#when is fbar due

[sidraseoiyh]

Simplify Global Tax Compliance: FBAR and ITIN Services for Individuals and Businesses

FBAR and ITIN Assistance has opened up new financial opportunities for individuals and businesses, but it also comes with complex tax compliance requirements. For U.S. taxpayers with foreign financial interests, understanding and adhering to the Foreign Bank Account Report (FBAR) and Individual Taxpayer Identification Number (ITIN) regulations are crucial. Failure to comply can lead to hefty fines and legal complications. This article provides insights into how specialized FBAR and ITIN services can simplify the tax compliance process for both individuals and businesses, ensuring accurate reporting and peace of mind.

Understanding FBAR: Who Needs to File?

The FBAR, officially known as FinCEN Form 114, is a requirement for U.S. citizens, residents, and certain entities with a financial interest in or signature authority over foreign financial accounts exceeding $10,000 in aggregate at any time during the calendar year. This includes bank accounts, brokerage accounts, mutual funds, trusts, and other financial accounts held abroad.

Key Points on FBAR Compliance:

Who Must File: U.S. individuals, trusts, estates, and businesses with foreign accounts that meet the reporting threshold must file an FBAR.

Penalties for Non-Compliance: Non-compliance can lead to severe penalties, including fines of up to $10,000 per violation for non-willful failures and even higher penalties for willful violations, potentially reaching 50% of the account value.

Purpose of FBAR: The FBAR aims to increase transparency of foreign financial accounts, helping the U.S. government combat tax evasion and illicit financial activities.

The Role of ITIN in U.S. Tax Compliance

An ITIN is a tax processing number issued by the IRS for individuals who are not eligible for a Social Security Number (SSN) but need to comply with U.S. tax laws. This group includes non-resident aliens, foreign nationals, and dependents or spouses of U.S. citizens or resident aliens who do not qualify for an SSN.

When an ITIN is Needed:

Filing U.S. Taxes: Individuals who have U.S. tax filing obligations but are not eligible for an SSN must obtain an ITIN.

Claiming Tax Benefits: ITINs are essential for claiming certain tax credits and treaty benefits, which can reduce tax liabilities.

Conducting Business in the U.S.: Foreign investors and businesses engaging in U.S. activities may need an ITIN for tax reporting and compliance purposes.

Common Challenges in FBAR and ITIN Compliance

Navigating FBAR and ITIN compliance can be complex, especially for those without a strong understanding of U.S. tax laws. Here are some common challenges faced by individuals and businesses:

Complex Reporting Requirements: Identifying which accounts need to be reported, accurately determining account values, and managing multiple foreign accounts can be daunting tasks for taxpayers.

ITIN Application Pitfalls: The ITIN application process involves submitting valid documents, adhering to stringent requirements, and sometimes facing delays due to incomplete or incorrect applications.

Dual Jurisdiction Compliance: Taxpayers with obligations in both the U.S. and their country of residence must navigate dual compliance, which can complicate the filing process and increase the risk of errors.

Constantly Evolving Regulations: U.S. international tax laws are frequently updated, making it challenging for individuals and businesses to stay compliant without expert guidance.

How Professional FBAR and ITIN Services Can Help

Specialized FBAR and ITIN services can simplify the compliance process, ensuring that individuals and businesses meet their reporting obligations efficiently and accurately. Here’s how these services add value:

Expert Assessment and Strategy Development: Tax professionals can assess your specific situation, identify your FBAR and ITIN obligations, and develop a tailored compliance strategy that aligns with your financial goals.

Streamlined FBAR Filing: With expert guidance, you can navigate the FBAR filing process seamlessly. Professionals ensure that all required accounts are reported accurately, calculations are correct, and filings are submitted on time to avoid penalties.

Efficient ITIN Application Assistance: A tax expert can simplify the ITIN application process by helping you gather the correct documents, complete the application accurately, and guide you through submission. This reduces the risk of application rejections and delays.

Dual Compliance Management: For those with international tax obligations, professionals provide guidance on managing compliance across multiple jurisdictions, minimizing the risk of double taxation and ensuring that all requirements are met.

Ongoing Support and Updates: Tax regulations are constantly changing. Professional services keep you informed about relevant changes in the law, providing proactive advice to adjust your compliance strategy as needed.

Audit Representation and Resolution: In the event of an IRS inquiry or audit, having a tax professional represent you can be invaluable. They handle all communications with the IRS, work to resolve issues promptly, and protect your interests throughout the process.

Benefits of Using Expert FBAR and ITIN Services

Engaging professional FBAR and ITIN services offers several benefits that can make a significant difference in your compliance journey:

Accuracy and Peace of Mind: Professionals ensure that your filings are accurate and complete, giving you peace of mind that you are in full compliance with U.S. tax laws.

Time and Stress Savings: Managing tax compliance on your own can be time-consuming and stressful. Outsourcing this responsibility allows you to focus on your personal or business priorities.

Penalty Avoidance: Expert guidance significantly reduces the risk of costly penalties associated with non-compliance or incorrect filings.

Personalized Solutions: Professional services are tailored to your unique needs, whether you are an individual with foreign accounts or a business with complex international operations.

Steps to Simplify Your FBAR and ITIN Compliance

Achieving streamlined compliance with FBAR and ITIN requirements involves a few key steps:

Identify Your Compliance Needs: Start by evaluating your financial situation to determine if you meet the criteria for FBAR filing or if you need an ITIN for tax purposes.

Engage a Qualified Tax Professional: Choose a tax advisor with expertise in international compliance, particularly in FBAR and ITIN services. Their knowledge and experience will be crucial in guiding you through the process.

Gather Necessary Documentation: Work with your tax professional to collect all required documents, such as foreign account statements, identification, and income records, to ensure accurate reporting.

Submit Accurate and Timely Filings: Allow your tax professional to handle the preparation and submission of your FBAR filings and ITIN applications. Their expertise ensures that all details are reported correctly and deadlines are met.

Regularly Review Your Compliance Strategy: International tax compliance is an ongoing process. Regularly review your financial and compliance situation with your advisor to ensure that your strategy remains effective and up-to-date.

Conclusion

FBAR and ITIN Assistance tax compliance is possible with the right support. Expert FBAR and ITIN services provide the guidance and expertise needed to navigate complex reporting requirements, avoid penalties, and ensure accurate compliance with U.S. tax laws. Whether you are an individual with foreign financial interests or a business operating across borders, professional assistance can streamline your compliance efforts, giving you confidence and peace of mind in managing your international tax obligations.

[accelero25]

Expat Tax Services for US Tax Filing: Help for NRIs on How Global Income is Taxed

Introduction

Non-resident Indians (NRIs) often find themselves grappling with the complexities of US tax laws, especially when it comes to reporting global income. Navigating these regulations can be daunting, but understanding the basics and utilizing specialized Expat Tax Services can significantly ease the process. This article aims to provide a clear understanding of how global income is taxed for NRIs and the role of expat tax services in ensuring compliance.

Understanding US Tax Obligations for NRIs

Citizenship-Based Taxation

The United States imposes taxes based on citizenship. This means that all US citizens, including NRIs, must report their worldwide income to the IRS, regardless of their physical location. This includes income earned from all sources globally.

Filing Requirements

NRIs must file an annual tax return if their income exceeds certain thresholds. These thresholds depend on the filing status (single, married filing jointly, etc.) and age. Even if no tax is due, filing is necessary to report foreign income and claim any applicable credits.

Reporting Global Income

Types of Global Income

Global income includes wages, interest, dividends, rental income, capital gains, and any other earnings from foreign sources. All such income must be reported on the US tax return.

Foreign Earned Income Exclusion (FEIE)

The FEIE allows NRIs to exclude a portion of their foreign-earned income from US taxation. For the tax year 2023, up to $112,000 of foreign-earned income can be excluded. To qualify, one must meet the Bona Fide Residence Test or the Physical Presence Test.

Foreign Tax Credit (FTC)

The FTC provides a reduction in US tax liability for taxes paid to a foreign country. This credit can help mitigate double taxation by allowing NRIs to offset the taxes paid in their country of residence against their US tax liability.

Reporting Foreign Assets

FBAR (Foreign Bank Account Report)

If the aggregate value of foreign financial accounts exceeds $10,000 at any time during the calendar year, NRIs must file an FBAR (FinCEN Form 114). This report is filed separately from the tax return and is submitted electronically.

FATCA (Foreign Account Tax Compliance Act)

Under FATCA, NRIs with specified foreign financial assets exceeding certain thresholds must file Form 8938 with their tax return. The reporting thresholds vary based on filing status and residency.

Avoiding Double Taxation

Tax Treaties

The US has tax treaties with many countries, including India, to prevent double taxation. These treaties outline which country has the right to tax specific types of income and allow for the crediting of taxes paid in one country against the tax liability in the other.

Totalization Agreements

Totalization agreements help NRIs avoid paying social security taxes in both the US and their country of residence. These agreements ensure that contributions made to one country’s social security system are recognized by the other.

Utilizing Expat Tax Services

Expertise in International Taxation

Expat Tax Services specialize in the intricacies of international taxation. They can provide tailored advice on reporting global income, claiming exclusions and credits, and ensuring compliance with US tax laws.

Simplifying Compliance

These services streamline the tax filing process by managing documentation, calculating tax liabilities, and preparing and submitting tax returns. This reduces the risk of errors and penalties.

Personalized Tax Strategies

Expat tax professionals can develop personalized tax strategies to minimize liabilities. They stay updated on tax law changes and can advise on the best ways to manage global income and assets.

Conclusion

For NRIs, understanding how global income is taxed by the US and utilizing Expat Tax Services can significantly simplify tax compliance. By leveraging available exclusions, credits, and tax treaties, NRIs can minimize their tax liabilities and ensure adherence to US tax laws. Professional Expat Tax Services offer the expertise and support needed to navigate these complex regulations, providing peace of mind and financial clarity.

