Although we are qualified to offer tax advice, the blog or newsletter should not be relied upon as a substitute for accounting, legal, or tax advice. Specific situations require you to seek professional advice. If you need legal advice, please seek counsel from a qualified attorney. Although we have taken care to ensure the accuracy of all information presented, the blog or newsletter is for information only, and is offered as is, without warranty.
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 June, 2016
If you owe estimated payments, the next one is due June 15th. Individuals and Entities both have the same deadline this quarter.
Do you owe them?
If you’re making money that doesn’t have withholding (something other than a W-2, for example), you probably will owe estimated payments for 2016.
How much do I owe?
It depends! For individuals, there is a de minimus exclusion of $1,000 for federal tax—if you owe less than $1,000 when we calculate your 2016 return, there is no late penalty—providing you’ve paid in what you owe sufficiently to cover your tax within this tolerance limit.
If you owe more than $1,000 federal tax on your 2016 return, then we look to the current year 2016, and the prior year 2015. If you’ve paid in 90% of the tax on your 2016 return in a timely manner (i.e. you made your payments evenly through the year), you’re OK. But we generally don’t know what you’re going to owe until the return is done, so…
We look to the prior year, 2015. If you’ve paid in 100% of the total tax you owed in 2015, you’re OK…unless your AGI was over $150,000 (less if you’re married filing separate). Then, you must pay in 110% of the 2015 amount due to avoid a penalty. So if you have a paycheck, but also get a K-1, you’ll need to make a payment on the K-1 part of your income, for example.
What if I owe and I don’t pay?
There’s a penalty, of course! For the IRS, the penalty is 3% annually, plus interest for an underpaid amount, calculated to the day they get the payment.
But I haven’t finished my 2015 return yet, how do I know what to pay?
Yep, that’s a problem. Accounting for any known changes in income, we usually opt to pay in for 2016 at least what you owed for 2014. Ask me if you need payment vouchers—we need to be sure the IRS credits the proper year for your payments. And let us finish the 2015 return!
Entities also owe something—there’s a minimum payment for California LLCs, California S Corporations, and California C Corporations. (Partnerships that are not LLCs don’t owe generally.) If you only owe the minimum FTB $800, the June 15th payment is $320.
published January, 2016
Don’t forget to gather the information for your 1099s, along with the rest of your tax information. If you don’t do your 1099s, there can be a variety of penalties, and the IRS has just doubled some of the penalties, which are based on when you file—the later, the greater the penalty. Once you’ve finished your 1099s, you must transmit “the red copy” with a Form 1096, which is like a cover sheet and summary of the 1099s you’re sending in.
Most people haven’t seen penalties imposed, but a second client got a penalty notice this last year, so it appears the IRS is starting to impose the penalties.
published December, 2015
Very recently, the IRS issued Notice 2015-82 revising the limit on what is too small to require depreciation treatment, things we would otherwise have to keep track of until they are disposed of.
The prior rule was for qualifying items costing $500 and less, you could “expense” an item—that is, you could deduct the $500 purchase in the year you bought an item that would normally last longer than a year, and you wouldn’t have to depreciate it on Form 4562.
Now, they say you can “expense” an item if it is $2,500 or less.
The effective date for this change is January 1, 2016. However, in the Notice, they say for taxable years before 2016, if a purchase does not exceed $2,500 per invoice item, and you otherwise qualify to use this rule, the IRS will not pursue the issue. That sounds to me like we may use this rule for returns for 2015 that we’ll file in 2016.
There are several limitations and details to work out, and I still want a list of computers and other assets if I’m preparing your return, but this change is intended to “reduce taxpayer burden” for preparing returns.
Hooray!
Here’s a link to more info: https://www.irs.gov/pub/irs-drop/n-15-82.pdf.
published November, 2015
When the IRS thinks you owe money, the send you a letter. (Scam notes: They don’t call you on the phone and demand money without allowing you to dispute the amount—if that happens, it is probably a scam. Don’t send them money over the phone, they are NOT the IRS.)
