by The MDTAXES Network | Feb 1, 2020 | February 2020 Newsletter
By Andrew D. Schwartz CPA
When the IRS adds a check box on Schedule 1 of the personal tax return asking:
At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?
…you know they mean business.?With more and more people investing in crypto currencies or maybe even using this new type of currency to transact business, the IRS wants to make sure people.
To help people comply with the complex set of rules regarding the taxation of virtual currencies, the IRS complied these 45 Frequently Asked Questions on Virtual Currency Transactions.
Some key Q&As are:
Q1.? What is virtual currency?
A1.? Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (?real currency?), that functions as a unit of account, a store of value, and a medium of exchange.? Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency.? The IRS uses the term ?virtual currency? in these FAQs to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency.?? Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes.
Q2.? How is virtual currency treated for Federal income tax purposes?
A2.? Virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency.? For more information on the tax treatment of virtual currency, see Notice 2014-21.? For more information on the tax treatment of property transactions, see Publication 544, Sales and Other Dispositions of Assets.
Q3.? What is cryptocurrency?
A3.? Cryptocurrency is a type of virtual currency that uses cryptography to secure transactions?that are digitally recorded on a distributed ledger, such as a blockchain.? A transaction involving cryptocurrency that is recorded on a distributed ledger is referred to as an ?on-chain? transaction; a transaction that is not recorded on the distributed ledger is referred to as an ?off-chain? transaction.
Q4.? Will I recognize a gain or loss when I sell my virtual currency for real currency?
A4.? Yes.? When you sell virtual currency, you must recognize any capital gain or loss on the sale, subject to any limitations on the deductibility of capital losses.? For more information on capital assets, capital gains, and capital losses, see Publication 544, Sales and Other Dispositions of Assets.
Q5.? How do I determine if my gain or loss is a short-term or long-term capital gain or loss?
A5.? If you held the virtual currency for one year or less before selling or exchanging the virtual currency, then you will have a short-term capital gain or loss.? If you held the virtual currency for more than one year before selling or exchanging it, then you will have a long-term capital gain or loss.? The period during which you held the virtual currency (known as the ?holding period?) begins on the day after you acquired the virtual currency and ends on the day you sell or exchange the virtual currency.? For more information on short-term and long-term capital gains and losses, see Publication 544, Sales and Other Dispositions of Assets.
by The MDTAXES Network | Feb 1, 2020 | February 2020 Newsletter
FROM IRS NEWS: IR-2019-215, December 31, 2019
WASHINGTON ? The Internal Revenue Service today issued the?2020 optional standard mileage rates (PDF)?used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on January 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 5 cents per mile driven for business use, down one half of a cent from the rate for 2019,
- 17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019, and
- 14 cents per mile driven in service of charitable organizations.
The business mileage rate decreased one half of a cent for business travel driven and three cents for medical and certain moving expense from the rates for 2019. The charitable rate is set by statute and remains unchanged.
The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details, see?Rev. Proc. 2019-46 (PDF)
by The MDTAXES Network | Feb 1, 2020 | February 2020 Newsletter
By Andrew D. Schwartz CPA
After decades of misleading all but the most straightforward of taxpayers, the W4 form has been replaced with a new W4 form. This is the form you fill out with your employer when you start working that determines the rate you will have federal income taxes withheld from your pay.
The problem with the prior version of the W4 form was two-first.?First, the withholding tables assume that you only have one job. So anyone who works for multiple employers can have a tough time having sufficient taxes withheld.?Work for three employers and earn $20k from each employer, and you’ll have significantly less in taxes withheld than if you work for one employer and earn the same $60k.
Moreover, if you’re married, the withholding tables assume that your spouse doesn’t work.?Its not uncommon for a married couple to owe many thousands of dollars in federal income taxes when both spouses work and both also claim “married” with a few allowances on their respective W4s.
Check out the new W4 form and you’ll see there is a new section called Step 2 that specifically addresses the withholding for people who work for multiple employers and/or for married couples when both spouses work. Will this new W4 form do the trick??Only time will tell. I’ll circle back on this topic next winter when I start preparing tax returns for people who have completed the new W4.?Please stay tuned.
by The MDTAXES Network | Feb 1, 2020 | February 2020 Newsletter
By Andrew D. Schwartz CPA
When the IRS adds a check box on Schedule 1 of the personal tax return asking:
At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?