[tempobowl0]

Reporting Foreign Real Estate Rental Income

This form is due by 15th day of the 3rd month after the end of the trust’s tax year. irs form 8865 U.S. citizens and U.S. residents who are the tax owners of a Foreign Disregarded Entity are responsible for filing Form 8858, Information Return of U.S. U.S. persons with assets located outside the United States may be subject to additional reporting. Starting in tax year 2013, the form had to be filed by any individual who had a PFIC value that exceeds the specific exemption/exclusion amounts. The U.S Government takes a very heavy hand against taxpayers on issues involving the reporting of foreign mutual funds. If you are out of compliance for failing to report foreign assets to the IRS, IRS Offshore Voluntary Disclosure is one of the best and safest methods for getting back into compliance. Finally, do keep in mind that the value of these specified foreign (non-Canadian) properties need to be reported both in Canadian dollars and in the foreign currency. The exchange rate to be used to convert from the foreign currency to Canadian dollars should be based on the exchange rate in effect at the time of the transaction. That is, at the time the income was received from the property, or the exchange rate on the date the property was purchased. For income received from the specified foreign property an average exchange rate may be used. However, while you should be careful with your FBAR filing, do not let the process intimidate you. Consider consulting a tax expert, especially one with experience in international tax compliance. It is also worth noting that the due date for the FBAR recently changed. The term “offshore accounts” is often used as shorthand to suggest that such account holders are trying to dodge tax responsibilities. Individuals can file the form electronically for the 2014 taxation year. The T1135 for a corporation cannot yet be filed electronically with the tax return, but must be sent by mail. It can be attached to the tax return or partnership information return, and mailed to your tax centre, or can be mailed separately to the Ottawa Technology Centre. Individuals can file the form electronically for the 2015 taxation year. The tax calculation on unreported PFIC income is both onerous and complicated. Expats with foreign real estate rental income are required to report their rental income as part of their worldwide income on form 1040. Previously, the form was only filed if income was actually received. In addition, the revised form seeks information on first year of receipt of FDI/ODI and disinvestment. The foreign asset reporting requirement extends to trusts outside India where the ROR is a trustee, a settlor or a beneficiary. As with bank accounts, details for each investment and/ or investment account needs to be reported separately. Schedule FA also specifically requires reporting of details in relation to bank accounts where the individual has a signing authority. The reporting requirement for bank accounts include name and address of the bank, account number, name of the account holder, date of opening, peak balance during the year and interest earned. Owning shares of a passive foreign investment company, or PFIC, subjects U.S. taxpayers to a complicated set of rules enacted in the 1980s in order to eliminate beneficial tax treatment for certain offshore investments. Under the current rules, in most cases PFIC distributions are taxed as ordinary income, rather than as long-term capital gains or dividends. Judging by the sheer number of questions on the Intuit website regarding foreign interest income this amendment would be time well spent. Again, thanks to TTML for the helpful clarification and explanation. A trust is a collection of assets that are handled by a third party, the “trustee,” whose objective is to manage the assets on behalf of the trust fund’s beneficiary. The difference between a domestic trust and a foreign trust is that a foreign trust is neither under the jurisdiction of a U.S. court, nor do U.S. persons control major decisions about the trust. Further, a domestic trust can become a foreign trust after its establishment. (I suspect that what the wording meant to say is "later" in a different section, not in the current 1099INT section). Even the "learn more" link for 1099INT does not mention that foreign interest income should be input in this section. The 1099INT section has a graphic image of the top of a 1099INT form as well as questions about various boxes on the 1099INT form, all of which creates the impression that without a 1099INT you are in the wrong place. The other alternative was to assume that foreign interest income might be input into the field for "foreign accounts" but again the TT software does not allow you to do this . The easy solution would be to amend the wording on the 1099INT page to state that even without a 1099INT, foreign interest income should be added in this section. It seems quite simple to correct this (time consuming!) impression with a few extra words or some additional info in the "learn more" link. This is because the IRS wants to make sure they get their chance to tax the foreign mutual fund in accordance with the PFIC anti-deferral of tax regime. A foreign trust with a U.S. owner must file Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Can something be done to amend the TT software to remove the confusing and misleading language? When entering interest income the website says that if you have interest from something else - which would clearly seem to include foreign interest which is not on a 1099INT - it will be added later. Despite this statement, the software does not provide the option to add foreign interest later. Previously, he worked in the corporate accounting department at Motorola where he oversaw financial reporting and tax preparation for the firm’s mobile division of Eastern Europe. The form will seek investor-wise direct investment and other financial details on fiscal year basis as hitherto, where all reporting entities are required to provide information on FATS related variables . Curious about how the recent Tax Cuts and Jobs Act of 2017 impacts FBAR? Largely, foreign reporting requirements remain unchanged, despite tax reform. Kunal helped us with a successful streamlined filing disclosure of foreign assets. He came across as very knowledgeable and answered all our questions…He was efficient and quick in completing the process after we had put together all our documentation. Peak balance refers to the maximum account balance during the year and not the balance at the end of the year. Even where an ROR does not have any taxable income in India, a tax filing requirement arises if the individual has any assets outside of India. Foreign financial accounts maintained on a United States military banking facility. in which the U.S. person has a greater than 50% direct or indirect present beneficial interest in the trust’s assets, or receives 50% of the income. While the Foreign Account Tax Compliance Act has provided U.S. persons with foreign assets guidance on how to get compliant with the IRS since 2009, the Treasury Department has demanded their compliance via the Banking Secrecy Act since 1970. In addition to the penalties already discussed, if you fail to file Form 8938, fail to report an asset, or have an underpayment of tax, you may be subject to criminal penalties. Do all of these foreign account disclosure rules and regulations seem unnecessarily burdensome or duplicative? However, these same rules and regulations define the present state of "foreign" account disclosure and reporting required, as a function of United States law. Passive Foreign Investment Companies sound like an exotic and highly specialized investment and it’s easy to assume that you don’t own any. However, this conclusion would be a mistake as PFICs include hedge funds, money market accounts, mutual funds, private equity funds and a long list of other foreign investments.

[kamiyo35-blog]

All You Need to Know About Crypto Taxes

Whether or not you are obliged to pay tax in your crypto sports or not depends on wherein you find your self. Crypto taxation is a serious topic whilst you live inside the US, Australia, uk, Japan, and France.

Those international locations have uncomplicated guidelines at the taxes crypto investors are imagined to pay.

The table underneath indicates international locations with crypto tax policies, how they classify cryptocurrencies, and the type of tax you’re obliged to pay as a dealer.

Also Read: What is Margin Trading in Crypto

Crypto tax regulation Table supply: Crypto studies file. Which of your crypto activities are taxable Dwelling in any of the nations mentioned above doesn’t imply you may pay tax on every crypto engagement below the solar. Those are the cryptocurrency trading and funding activities that require you to pay tax. These sports cut throughout almost all countries.

When you sell your cryptocurrency for fiat (USD, GBP, AUD, JPY, EUR…) Replacing your cryptocurrency for any other cryptocurrency The usage of your crypto property to pay for goods or services While you receive cryptocurrency as earnings (both through mining or as price for services supplied to a third party) Non-taxable crypto activities. Not all cryptocurrency engagements appeal to taxes. Here are the sports you need to pay taxes on:

When you circulate your cryptocurrency from one pockets to some other or among crypto exchanges. Donating cryptocurrency to a non-taxable charity enterprise When you buy crypto with fiat While you provide cryptocurrency as a present to a pal or circle of relatives. The way to determine the quantity of tax you owe from your crypto profits

Calculate tax on crypto earnings The amount of tax you pay for your crypto engagements relies upon at the activity you undertake. (This is basically based totally on the tax rules by way of the IRS within the US).

Capital profits Tax Buying and protecting a crypto asset after which promoting it at a destiny date draws a capital profits tax. As an example, in case you purchase bitcoin at $10,000 and sell it at a later date for $13,000, you’re required to pay a capital gains tax at the gains realized, which in this situation is $3000. The proportion you pay as crypto capital profits tax, however, depends on whether or not you held your crypto belongings for much less than a 12 months or over a year.

This brings us to the 2 styles of taxes on this class: brief-time period and long-time period capital profits tax (this element makes a speciality of capital gains tax due to the fact crypto activities are presently, in large part dominated through buying and promoting). Don't forget, however, that there are other sports that appeal to tax like creating a purchase with crypto or whilst you receives a commission in crypto for presenting offerings and more).

For brief-term capital profits tax You’re obliged to pay a quick-term capital gains tax when you make profits from the sale of your crypto assets after maintaining it for much less than a yr. Within the united states of america, the proportion you pay on quick-term capital profits taxes in large part relies upon on whether you’re single, married or head of a household. The desk beneath summarizes tax rates and the special possibilities that practice to every group.

For crypto traders inside the US, the IRS has a full listing of the tax charge that applies to brief-term buyers and investors.

For long-term capital profits You’re obliged to pay a protracted-time period capital gains tax when you make profits from the sale of your cryptocurrency after keeping it for over a yr. The desk beneath illustrates the tax rate for a long-time period holder.

Basically, the fees for lengthy-term capital gains tax are lower and favorable to buyers and investors in comparison to short-term capital gains tax rates. As a result, the tax gadget rewards folks that maintain their assets for a long time. Hodl on for pricey lifestyles.

Crypto taxation in the uk In case you’re a crypto dealer inside the united kingdom,  you are obliged to pay capital profits tax or earnings tax depending at the crypto sports you adopt. Shopping for and promoting crypto attracts a capital gains tax and receiving crypto as payment for offerings offered or as income from mining sports attracts an income tax.

In case you earn among £0 and £12,500 to your crypto activities yearly, you’re exempted from paying tax. For traders earning among £12,501 and £50,000, you will pay 20% in your crypto earnings. Her Majesty’s revenue and Customs’ (HMRC) coverage paper, describes in detail the nature of crypto sports and taxes inside the uk.

Additionally see: buy Bitcoins In united kingdom

Tools to calculate and record on your crypto taxation By now, you have an idea approximately crypto taxation for your u . S ., how to decide the profits taxable out of your trading and investment, and the tax costs that observe on your activities.

However do you have to move seeking out a tax professional or a CPA to determine your tax and report it in your behalf? Can you afford the expenses that come with consulting with a third celebration? In case your answer to these questions is a big NO, then read on.

This a part of the put up will take you through 5 cryptocurrency tax software that you may use to import and manage your buying and selling statistics from crypto exchanges, calculate and record taxes in your crypto sports, all with the aid of yourself. Plus some bonus equipment.

