for family coverage. Its $5,146 and $12,328 in New Mexico, and the lowest limits are $4,378 and $9,849 in Arkansas. Clearly people in Arkansas are healthier than they are in New Mexico and California!
See http://www.irs.gov/instructions/i8941/ar02.html for more information.
published February, 2012
The IRS has set up new rules for brokerage houses (Schwab, Scott Trade, etc) that they now have to include BASIS as well as their estimation of long term or short term holdings. This means your 1099-B may be delayed this year. And that may mean a delay in processing your tax return.
The tax return for 2011 has a new Schedule D—the place we report capital gains and losses. It is now a summary only, with details of the transactions getting reported on a new form, the Form 8949. There are two sides to this new form, one side for short term, and the other for long term. Also, there are three boxes at the top of each side of each page—and you can only check one box per page. The boxes are to tie to the 1099-B forms: box A is checked when reporting transactions where the brokerage house IS reporting the basis to the IRS. Box B is checked when reporting transactions where the brokerage house IS NOT reporting the basis. Some securities transferred from one brokerage to another didn’t include the basis information, so the new brokerage just doesn’t have the information about basis, so they can’t report it on the 1099-B. If you’ve only used one brokerage house over the years, they MAY have the basis info, but they previously didn’t have to report it to the IRS, so I’m not promising they’ll have it.
Since there is a change in the reporting requirements, several brokerage houses have said it may take them until February 15th to report.
To report stock trades for 2011, we’ll need to have the 1099-B in hand, to make sure what we submit to the IRS on your tax return matches what the brokerage house reports – or you’re likely to get a letter from the IRS asking you to explain the difference.
There IS a column on the Form 8949 for “adjustments” in the unlikely (!) event your brokerage house does not compute the gain/loss correctly when reporting the sale price and the cost.
If you have several 1099-B transactions that are short term, and the brokerage has the basis for some and not for others, you’ll have two pages of Form 8949, one with box A checked and another page with box B checked. Since most returns will be efiled, this is not so much a waste of paper as it might seem.