…you know they mean business.?With more and more people investing in crypto currencies or maybe even using this new type of currency to transact business, the IRS wants to make sure people.
To help people comply with the complex set of rules regarding the taxation of virtual currencies, the IRS complied these 45 Frequently Asked Questions on Virtual Currency Transactions.
Some key Q&As are:
Q1.? What is virtual currency?
A1.? Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (?real currency?), that functions as a unit of account, a store of value, and a medium of exchange.? Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency.? The IRS uses the term ?virtual currency? in these FAQs to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency.?? Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes.
Q2.? How is virtual currency treated for Federal income tax purposes?
A2.? Virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency.? For more information on the tax treatment of virtual currency, see Notice 2014-21.? For more information on the tax treatment of property transactions, see Publication 544, Sales and Other Dispositions of Assets.
Q3.? What is cryptocurrency?
A3.? Cryptocurrency is a type of virtual currency that uses cryptography to secure transactions?that are digitally recorded on a distributed ledger, such as a blockchain.? A transaction involving cryptocurrency that is recorded on a distributed ledger is referred to as an ?on-chain? transaction; a transaction that is not recorded on the distributed ledger is referred to as an ?off-chain? transaction.
Q4.? Will I recognize a gain or loss when I sell my virtual currency for real currency?
A4.? Yes.? When you sell virtual currency, you must recognize any capital gain or loss on the sale, subject to any limitations on the deductibility of capital losses.? For more information on capital assets, capital gains, and capital losses, see Publication 544, Sales and Other Dispositions of Assets.
Q5.? How do I determine if my gain or loss is a short-term or long-term capital gain or loss?
A5.? If you held the virtual currency for one year or less before selling or exchanging the virtual currency, then you will have a short-term capital gain or loss.? If you held the virtual currency for more than one year before selling or exchanging it, then you will have a long-term capital gain or loss.? The period during which you held the virtual currency (known as the ?holding period?) begins on the day after you acquired the virtual currency and ends on the day you sell or exchange the virtual currency.? For more information on short-term and long-term capital gains and losses, see Publication 544, Sales and Other Dispositions of Assets.
by The MDTAXES Network | Feb 1, 2020 | February 2020 Newsletter
By Andrew D. Schwartz CPA
After decades of misleading all but the most straightforward of taxpayers, the W4 form has been replaced with a new W4 form. This is the form you fill out with your employer when you start working that determines the rate you will have federal income taxes withheld from your pay.
The problem with the prior version of the W4 form was two-first.?First, the withholding tables assume that you only have one job. So anyone who works for multiple employers can have a tough time having sufficient taxes withheld.?Work for three employers and earn $20k from each employer, and you’ll have significantly less in taxes withheld than if you work for one employer and earn the same $60k.
Moreover, if you’re married, the withholding tables assume that your spouse doesn’t work.?Its not uncommon for a married couple to owe many thousands of dollars in federal income taxes when both spouses work and both also claim “married” with a few allowances on their respective W4s.
Check out the new W4 form and you’ll see there is a new section called Step 2 that specifically addresses the withholding for people who work for multiple employers and/or for married couples when both spouses work. Will this new W4 form do the trick??Only time will tell. I’ll circle back on this topic next winter when I start preparing tax returns for people who have completed the new W4.?Please stay tuned.
by The MDTAXES Network | Feb 1, 2020 | February 2020 Newsletter
From IRS News: IR-2019-215, December 31, 2019
WASHINGTON ? The Internal Revenue Service today issued the?2020 optional standard mileage rates (PDF)?used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on January 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 5 cents per mile driven for business use, down one half of a cent from the rate for 2019,
- 17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019, and
- 14 cents per mile driven in service of charitable organizations.
The business mileage rate decreased one half of a cent for business travel driven and three cents for medical and certain moving expense from the rates for 2019. The charitable rate is set by statute and remains unchanged.
The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details, see?Rev. Proc. 2019-46 (PDF)