Here are the tools you’ll find out:

TokenTax Cointracking Zenledger CoinTracker Bitcoin Taxes. Let’s see what every software can offer you in terms of calculating and reporting on your tax obligations.

Nice Crypto tax reporting and calculation software: 1. TokenTax TokenTax is one of the most giant tax calculation and reporting software program obtainable for any crypto dealer. The platform has made the entire technique problem-unfastened by means of integrating with nearly each crypto alternate accessible. It additionally works with heaps of cryptocurrencies, so you don’t need to fear approximately your altcoin now not being part of the TokenTax calculation and reporting dashboard.

If you’re a crypto trader bent on minimizing your losses and maximizing your gains, you’ll be surprised by way of the minimization algorithm supplied with the aid of TokenTax. This option will advise the cash that you must sell so that it will decrease the tax you pay your crypto activities and facilitates you're making most desirable use of both your portfolio and the tax system.

Exceptional capabilities of TokenTax

Guide for many record kinds, such as schedule C, 8938, FBAR, and 8949, amongst others. TokenTax is globally handy. Irrespective of your vicinity, you can use it for tax reporting. It provides aid for margin buying and selling from Bitmex, Poloniex, and lots of other systems. As a dealer, TokenTax allows you to import information out of your pockets or trade mechanically. You may additionally combine your tax reviews with preferred accounting tools including CCH, Drake Accounting, and TurboTax among others. 2. Cointracking

Cointracking is another superb and lengthy-standing device for all your crypto tax calculation and reporting. It is a crypto portfolio management platform that also gives terrific tax tools, providing you with get entry to to a comprehensive set of data in one dashboard. It tracks your crypto balances and trading milestones to help you make better choices.

Fantastic features of Cointracking

Cointracking presents help for lots exchanges, consisting of legacy aid for closed exchanges like Mt. Gox. It gives you get right of entry to to actual-time reviews on profits, losses, and asset fee. Cointracking has guide for over 6000 crypto belongings, so even your shitcoin that just released final 2 months might be there. Lets in you to import statistics from exchanges and wallets with aid for JSON, PDF, CSV, Excel, and XML file formats. Also read: CoinTracking evaluate: the way to Use CoinTracking App (+ expert tips)

Three. Zenledger

If you’re a professional crypto investor in need of a dependable tax calculator, Zenledger is probably an excellent match. It helps many exchanges, crypto property, and fiat currencies. Zenledger’s dashboard is simple, making it clean for a non-technical individual to navigate the platform and calculate their tax with none trouble.

Functions to look out for in Zenledger

Zenledger takes each minute element into account, so that you don’t have to fear about overpaying your taxes. It comes with superb CPA tools to help accountants who are into the crypto taxation surroundings. It can routinely generate one of a kind tax reviews using the facts you furnished in mins.

[124southmain]

Foreign Bank Account Reporting on Cook & Co. News

New Post has been published on https://cookco.us/news/foreign-bank-account-reporting/

Foreign Bank Account Reporting

IRS reminds foreign bank and financial account holders the FBAR deadline remains April 15

The Internal Revenue Service is reminding U.S. citizens, resident aliens and any domestic legal entity that the deadline to file their annual Report of Foreign Bank and Financial Accounts (FBAR) is still April 15, 2021.

The extension of the federal income tax filing due date and other tax deadlines for individuals to May 17, 2021, does not affect the FBAR requirement. 

Who must report The Bank Secrecy Act requires U.S. persons to file a FBAR if they have:

Financial interest in, signature authority or other authority over one or more accounts, such as a bank account, brokerage account, mutual fund or other financial account in a foreign country, and

The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

Because of this threshold, the IRS encourages U.S. persons or entities with foreign accounts, even relatively small ones, to check if this filing requirement applies to them.

A U.S. person is a citizen or resident of the United States or any domestic legal entity such as a partnership, corporation, limited liability company, estate or trust.

The 2021 FBAR must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) and is only available through the BSA E-Filing System website. Taxpayers who are unable to e-file their FBAR must call FinCEN at 800-949-2732, from outside the U.S. 703-905-3975.

Penalties for failure to file an FBAR Those who don’t file an FBAR when required may be subject to significant civil and criminal penalties that can result in a fine and/or prison. The IRS will not penalize those who properly reported a foreign account on a late-filed FBAR if the IRS determines there was  reasonable cause for late filing.

[wilsontaxlawblog]

DOJ charges Texas billionaire in $2 billion tax fraud scheme

New Post has been published on https://wilsontaxlaw.com/doj-charges-texas-billionaire-in-2-billion-tax-fraud-scheme/

DOJ charges Texas billionaire in $2 billion tax fraud scheme

TEXAS - Federal prosecutors charged Texas billionaire Robert Brockman on Thursday with a $2 billion tax fraud scheme in what they say is the largest such case against an American. Department of Justice officials said at a news conference that Brockman, 79, hid capital gains income over 20 years through a web of offshore entities in Bermuda and Nevis and secret bank accounts in Bermuda and Switzerland. Prosecutors announced that the CEO of a private equity firm that aided in the schemes would cooperate with the investigation. The 39-count indictment unsealed Thursday charges Brockman, the chief executive officer of Ohio-based software company Reynolds and Reynolds Co., with tax evasion, wire fraud, money laundering, and other offenses. Prosecutors also announced that Robert F. Smith, founder and chairman of Vista Equity Partners, will cooperate in the investigation and pay $139 million to settle his own tax probe. Smith, 57, stunned a senior class last year when he promised to wipe out the student loan debt of the entire graduating class at Morehouse, a historically Black all-male college. “Complexity will not hide crime from law enforcement. Sophistication is not a defense to federal criminal charges," said David L. Anderson, U.S. attorney for the Northern District of California. “We will not hesitate to prosecute the smartest guys in the room." Brockman appeared in federal court from Houston via Zoom Thursday. He entered a plea of not guilty to all counts and was released on $1 million bond, said Abraham Simmons, spokesman for the Northern District of California. “Mr. Brockman has pled not guilty, and we look forward to defending him against these charges," said his attorney, Kathryn Keneally, in an email. Prosecutors said Brockman used encrypted emails with code names, including Permit, Snapper, Redfish and Steelhead, to carry out the fraud and ordered evidence to be manipulated or destroyed. Brockman, a resident of Houston and Pitkin County, Colorado, is chairman and CEO of Reynolds and Reynolds, a 4,300-employee company near Dayton, Ohio, that sells accounting, sales and management software to auto dealerships. The software helps set up websites, including live chats with potential customers, find loans and calculate customer payments, manage payroll and pay bills. Reynolds & Reynolds issued a statement saying the allegations were outside Brockman’s work with the company and that the company is not alleged to have participated in any wrongdoing. In 2013, a charitable trust set up by Brockman’s late father withdrew a pledged $250 million donation to Centre College, a small liberal arts school in Danville, Kentucky, where Brockman attended class and once served as chairman of the board of trustees. At the time the school said it was due to a “significant capital market event” that didn’t pan out. A spokesman for Reynolds and Reynolds said in 2013 that the event was a proposed refinancing deal involving Vista Equity Partners, Smith's company. According to the indictment, Brockman gave an unnamed individual detailed instructions regarding the proposed gift to the college, including talking points, and directed the person to threaten to pull out if his demands were not met. In August, he instructed the person to cancel the gift. Prosecutors say that Smith used about $2.5 million in untaxed funds to buy and upgrade a vacation home in Sonoma, California; purchase two ski properties in France; and spend $13 million to buy a property and fund charitable activities at his property in Colorado. Anderson applauded Smith for stepping up, despite the serious nature of his crimes, which occurred from 2000 to mid-2015. “Smith’s agreement to cooperate has put him on a path away from indictment," he said. In 2019, Smith announced to the graduating class at Morehouse College that he would pay off the student loan debt of the entire class, saying that he expected the graduates to “pay it forward.” The estimated cost was $40 million. Forbes lists Smith as #461 on its billionaires list, with a net worth of more than $5 billion. He founded the tech investment firm Vista in 2000 and Forbes reports that it now has over $50 billion in assets and is “one of the best-performing private equity firms, posting annualized returns of 22% since inception.” Vista has offices in San Francisco and Oakland. Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division. For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC Newport Beach and Yorba Linda, California   Tel: (949) 397-2292 (Newport Beach Office)   Tel: (714) 463-4430 (Yorba Linda Office)

[joshuajacksonlyblog]

2019 IRS Crypto Tax Guidance is Subject to Change, GAO Warns

The IRS’ guidelines on crypto tax reporting remain unclear, and may not be binding, per the analysis of the Government Accountability Office (GAO). Crypto Tax Reporting Guidelines Change Without Warning Reporting on ownership and gains from crypto assets remains unclear, as the IRS has not codified all of its opinions into Internal Revenue Bulletins. The guidelines on taxing digital assets from 2019, however, is not an official document, opening up problems of interpretation, reported Forbes. What is more, the guidelines remained uncertain until the last on the exact nature of digital assets. Only in the past week, the IRS once again edited its crypto tax guidelines to remove mentions of in-game tokens such as Robux and V-bucks. The IRS has not taken care to signify that its FAQ is not authoritative and is subject to change without warning, pointed out the GAO. The removal of in-game assets is one example of how the IRS remains uncertain on which assets should be taxed, and when. The GAO itself warns that its position is not tax advice, but only opinion and analysis. However, the GAO stands behind its statement on unclear guidances on airdrops and hard forks. The IRS has also made purely technical mistakes in understanding hard forks and has described taxable events, which may put owners in breach without intention. Tax Forms and Bulletins Show Official IRS Position Taxable events hinge on the currently available forms and the possibility to describe transactions and exchanges from cryptocurrency to fiat. Some crypto exchanges in the US behave as voluntary reporters, filling in forms 1099-K and 1099-MISC on behalf of their clients. But other market operators do not report crypto trades or withdrawals. The IRS has not created unified reporting rules, and various actors are interpreting the crypto tax law in different ways, creating discrepancies. The IRS has opened a program on clarifying reporting requirements and is working on ensuring the right forms get filled, stated the GAO. For now, non-compliant crypto traders and owners may be confused by the vague and conflicting rules. The IRS has also not issued any guidelines on assets held on international platforms. Those exchanges do not have the duty to report to the IRS. Foreign crypto exchanges may lack transparency, but there is also no agreement on the duties of traders to report. The IRS and FinCen are yet to issue guidelines on owning assets held in offshore storage. In the coming months, there may be more clarity on whether foreign-held assets fall under the requirements of the Foreign Account Tax Compliance Act (FATCA) and Report of Foreign Bank and Financial Accounts (FBAR). For now, US traders may not be exposed to such issues, as in the past year, most international crypto exchanges started excluding US-based crypto traders due to compliance concerns. What do you think about the 2019 crypto guidelines FAQ? Share your thoughts in the comments section below!   from Cryptocracken Tumblr https://ift.tt/2StNNWH via IFTTT

[advancetaxreliefexperts]

SIMPLE THINGS YOU CAN DO TO AVOID AN IRS AUDIT

Tax Help, Audit Help, Tax Debt Relief

IRS audits are the worst, aren’t they? So, it pays to avoid them if at all possible. The best advice is to be entirely and totally honest on your tax returns. Otherwise, if you follow these tips, you could keep the IRS from knocking on your door in the near future

1. Report ALL Income

Yes, you have to report all of your income. Taking money under the table, “forgetting” about that 1099, or leaving anything off your return is a bad idea.