The letter they send will go to the address they have on file for you. If you don’t respond to their letter, they’ll send another one. And a couple more. After this, they might find your bank account and take the money they think you owe—and that usually gets people’s attention. If you don’t get the letter because they don’t have your proper address, that is your fault for not letting them know how to contact you. If you use a new address on your tax return, they will update your address in their records. There’s a form (hey, it’s the IRS!).
Form 8822 for individuals, or Form 8822-B for businesses (https://www.irs.gov/pub/irs-pdf/f8822.pdf). The second page of the form tells you how to get it to them.
The California Franchise Tax Board also has Form 3533 (https://www.ftb.ca.gov/forms/2014/14_3533.pdf). They allow you to fill this out on-line. You can also file a return with the corrected address, or send in an estimated payment, or do this on-line at “MyFTB” if you have an account.
There is a separate form if you pay payroll taxes with the Employment Development Department, Form DE24 (http://www.edd.ca.gov/pdf_pub_ctr/de24.pdf).
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:
https://www.dir.ca.gov/DLSE/Publications/Paid_Sick_Days_Poster_Template_%2811_2014%29.pdf
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 May, 2015
For people who are on extension, or worse, not filed and not on extension, now’s the time to finish up the 2014 books, gather all those missing or errant receipts for non-cash donations and other tax documents.
May is usually a “dead month” for tax preparation, as the people who wanted to file without an extension are already filed, and the people who were not able to get their information together still don’t have it together.
I have been working all week on complex returns that I put on extension for one reason or other, but I’m about to travel for a couple of weeks to the east coast for educational purposes. See below for California classes.
So, does it make a difference if you file on extension? The payments are still due, and if you pay late, there are penalties
Does filing an extension make a difference in the likelihood of audit? Of course the IRS will not confirm or deny exactly how they select returns for audit, but a big part of it is done statistically. The computer that analyses your filed return doesn’t care if you’re on extension or not. And the Statute of Limitations runs for three years (generally) from when you file.
The only compelling reason to file “on time” in my mind, other than having things done, is to know what you actually owe, so you can lessen the penalties and interest for not paying on time. (There is a penalty for not filing on time—but not if you file the extension and file before it runs out!)
One other thing: if you generally need to make estimated payments, you’ll need to make them for the 2015 tax year as well. This amount is due even if you are on extension for 2014. If you need to make estimates and need a coupon, let me know.
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 March, 2015
Speaking of tax deadlines, the corporate tax return deadline is March 15th, which is a Sunday, so Monday March 16th
I charge an extension fee of $100.
IF I DON’T RECEIVE YOUR EXTENSION FEE, I WON’T PUT YOU ON EXTENSION.
Why so harsh? What’s the big deal about filing an extension? It’s just a one page form, right? WRONG! Yes, it’s one page, but to properly extend your return, it is required to estimate the amount of tax due, which basically means doing the tax return before doing the real tax return. There is no extension for payment of the tax; if you pay late there will be penalties and interest. There is a separate penalty for filing late, and throwing together a last-second extension or putting “$0 due” (without at least believing it is true) is a good way to have IRS invalidate the extension, and that can subject you to some very nasty penalties for filing late. That’s bad for you. Ultimately, I’m trying to protect you from paying substantially more in penalties and interest for not filing on time.
The IRS offers a six-month extension, but it is best if you still file as soon as possible within those six months. If you wait until the last minute, your returns may not get finished on time. If your return is not filed by the extension deadline, the government computes late filing penalties from the original due date and disregards the extension.
Don’t have the extension fee together at extension time? In addition to cash, check and PayPal, I also accept MasterCard and Visa.
You may also put yourself on extension. Be warned that some states do not accept the federal extension as having simultaneously extended the state return, and also that the “extension” is an extension to file, not an extension to pay. I file extensions electronically, so I get an electronic confirmation. If you file one for yourself, I suggest certified mail with return receipt service for confirmation. No, I cannot “just answer a few quick questions” about your extension if you haven’t paid me to prepare it; it’s not fair to the other people for whom this policy applies.
Note that the extension payment policy only applies if you miss the deadlines. If you have questions about this policy, please call me to discuss them.
Thanks for using our services for the 2014 tax year.