Those 1099s? The IRS receives a copy, too. They expect to see it on your return.

Are you a gambler? Report all earnings as well as losses. Don’t pad anything.

Are you an investor? Report all of your capital gains and interest. The IRS gets most of that information, too. By the way, if you dabbled in cryptocurrency, it should be treated as an investment, not currency.

Always, always, ALWAYS file on time and file everything correctly. An amended return can trigger an audit, so be sure everything is complete before you or your tax professional hit “send.”

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2. Report Overseas Accounts If you have accounts in a foreign country, you must comply with the Foreign Account Tax Compliance Act, aka FATCA. And don’t forget about the Foreign Bank and Financial Accounts (FBAR), which files reports with the Financial Crimes and Enforcement Network (FinCEN). The movies are wrong, there is no such thing as a private Swiss Bank account where you can hide money from Uncle Sam.

Failure to comply with FATCA  a costly proposition.

3. Watch Those Deductions and Credits Deductions and credits are great. They can lower your taxable earnings as well as the amount you owe. Just don't abuse them. The IRS knows these are popular items, and they will find out.

Avoid claiming large itemized deductions. If your deductions are out of line with your income, the IRS notices.

Don’t take the Earned Income Credit unless you actually qualify.

Be honest about things like mortgage interest deductions because the IRS gets a copy of those forms, too. If you are self-employed, you may write off quite a bit in supplies, equipment, and costs. But don’t get carried away. Keep scrupulous records - you may need every supporting document possible if you do become an audit target.

We get it. Those credits and deductions look mighty tempting when you owe the feds money. But if you can’t qualify without squinting, don’t take them.

4. Take Care with Rental Losses and Real Estate Businesses

If you own rental property, you will probably suffer losses for some years. However, if your losses become a habit or are more extensive than your tax professional can stomach, be absolutely sure before you write those losses off.

The Tax Cuts and Jobs Act cut ordinary income tax rates for rental owners and kept the long-term capital gains tax for when you sell. But rental losses really complicate matters. Something else that you should know: the IRS allows you to deduct up to $25,000 in losses, but only if you actively participate in the renting of the property.

One more thing. Don't claim to be a real estate professional if you are not. To qualify, you must spend at least 750 hours a year and spend more than half your time working to be considered a real estate professional. Document every single hour you spend on your real estate business, just in case.

5. Classify Your Employees and Independent Contractors Correctly

Sure, it's tempting to call everyone who works for you an independent contractor. That way, you don't have to withhold income taxes, take care of W-2s and W-4s, or any of that other stuff. Unfortunately, if the IRS decides your “independent contractor” is actually an employee, you could be in a heap of trouble.

Independent contractors maintain their independent status by doing the work the way they want and when they want. You just control the finished product. When you start telling them exactly what to do, which tools to use, and when to work, they become employees.

6. Don’t Claim a Hobby as a Business

Hobbies are fun. Some of them are expensive. You may think you can save yourself some money by claiming it as a business and getting those nice business expense deductions. Just stop. Don’t do it. If you can’t afford your hobby without defrauding Uncle Sam, maybe you need to find a different hobby. If gambling is your hobby, please refer to #1 above.

7. Don’t Claim Dependents You Don’t Have

So far, all attempts to have furbabies declared as dependents have failed. So, don’t claim Fifi on your taxes. Also, be sure your children actually count as your dependents. Things get tricky if custody is shared between divorced parents or a couple filing separately. You can’t both claim the little devils unless you file jointly. Also, once they turn 19, you can no longer claim them unless they are full-time students. Too bad the deduction doesn't help pay off college, right?

8. Don’t Inflate Business Expenses

While you should report business expenses, don’t get too carried away. Make sure you have all the proper documentation and that you followed IRS rules. If you use a vehicle for business, you can deduct mileage for work travel.

Home office supplies, equipment, and certain costs are eligible. Just be sure to follow the rules. Don’t try to write off meals or entertainment unless you can prove they are business-related.

As always, meticulous record-keeping is your defense.

9. Give to Charity, but Don’t Overdo It

Like business expenses, don’t inflate charitable gifts, either. (By the way, political contributions don’t count.) For all donations, cash, goods, or services, get a receipt. Also, make a record of everything you donated.

10. Only Submit Error-Free Returns

Double and triple check your returns. You want no math errors and no blanks, especially where your signature should be. It's incredible that people do all the work of preparing a tax return and then forget to sign, but it happens.

As honesty is the best policy, make sure your reported income matches your tax documents. Don’t fall for any of the IRS Dirty Dozen tax scams that leave you holding the bag.

This isn’t an exhaustive list of ways to keep out of trouble with the U.S. government. But it can get you started down the right road. Report everything, pad nothing, and remember to sign before sending your return

Oh, and filing paper returns seems to get IRS attention these days, so you’d better e-file. Let us know if you need audit representation.

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[cbfinpc]

Taxes for Expats: A Tax Overview for Americans in Canada

American citizens, as well as permanent residents, are obligated to consider the need to file U.S. expatriate tax returns with the IRS every year. This applies regardless of where they live. In addition to the typical income tax return, many individuals are also required to submit informational returns.

The U.S. is one of a few countries that tax the international income of its citizens and residents residing overseas. With Canadian residents being subject to Canadian income tax on their international income, this may leave many wondering whether Americans residing in Canada are protected from possible double taxation.

The answer: in most instances – yes!

Before we talk about the US-Canada tax treaty, let’s go through some basics:

For starters, if you’re working in Canada, you’re obligated to consider the need to pay taxes to the Canadian Revenue Agency (CRA).

When Are Canadian Taxes Due?

The Canadian tax year runs from January 1st through December 31st for individuals. For most people, the typical tax due date to file the T1 (Canadian tax form) is April 30th.

Self-employed individuals can file as late as June 15th but the payment of taxes needs to be made by April 30th.

Filing U.S. Expat Taxes

Once you’ve filed your Canadian returns in Canadian dollars, you may also need to file U.S. tax returns in U.S. dollars.

In addition, the Foreign Account Tax Compliance Act (FATCA) requires U.S. taxpayers who hold foreign financial assets exceeding certain thresholds to report information about the assets on Form 8938. This must be attached with their annual income tax return. If not filed, the tax return carries a penalty of $10K fine—up to $50K in case of continued failure to file.

Moreover, U.S. taxpayers are also required to file Foreign Bank Account Report (FBAR) if the aggregate of their non-US financial accounts also exceed certain thresholds. The maximum penalty for failure to file FBAR is either 50% of taxpayer’s assets or $100K—whichever is larger.

Avoiding Double Taxation

Although filing the documents mentioned above requires some effort, U.S./Canadian filers may benefit in other ways from tax relief through the U.S. Canada Tax Treaty. The main goal of the tax treaty between Canada and the U.S. is to provide relief from double taxation and address the taxation of income, property and property transfers. The treaty helps to avoid discriminatory tax treatment of residents and provides a way of resolving tax disputes between the U.S. and Canada.  

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[lostmyheartinthestars]

Crypto and Bitcoin Taxes for US Expats

Crypto and Bitcoin Taxes for US Expats

Thousands of expats have bought Bitcoin and other cryptocurrencies over the last few years, either as a convenient way of making or receiving cross border payments, or as an investment.

All Americans, including expats, are required to file US taxes every year, reporting their worldwide income, and they may also have to report their foreign financial accounts and assets, depending on their total combined balances and values of these. Many expats aren’t sure whether they need to report Bitcoin or other cryptocurrencies though, and if so how.

According to the new IRS Bitcoin Cryptocurrency Reporting Update, there are three scenarios in which expats should report their crypto holdings.

The first is if they receive cryptocurrencies as payments for work or services provided. In this scenario, the cryptocurrency is considered income, and the equivalent dollar value at the time the payment was made should be reported on IRS Form 1040.

The second scenario when Bitcoin should be reported is if Bitcoin investments are sold which have made a capital gain or loss. Recent IRS guidance state that for the moment at least cryptos are considered to be assets rather than currency, so like the sale of any asset, profits and losses can result in a capital gains tax bill.

The third scenario is that Bitcoin and other crypto holdings may need to be reported as part of foreign asset reporting. The way this works is that if the combined total value of an individual’s foreign held financial assets exceeds $200,000 at any time during a year, then all their foreign financial assets, including crypto holdings, must be reported on Form 8938.

Expats often wonder whether Bitcoin or other cryptocurrencies should be reported on Foreign Bank Account Reports (FBARs). As mentioned, recent IRS guidance consider cryptos assets rather than currency though, so they don’t need to be reported on an FBAR. This may change in the future though.

In August 2019, the IRS started writing to 10,000 Americans that they believe may have unreported Bitcoin or other cryptocurrency holdings to ask them to ensure that they have reported them correctly and paid any tax due.

Expats who hold (or who have help) Bitcoin or other cryptos and who haven’t reported them and paid any tax that may be due should consult a US expat tax specialist at their earliest convenience.

[sherrod-pigee]

Are Your Prepared for These Year End Income Tax Issues?

Over the course of the year, I'm sure you've noticed the ridiculous way our Congress has acted to update our tax laws. By including tax code provisions in a highway bill, a mass transit bill, and a trade package bill- plus within the Bipartisan Budget Act and the PATH (Protecting Americans from Tax Hikes) Acts. (Those last two were, indeed, logical places to regulate taxes.)

There is a chance that the lame duck Congressional session may act on some tax regulations, but given that these folks work about 1 day a week- and then complain how many lazy folks are out across the US not entering the workforce (that is the pot calling the kettle black)- I am not sanguine they will. So, unless they do- this will be the last year that mortgage insurance will be deductible and foreclosed home debt will not be a taxable situation, among a few other items that expire this calendar year.

But, I figured it would be helpful if I combined all these changes into a coherent mass (which our legislators clearly have not), so you can be prepared for the 2016 tax season. (Remember, you file your taxes for 2016 by April 2017. Oh- and if you are a business, the odds are the date your taxes are due, also changed. More on that below.)

Students and Teachers (PATH Act provisions)

Students got a permanent change for deductibility of tuition via the American Opportunity Tax Credit. This provides up to $ 2500 of tax credit for lower-income filers for the first four years of higher education (with a possibility of 40% of the unused credit being received as a refund- if no other taxes are owed). As long as the students are enrolled at least half time for one term of the year and not convicted of drug violations. The real change is that filers must include the EIN of the college or university involved- and demonstrate that they paid the tuition and fees they claim- not what the institutions may list on the 1098-T form.

On the other hand, the tuition deduction for other students will expire at the end of this year. Oh, and that generous (sic) deduction teachers get for buying supplies for their students that schools don't supply is now permanent- all $ 250 of it. (Most teachers spend at least twice that!)

Pensions and IRA

Folks older than 70.5 years of age no longer have to rush to transfer their IRA (or portions thereof) to charity, because that provision is permanent. (PATH) Please note that the IRS demands that these transfers not be rollovers. One must employ a trustee to transfer the funds; and that trustee cannot hand you the funds to deliver to the charity. If they do, you lose the exemption. No surprises I am sure when I remind you that there must be a contemporaneous acknowledgement (that means a timely receipt) from the charity for that deductible donation or transfer.

Heirs and Estates

While still in the wrong venue, the Highway Bill did fix a big problem. Folks (or entities) that inherit assets from an estate are now required to use the basis filed in the 706 form for their own calculations. (Just so you know, the rules stipulate that estates can value items as per the date of death, or by alternate choice 9 months after that date. Too many "cheaters" would use a different basis for the property they inherited, thereby cheating the tax authorities with alternative valuations.)

To keep this rule in place, executors are now required to stipulate (i.e., file for 8971 and Schedule A of the 706) said value to all heirs and to the IRS. Which means anyone who inherits property- and thought they didn't need to file Form 706 because the value of the estate was below the threshold for Estate Tax better reconsider. Otherwise, the heirs may be hit with a penalty for using the wrong basis for that inherited asset when they dispose of same.

Why? Because if a 706 form is never filed, the basis of all assets inherited is now defined as ZERO!!!!! It gets worse. Because if an asset were omitted from Form 706, the basis of that property is now determined to also be ZERO. (Unless the statute of limitations is still opened, when an Amended 706 can be filed to correct this omission.)

Another kicker. If the 706 form is filed LATE, the basis of all assets that should have been included are also set at ZERO. Some tax advisors feel this one little provision could be challenged in court. But, let's just be prudent and file all those 706 Estate Tax returns in a timely fashion. (Filing a 706 when the estate value is below the filing threshold is called a Protective 706 Filing; we've been doing those for years. And, we strenuously examine the assets often to the consternation of the heirs- to ensure that all the non-worthless assets are included. You know, that 36 diamond tennis bracelet your grandma promised you would inherit when you turned 16.)

Oh, yeah. Another really big kicker for this little item. Under IRC 6501, the IRS has three years to catch cheaters who misstate certain items (like income taxes [except for continuing fraud], employment taxes, excise taxes, and for this provision- estate taxes and the results therefrom). No more. If an asset from an estate is misstated so that it can affect more than 25% of the gross income on a tax return will now have a SIX year statute of limitation.

Mileage Rates

Not surprisingly, the mileage rates for 2016 are lower than they were last year. Business mileage is now deducted as 54 cents a mile; driving for reasons that are medical or moving are only worth 19 cents each. When we drive to help a charity, we only get 14 cents a mile.

As is normally true, we have no clue what those rates will be for 2017. The IRS normally prepares those well into the calendar year.

Real Estate

The PATH ACT made permanent the ability of taxpayers to contribute real property to qualified conservation charities.

Health and Health Insurance

The Highway Bill (yup) came up with a bouquet of flowers for our veterans and folks currently serving in the military. No longer will they be unable to contribute or use HSA (Health Savings Accounts) should they receive VA or armed service benefits.

Along that same vein, the Highway Bill enabled all those who purchase- or are provided by their employers- high deductible insurances (about $ 1500 for a single person) to use HSAs, too.

Oh, and assuming Obamacare is not overturned, there is a permanent exemption from penalties for those receiving VA or TriCare Health Benefits. (For employers, the Highway Bill also exempts all such employees from being included in determining the 50 employee (full-time or equivalent) threshold provisions.)

Employers

There were more than a few changes for employers. More than the exemption for the VA and armed service personnel from inclusion in Obamacare provisions mentioned above.

Like ALL 1099s and W-2 are now due by 31 January. That's a big change for many folks who barely get their stuff together to file 1099's. It means that companies need to contact their tax professionals really early- to let them verify that all relevant contractors and consultants receive those 1099s on time. Because the penalties have also increased.

The Work Opportunity Credit has been extended through 2019. This applies to Veterans (which is why you keep hearing Comcast advertising its commitment to hire some 10,000 veterans over the next few years- they're no dummies). Other targeted groups include what are termed those receiving Temporary Assistance for Needy Families (TANF), SNAP (what used to be termed Food Stamp) recipients, ex-felons, and some of those living in "empowerment zones".

Families and Individuals

The PATH ACt made the enhanced child tax credit (up to $ 1000, income dependent) a permanent provision of the code. As well as the Earned Income Tax Credit provisions that were to expire.

Social Security taxes are not going up per se- but the income basis upon which one pays them is. For the last two years, there was a tax holiday for all wage income (or self-employed income) that exceeded $ 118,500. Next year (2017), the taxes will be collected for totals of up to $ 127,200.

If an employee is working overseas and has income and/or a housing allowance, the exclusion provisions have also changed. For 2016, foreign income of $ 101,300 could be excluded from taxation, as could housing benefits that were $ 16,208 or less. Starting 2017, those exclusions become $ 102,100 and $ 16,336, respectively.

There also is further clarification of these foreign exclusions. In particular, these will affect those in the merchant marine or working aboard cruise lines. Because the IRS now holds that when one is in a foreign port, then one is able to claim foreign income. But... when someone operates in international waters, that is NOT a foreign country. That income must be computed (by the number of days one is on said waters) and is not excludable!

Individuals, Businesses, Trusts, Non-Profits that have Foreign Accounts

Some big changes affect those who must file those FBARs (Foreign Bank and Financial Accounts). It used to be you had to report any holdings in a bank, stock account, commodities or future accounts, mutual funds, or [pay attention to this one] poker, gambling or gaming site account that was not a US domicile by 30 June. (This also means a foreign insurance policy that has a cash value or foreign retirement accounts [including inheritances] is a foreign account.) It also covers recent immigrants to the US! These filings are due at the same time as your income tax return. But, while there never was an extension possible for these forms, now there is - for the same six months that obtains for your personal tax filings.

A foreign account does not mean that using the Royal Bank of Scotland to house funds in New York City; but having a Citicorp account that is based in Jerusalem or London does. The critical consideration is where the local branch is situated, where the account was opened. By the way, accessing foreign funds via PayPal means you have a foreign account.

The FBAR filing uses Form 114 and must be now filed electronically. The requirement to file applies to all taxable entities (individuals and businesses) that have $ 10,000 or more of value on any given day during the tax year. And, the conversion rate for said value is no longer allowed to be daily- but determined by the value on the last day of the tax year.

There is a new interpretation, too. The requirement to file applies not just to the account owner(s), but to anyone with signature authority. So, that means people like me that maintain client accounts overseas will now have to file these forms, because I can issue checks on those accounts. (I am not responsible for about 100 of them where I write the checks for the clients- but have no signature authority.) It also means employees of corporations or businesses or estates that have foreign funds and have signature authority must also file Form 114.

All business entities (and trusts and non-profits) should recognize that all entities - and individuals who work for or at those entities- that have signature authority for a foreign bank account, stock account, gaming or gambling account are subject to these provisions. In other words, all foreign money holdings may subject employees, not just officers of the institutions, to these provisions.

Oh. The IRS also requires those foreign entities where you may or may not have money to file Form 8938, a FATCA (Foreign Account Tax Compliance Act) filing. This covers those financial accounts, stocks, securities, contracts, interests- anything that exceeds the filing threshold. These rules also apply to American entities (individuals, businesses, trusts, etc. that have such interests in excess of the filing threshold! (If one resides in the US, those thresholds are $ 50K for individuals, $ 75$ for married folks on the last day of the year- or $ 100K and $ 150K at any time during the tax year. Those numbers increase by a factor of 4 if one doesn't reside in the US; the thresholds are $ 200K, $ 300K, $ 400K, and $ 600K, respectively.)

Businesses

The PATH Act changed the 179 (the capital purchases write-off provisions) Election. For good. The maximum Section 179 write-off is now permanent. (It had been extended for a year or two each time Congress had made a change for a while.) That maximum is also to be adjusted for inflation starting this year, which is why it is now $ 510,000. Moreover, there is a phaseout when the amount of new capitalized property exceeds $ 2.03 million, but not to zero.

Real Estate

For real estate purchases, the maximum Section 179 exclusion is now also $ 500K. (Last year, it was capped at $ 250K.) This includes HVAC (heating, ventilation, and air conditioning), which is a new change. Any recapture of this credit (due to an early sale) is now considered subject to ordinary income taxes.

The time to depreciate real estate is now 15 years for qualified leasehold improvements, restaurants, and retail improvements. Bonus depreciation is also allowed for the first half of said improvement value (through 2017), decreasing in 2018 to only 40%, 30% in 2019 and removed completely by 2020. The PATH Act also let bonus depreciation apply to 39 year property (for improvements that were already in service by the entity).

Automobiles (Luxury)

The depreciation limits for vehicles is limited to $ 3160 or 20% of the basis in 2016. However, this year one can write off up to $ 8000 in bonus deprecation (which is reduced to $ 6400 in 2018, $ 4800 in 2019 and then removed forever by 2020) for new (not used) automobiles. Of course, these numbers apply only to vehicles that are used completely for business. There is a reduction for vehicle use that is not fully attributed to business usage.

Partnerships

The Bipartisan Budget Act (the one that taxes would normally be addressed) has brought a sea change to the way partnerships will be treated, should the IRS find problems with their tax submissions. The changes do not take effect for a few years- but the time to address the changes is really now.

Basically, the Act stipulates that any change that comes about by an audit are to be collected directly from the partnership- unless the partnership elects out of TEFRA (Tax Equity and Fiscal Responsibility Act of 1982). So, it means that partnership formation, operations, new partner admissions, etc. will all have to be reconsidered.

What changed is this- the partnership can decide to accept an IRS decision that the underpayment is due from the partnership itself or it can elect to have that decision divided up among the partners, according to their percentage ownership or liability percentage. Most advisors are telling partnerships to elect the latter process. If the partnership does not so choose, then the IRS will assess the partnership at the highest tax rate allowed- 39.6%. Of course, if the partnership can prove (to the satisfaction of the IRS) that a lower rate is appropriate, based upon the individual tax rates of the partners, then a lower rate may be allowed. (Don't bank on the IRS doing so.) However, this underpayment will not be allowed to change the basis of each of the partner's interests, if the partnership is taxes for the liability.

If the partnership pushes the issues down to the partner level, then each partner is assessed for the tax at its own rate. And, the partnership can issue an adjusted (amended) K-1 for the IRS revisions that will change the basis and avoid the double taxation possibility. The partnership has 45 days from the date of the IRS notice of change to make this election.

There is another change that affects partnerships- the PAL (passive active loss) issue. Why? Because most partners and partnerships do not maintain pristine time records. (This also affects real estate rentals that are reported on Schedule E, page 1.) There are various definitions that set the PAL issues- for real estate professionals it is a minimum of 750 hours of work a year. The IRS has allowed other partnerships to use different designations, such as 500 hours, or the fact that a particular partner does all the work (even if less than 500 hours), or even when a partner spends 100 hours or more on the partnership and no one else does more.

But, the rules to prove how much participation are gelling. One can use a record of cell phone call records, eMails, or credit card charges. Travel itineraries and receipts can prove how much participation was involved. Even affidavits from customers and clients can be used to prove the time one participated in the venture.

Payments Due

The IRS has been starved to death for years by Congress. Partly because one party was angry that the IRS was not automatically granting those "social welfare" organizations (read as political collections and donation farms) tax exemptions without scrutiny. Partly because the IRS is responsible for collecting the penalties for those who don't comply with Obamacare. (Hoping that this lack of funds would make it harder for them to do so.)

But, in my humble opinion, the solution Congress came up with sucks. The IRS has now been authorized to hire those bottom feeders- the outside collection agents, that harass and subject folks to all sorts of intimidation. The logic behind this choice? After all, folks who owe the IRS must be the scum of the earth. (Of course, no one ever considers the fact that the IRS makes mistakes, chooses random numbers to assess non-filing taxpayers who may actually owe nothing, etc.)

Many clients fall short of having sufficient funds to pay their taxes when due. This entails the taxpayer submitting a form 9465 (Installment Agreement Request). These must be automatically approved if the taxpayer [individual] owes (or will owe) the IRS $ 50,000 or less, with the addition of this request- and all tax forms have been timely submitted. (Businesses are limited to a $ 25,000 maximum, with the same provisos.) However, the fees involved to have the IRS process the request have been increased to $ 120, unless the taxpayer agrees to have the IRS zap their bank account automatically each month. Then, the fees are reduced to $ 52. (The IRS has way too many taxpayers "forgetting" to make timely payments. This is a way to incur fewer manpower issues for the service.) However, no matter how the payment is to be processed by the IRS, all low-income taxpayers (a family of 4, with $60K or less in income) won't have to pay more than $ 43 to institute a payment plan.

The biggest issue? Any taxpayer who is not in compliance with IRS code, who has no installment agreement in place, and owes $ 50,000 in taxes, penalties, and interest can find his passport revoked IMMEDIATELY. (If one is not yet issued, don't expect the Department of State to issue one, either.)

Filing Dates

Individuals

There has been no change in the due date for 1040 filing, in that it is still due on 15 April (or the next business day, should the 15th fall on a weekend or legal holiday). Unless you can prove you were out of the country on 15 April- then you have the right to extend the filing date to 15 June. Or, you filed an extension request- that gives you until 15 October (with the same proviso for when it falls on a weekend or legal holiday).

Businesses

Here's where the big changes arrive. And, it is about time. Because too many pass-through entities have been screwing over their partners, their stockholders by delaying their filing. Oh, sure, they may pay a penalty, but that doesn't help the multitudes who can't file their taxes in a timely fashion due to the lassitude of these entities.

So, from now on, all pass through entities- those are partnerships, LLCs, and S entities must no file their tax returns by the 15th day of the 3rd month after the end of their tax year. Recognize that the IRS allows companies that have "good" reasons to not use a natural year (i.e., 1 January to 31 December) to chose another month to end their tax year. But, for most entities, the due date will now be 15 March. Which gives the partners or the stockholders a month to finish their own tax returns. (Firms that operate on the US Government year, which ends 30 September, for example, must file their taxes by 15 November.)

Regular Corporations (C entities) no longer have to file by the 15th day of the 3rd month, but now have until the 4th month. So, for those companies operating on a natural year basis, the due date has been extended (permanently) from 15 March to 15 April. (A similar 15th day of the 4th month after year-end applies for those not operating on a natural year basis.)

Business, Trusts, Non-Profits, and Pension Plan Extensions

There is one more change for C corporations. Their extension is no longer 6 months long- but 5 months. In other words, before when they had to file by 15 March, but could extend the due date until 15 September... still have that same final extended due date, regardless that the original filing date is now 15 April.

Partnerships and S entities still have a 6 month extension- which also falls (for those who use a natural year) on 15 September.

Trusts and Estates of the Deceased file form 1041. The only extension request provided 5 months beyond the due date. Now, the due date is 5.5 months. That means the due date for filing is 15 April, but an extension means the due date can be 30 September.

Non-Profit entities file form 990 on 15 May- or the 15th day of the 5th month after the end of their fiscal year. Extensions used to be provided for 3 months; they now have more time- six month extensions are the new rules.

Employee Benefit Plans (Pension Plans, 401(k), welfare plans) must file their tax returns with the IRS by the last day of the 7th month after their year end. (For natural year plans, that means 31 July). Before the plans could extend that deadline by 2.5 months; now the rule provides for an additional month to 3.5 months.

Late Filing Penalties

The minimum penalty for filing late (more than 60 days) has been increased from $ 135 to $ 205. Except in certain cases, that penalty can be reduced to the amount of tax owed, which ever is smaller. (By 2017, the penalty will go up to $ 210.)

Which entities are affected by this change? Individuals (all forms 1040, including non-citizens). Estates and Trusts (Form 1041). Corporate Files (all forms of the 1120 filing). And, Non-Profit entities that can file a 990-T (they have unrelated business income of $ 1000 or more.)

There are more penalties, too. These were included in the Trade Package Legislation. The act included late filing of 1099 forms, W-2s, and 1095 (Health Care Reporting). You will note that the deadlines for some of these forms have been moved up- so pay attention and file them on time. Because the penalties can be $ 1060 for each delinquent 1099 form- because you have intentionally filed late to the government AND to the payee!

Of course, if you file the 1099 only 30 days late, the penalty is $ 50 (again- for each - the payee and the government). If you get your act together by 1 August, the penalty is $ 100 (again, for each). And, if you miss that date, the penalty is $ 250 each- unless the IRS feels it was intentional (and you know that number is $ 530).

[124southmain]

For taxpayers living, working outside the U.S., file a return by June 17 on Cook & Co. News

New Post has been published on https://cookco.us/news/for-taxpayers-living-working-outside-the-u-s-file-a-return-by-june-17/

For taxpayers living, working outside the U.S., file a return by June 17

Taxpayers living and working outside of the United States must file their 2018 federal income tax return by Monday, June 17.

The June 17 deadline applies to both U.S. citizens and resident aliens abroad, including those with dual citizenship. An extension of time to file is available for those who cannot meet this filing deadline.

Most people abroad need to file

Just as most taxpayers in the United States are required to file their tax returns with the IRS by April 15, those living and working in another country are also required to file. However, an automatic two-month deadline extension is granted and in 2019 that date is June 17.

An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return.

A taxpayer qualifies for the special June 17 filing deadline if both their tax home and abode are outside the United States and Puerto Rico. Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 17. Be sure to attach a statement indicating which of these two situations apply.

Payments for taxes owed were due April 15 Interest, currently at the rate of 6 percent per year, compounded daily, still applies to any tax payment received after the original April 15 deadline. For details, see the “When to File and Pay” section in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Reporting required for foreign accounts and assets

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located. In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

Foreign accounts reporting deadline

Separate from reporting specified foreign financial assets on their tax return, taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2018, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-filing System website.

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is now the same as for a federal income tax return, April 15, 2019, but FinCEN is granting filers missing the original deadline an automatic extension until Oct. 15, 2019, to file. Specific extension requests are not required.

Automatic extensions available

Taxpayers abroad who can’t meet the June 17 deadline can still get more time to file, but they need to ask for it. An extension request must be filed by June 17. Automatic extensions give people until Oct. 15, 2019, to file; however, this does not extend the time to pay tax.

One of the easiest ways to get an extension of time to file is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an extension on Form 4868. Requests may also be made using a paper form by following the instructions provided on the form. Form 4868 requires taxpayers to estimate their tax liability and pay any amount due.

Another option is to pay electronically, and the IRS will automatically process an extension when taxpayers select Form 4868 and are making a full or partial federal tax payment using Direct Pay, the Electronic Federal Tax Payment System (EFTPS) or a debit or credit card. There is no need to file a separate Form 4868 when making an electronic payment and indicating it is for an extension. International taxpayers who do not have a U.S. bank account should refer to the Foreign Electronic Payments section on IRS.gov for more payment options and information.

Combat zone taxpayers get more time without having to ask for it

Members of the military and eligible support personnel serving in a combat zone have at least 180 days after they leave the combat zone to file their tax returns and pay any taxes due. This includes those serving in Iraq, Afghanistan and other combat zones. A list of designated combat zones can be found in Publication 3, Armed Forces’ Tax Guide. Various circumstances affect the exact length of the extension available to any given taxpayer.

Report in U.S. dollars

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. tax return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

Both FINCEN Form 114 and IRS Form 8938 require the use of a December 31 exchange rate for all transactions, regardless of the actual exchange rate on the date of the transaction. Generally, the IRS accepts any posted exchange rate that is used consistently.

Expatriate reporting

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States during 2018 must file a dual-status alien tax return, attaching Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service, Philadelphia, PA 19255-0049, by the due date of the tax return (including extensions).

[release-info]

CoinDesk Bitcoin News Blockchain 101 Technology Markets Business Data & Research Events Stay Up to Date on Crypto & Blockchain With Our Suite of Newsletters. Subscribe Here! What to Expect When the IRS Alters Its Bitcoin Tax Policy Anna Baydakova Anna Baydakova Jun 7, 2019 at 04:00 UTC The Takeaway Coming guidance from the IRS will address longstanding questions about the tax treatment of cryptocurrency. The tax collector has identified several specific issues it will discuss, including whether investors owe taxes on free crypto they get from a fork. The industry is also hoping for clarity on a number of other matters, including the tax implications of airdrops, staking and crypto stored at overseas exchanges. Every tax season, cryptocurrency investors in the U.S. struggle to figure out how much they owe the government. But next April it might be a little bit easier. Last month, the Internal Revenue Service (IRS) said it would “soon” issue new guidance on the tax treatment of crypto, something it hasn’t done since an initial notice the agency issued in 2014. In its original guidance, the IRS stated that for tax purposes, virtual currency is treated as property and not as currency. But it left a number of key questions unanswered, such as how to value cryptocurrency received as income. The market has become more complicated in the intervening years, with the emergence of phenomena like airdrops and forks that essentially give people free crypto, raising new questions about tax liability. In a letter last month to Rep. Tom Emmer, IRS Commissioner Charles P. Rettig said the forthcoming guidance would address these issues and others. He did not say exactly when it will come out, and neither would the IRS when contacted by CoinDesk. It’s hard to predict when the IRS will publish the new guidance, but as the extended due date for individual returns is October 15, and for pass-through businesses it is September 15, “they may shoot to have guidance out before those extended deadlines,” said Kirk Phillips, a certified public accountant (CPA). Below, we explain the major areas where the crypto community is looking for more clarity from the taxman. How much did you make? One of the most important questions since the publication of the IRS’ first notice has been how taxpayers should determine the fair market value of cryptocurrency they receive as income (in exchange for goods and services, for instance). This is its cost basis. The 2014 guidance says that if a cryptocurrency is listed on an exchange, the fair market value is determined by converting it into U.S. dollars “at the exchange rate, in a reasonable manner that is consistently applied.” However, unlike securities or property, cryptocurrencies can vary in price widely between different exchanges, said Phillips, the author of “The Ultimate Bitcoin Business Guide.” “Every exchange can have its own pricing methodology, and if you’re using ten different exchanges there will be ten different pricing models,” he said. The American Institute of Certified Public Accountants (AICPA) has suggested that taxpayers should be allowed to use the average rate of the day and the average price of different exchanges to calculate the value of their crypto, as well as aggregating indexes like CoinDesk’s Bitcoin Price Index. Any of these methods can work as long as taxpayers are consistent in applying them, AICPA said in comments submitted last year to the IRS. Also, it should be possible to use a combination of methods for various instances. “Taxpayers may have one method applied to one wallet and another method applied to another exchange when determining the fair value of all the bitcoin transactions,” the comment says. James T. Foust, a senior research fellow at the industry advocacy group CoinCenter, suggested a similar approach in a recent report. Users should be allowed to use “either the exchange rate data from one exchange, averaged exchange rate data from a fixed set of exchanges, or a third-party exchange rate index” for each cryptocurrency, as long as they use these methods consistently, Foust wrote. Which coins did you spend? An even trickier task is determining the cost of each unit of cryptocurrency that was spent in a taxable transaction, such as a sale. Lisa Zarlenga, a partner at the law firm of Steptoe & Johnson, explained that when you sell cryptocurrency you should specifically identify the fraction you’re selling to calculate a gain or loss. For other asset classes, there are established ways to do this. For example, in stock trading, taxpayers can apply the average cost basis or the “first in, first out” (FIFO) assumption: that they are selling the earliest acquired piece of stock, so the price is determined as the one registered at the time of the first purchase. “But the simplified approach doesn’t apply to other types of property, only to stock,” Zarlenga said. “So one thing the IRS could do is extend it to cryptocurrency, which would be very helpful.” Even that wouldn’t help in every case, noted Phillips. “First in, first out” can be a problem if the price of the earliest acquired coin is zero — if the owner mined it, for instance. Imagine somebody who earlier mined some bitcoin is trying to cash out another coin which cannot be sold for fiat, and so would have to sell it for bitcoin and then sell that bitcoin for fiat. In this case, the bitcoin, bought and immediately sold, won’t bring its owner any profit, but if the cost basis is defined by the first coins this person ever acquired (which is zero), they will have to report a capital gain. In such cases the FIFO principle might become a trap, Phillips said. “It can create a fictitious gain that doesn’t match the economic substance.” At the moment, there are a number of software platforms for calculating taxes on crypto using different methodologies, and the best the IRS can do is to leave it for users to choose, Phillips said. As the technology and the market mature, better solutions can be found, he said. “The best scenario would be to leave it broadly open for the taxpayer to decide what method they use as long as they apply a consistent methodology: you can’t change it around from year to year,” he said. Forks, airdrops, staking In addition to buying and selling, there is a list of other events that need clarification for tax purposes, including forks, airdrops and staking. All of these involve people receiving one cryptocurrency because they already hold another. For example, anyone who held bitcoin on August 1, 2017, can claim a like amount of bitcoin cash, which was born that day, and of the other currencies that subsequently split off from the main chain. So what do they owe Uncle Sam from this windfall? Foust’s report for Coin Center notes that when a fork happens, owners of the original cryptocurrency can make no effort to take possession of the new coins and never actually get them, and in this case, there should be no tax effect. But if they do get their portion of the splinter currency and sell it, that should be taxable at the time of the sale. It’s important to consider how much control taxpayers have over the situation when they keep their crypto with custodial exchanges, Foust noted. “If a taxpayer holds their cryptocurrency with a custodial exchange, any actions that the exchange takes regarding airdropped or forked tokens should not affect the taxpayer unless such actions were undertaken at the direction of the taxpayer.” The American Bar Association suggested a different approach in its comments on the 2017 fork that created bitcoin cash. The document, submitted to the IRS in March 2018, proposed that “taxpayers who owned a coin that was subject to a Hard Fork in 2017 would be treated as having realized the forked coin resulting from the Hard Fork in a taxable event” and the value of a new coin should be zero. “It means that at the time of the fork they’ll be treated as earning zero dollars in income. So the fork event itself will not result in any tax liability,” Omri Marian, one of the authors of the comments, explained to CoinDesk. “When they dispose of the forked coin, they’ll be taxed on the entire proceeds of the transaction.” Forks can be treated by analogy with traditional financial and business events, Zarlenga said, and it depends which analogy the IRS will see as more appropriate: possible options include events that currently don’t have tax consequences, like a stock split or a cow giving birth to a calf, but also taxable events like getting free samples and using them, finding property or earning dividends on a property. Another relatively new concept, staking, or using one’s coins to participate in transaction validation on proof-of-stake (PoS) blockchains, is a hot topic in the crypto world. As institutional players have taken an interest in putting their PoS holdings to work, powerhouses like Coinbase have started offering staking-as-a-service. Staking should be treated as ordinary income, as mining already is, because these two activities bring taxpayers new coins in a similar way, AICPA’s memo suggests. The expenses on staking, if there are any, should be deducted from such income as ordinary expenses, i.e. expenses that are common and accepted in a certain business. Other issues Three of the issues discussed above – cost basis calculation, cost basis assignment, and forks – are explicitly mentioned in Rettig’s letter to Emmer, but there are several others that crypto tax experts hope the upcoming IRS guidance will address. One with serious consequences for taxpayers is whether keeping, buying and selling cryptocurrencies on exchanges registered overseas should be reported under the rules for foreign bank accounts, Zarlenga and Phillips said. U.S. citizens must file a Report of Foreign Bank and Financial Accounts (FBAR) for any such account holding more than $10,000. Also, Americans holding foreign financial assets worth more than $50,000 have to report them under the Foreign Account Tax Compliance Act (FATCA). Failure to report can result in severe penalties, Phillips noted. Should these rules apply to crypto? AICPA believes so: the value of crypto kept in foreign jurisdictions should be aggregated with the value of fiat and other assets abroad and reported under FBAR and FATCA, the institute’s comments say. But if taxpayers keep their crypto in personal wallets and control the private keys, this crypto should be considered “cash which resides wherever the taxpayer resides,” and no FBAR or FATCA compliance is needed, the document suggests. Another issue that deserves clarification is the status of small transactions when people use cryptocurrency to buy goods and services, Phillips said. As it stands, they also have to be reported as taxable events, which discourages spending crypto, and exempting transactions up to a certain threshold could eliminate this problem. Then there are charitable donations: right now, if you’re donating any property valued more than $5,000 you need to get a qualified appraisal, an expert estimation of that property’s value. Cryptocurrency should be exempted from this rule as publicly traded securities are, AICPA said. “The rationale is that the prices for these publicly traded stocks are available on established exchanges, thus not requiring a qualified appraisal. The same is true for most, if not all, types of virtual currencies.” While these questions may sound arcane, resolving them would remove a lot of aggravation for taxpayers. Hence, the community is waiting with bated breath to see how the IRS comes down on them. Zarlenga concluded: “This is going to be the first time they are speaking in five years. A lot has happened in the industry, and people are eager for some input.” Tax report form image via Shutterstock The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. TaxIRS About Blog Press Jobs Events Editorial Policy CoinDesk logo Terms & Conditions Privacy Policy Advertising Newsletters http://bit.ly/2ER7bG7

[click2watch]

What to Expect When the IRS Alters Its Bitcoin Tax Policy

The Takeaway

Coming guidance from the IRS will address longstanding questions about the tax treatment of cryptocurrency.

The tax collector has identified several specific issues it will discuss, including whether investors owe taxes on free crypto they get from a fork.

The industry is also hoping for clarity on a number of other matters, including the tax implications of airdrops, staking and crypto stored at overseas exchanges.

Every tax season, cryptocurrency investors in the U.S. struggle to figure out how much they owe the government. But next April it might be a little bit easier.

Last month, the Internal Revenue Service (IRS) said it would “soon” issue new guidance on the tax treatment of crypto, something it hasn’t done since an initial notice the agency issued in 2014.

In its original guidance, the IRS stated that for tax purposes, virtual currency is treated as property and not as currency. But it left a number of key questions unanswered, such as how to value cryptocurrency received as income.

The market has become more complicated in the intervening years, with the emergence of phenomena like airdrops and forks that essentially give people free crypto, raising new questions about tax liability.

In a letter last month to Rep. Tom Emmer, IRS Commissioner Charles P. Rettig said the forthcoming guidance would address these issues and others. He did not say exactly when it will come out, and neither would the IRS when contacted by CoinDesk.

It’s hard to predict when the IRS will publish the new guidance, but as the extended due date for individual returns is October 15, and for pass-through businesses it is September 15, “they may shoot to have guidance out before those extended deadlines,” said Kirk Phillips, a certified public accountant (CPA).

Below, we explain the major areas where the crypto community is looking for more clarity from the taxman.

How much did you make?

One of the most important questions since the publication of the IRS’ first notice has been how taxpayers should determine the fair market value of cryptocurrency they receive as income (in exchange for goods and services, for instance). This is its cost basis.

The 2014 guidance says that if a cryptocurrency is listed on an exchange, the fair market value is determined by converting it into U.S. dollars “at the exchange rate, in a reasonable manner that is consistently applied.”

However, unlike securities or property, cryptocurrencies can vary in price widely between different exchanges, said Phillips, the author of “The Ultimate Bitcoin Business Guide.”

“Every exchange can have its own pricing methodology, and if you’re using ten different exchanges there will be ten different pricing models,” he said.

The American Institute of Certified Public Accountants (AICPA) has suggested that taxpayers should be allowed to use the average rate of the day and the average price of different exchanges to calculate the value of their crypto, as well as aggregating indexes like CoinDesk’s Bitcoin Price Index.

Any of these methods can work as long as taxpayers are consistent in applying them, AICPA said in comments submitted last year to the IRS. Also, it should be possible to use a combination of methods for various instances.

“Taxpayers may have one method applied to one wallet and another method applied to another exchange when determining the fair value of all the bitcoin transactions,” the comment says.

James T. Foust, a senior research fellow at the industry advocacy group CoinCenter, suggested a similar approach in a recent report.

Users should be allowed to use “either the exchange rate data from one exchange, averaged exchange rate data from a fixed set of exchanges, or a third-party exchange rate index” for each cryptocurrency, as long as they use these methods consistently, Foust wrote.

Which coins did you spend?

An even trickier task is determining the cost of each unit of cryptocurrency that was spent in a taxable transaction, such as a sale.

Lisa Zarlenga, a partner at the law firm of Steptoe & Johnson, explained that when you sell cryptocurrency you should specifically identify the fraction you’re selling to calculate a gain or loss.

For other asset classes, there are established ways to do this. For example, in stock trading, taxpayers can apply the average cost basis or the “first in, first out” (FIFO) assumption: that they are selling the earliest acquired piece of stock, so the price is determined as the one registered at the time of the first purchase.

“But the simplified approach doesn’t apply to other types of property, only to stock,” Zarlenga said. “So one thing the IRS could do is extend it to cryptocurrency, which would be very helpful.”

Even that wouldn’t help in every case, noted Phillips. “First in, first out” can be a problem if the price of the earliest acquired coin is zero — if the owner mined it, for instance.

Imagine somebody who earlier mined some bitcoin is trying to cash out another coin which cannot be sold for fiat, and so would have to sell it for bitcoin and then sell that bitcoin for fiat. In this case, the bitcoin, bought and immediately sold, won’t bring its owner any profit, but if the cost basis is defined by the first coins this person ever acquired (which is zero), they will have to report a capital gain.

In such cases the FIFO principle might become a trap, Phillips said. “It can create a fictitious gain that doesn’t match the economic substance.”

At the moment, there are a number of software platforms for calculating taxes on crypto using different methodologies, and the best the IRS can do is to leave it for users to choose, Phillips said. As the technology and the market mature, better solutions can be found, he said.

“The best scenario would be to leave it broadly open for the taxpayer to decide what method they use as long as they apply a consistent methodology: you can’t change it around from year to year,” he said.

Forks, airdrops, staking

In addition to buying and selling, there is a list of other events that need clarification for tax purposes, including forks, airdrops and staking.

All of these involve people receiving one cryptocurrency because they already hold another. For example, anyone who held bitcoin on August 1, 2017, can claim a like amount of bitcoin cash, which was born that day, and of the other currencies that subsequently split off from the main chain.

So what do they owe Uncle Sam from this windfall? Foust’s report for Coin Center notes that when a fork happens, owners of the original cryptocurrency can make no effort to take possession of the new coins and never actually get them, and in this case, there should be no tax effect. But if they do get their portion of the splinter currency and sell it, that should be taxable at the time of the sale.

It’s important to consider how much control taxpayers have over the situation when they keep their crypto with custodial exchanges, Foust noted. “If a taxpayer holds their cryptocurrency with a custodial exchange, any actions that the exchange takes regarding airdropped or forked tokens should not affect the taxpayer unless such actions were undertaken at the direction of the taxpayer.”

The American Bar Association suggested a different approach in its comments on the 2017 fork that created bitcoin cash. The document, submitted to the IRS in March 2018, proposed that “taxpayers who owned a coin that was subject to a Hard Fork in 2017 would be treated as having realized the forked coin resulting from the Hard Fork in a taxable event” and the value of a new coin should be zero.

“It means that at the time of the fork they’ll be treated as earning zero dollars in income. So the fork event itself will not result in any tax liability,” Omri Marian, one of the authors of the comments, explained to CoinDesk. “When they dispose of the forked coin, they’ll be taxed on the entire proceeds of the transaction.”

Forks can be treated by analogy with traditional financial and business events, Zarlenga said, and it depends which analogy the IRS will see as more appropriate: possible options include events that currently don’t have tax consequences, like a stock split or a cow giving birth to a calf, but also taxable events like getting free samples and using them, finding property or earning dividends on a property.

Another relatively new concept, staking, or using one’s coins to participate in transaction validation on proof-of-stake (PoS) blockchains, is a hot topic in the crypto world. As institutional players have taken an interest in putting their PoS holdings to work, powerhouses like Coinbase have started offering staking-as-a-service.

Staking should be treated as ordinary income, as mining already is, because these two activities bring taxpayers new coins in a similar way, AICPA’s memo suggests. The expenses on staking, if there are any, should be deducted from such income as ordinary expenses, i.e. expenses that are common and accepted in a certain business.

Other issues

Three of the issues discussed above – cost basis calculation, cost basis assignment, and forks – are explicitly mentioned in Rettig’s letter to Emmer, but there are several others that crypto tax experts hope the upcoming IRS guidance will address.

One with serious consequences for taxpayers is whether keeping, buying and selling cryptocurrencies on exchanges registered overseas should be reported under the rules for foreign bank accounts, Zarlenga and Phillips said.

U.S. citizens must file a Report of Foreign Bank and Financial Accounts (FBAR) for any such account holding more than $10,000. Also, Americans holding foreign financial assets worth more than $50,000 have to report them under the Foreign Account Tax Compliance Act (FATCA). Failure to report can result in severe penalties, Phillips noted.

Should these rules apply to crypto? AICPA believes so: the value of crypto kept in foreign jurisdictions should be aggregated with the value of fiat and other assets abroad and reported under FBAR and FATCA, the institute’s comments say.

But if taxpayers keep their crypto in personal wallets and control the private keys, this crypto should be considered “cash which resides wherever the taxpayer resides,” and no FBAR or FATCA compliance is needed, the document suggests.

Another issue that deserves clarification is the status of small transactions when people use cryptocurrency to buy goods and services, Phillips said. As it stands, they also have to be reported as taxable events, which discourages spending crypto, and exempting transactions up to a certain threshold could eliminate this problem.

Then there are charitable donations: right now, if you’re donating any property valued more than $5,000 you need to get a qualified appraisal, an expert estimation of that property’s value.

Cryptocurrency should be exempted from this rule as publicly traded securities are, AICPA said. “The rationale is that the prices for these publicly traded stocks are available on established exchanges, thus not requiring a qualified appraisal. The same is true for most, if not all, types of virtual currencies.”

While these questions may sound arcane, resolving them would remove a lot of aggravation for taxpayers. Hence, the community is waiting with bated breath to see how the IRS comes down on them.

Zarlenga concluded:

“This is going to be the first time they are speaking in five years. A lot has happened in the industry, and people are eager for some input.”

Tax report form image via Shutterstock

This news post is collected from CoinDesk

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IRS Announces More Than $1.5 Billion of Unclaimed Tax Refunds for 2016 Tax Year

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IRS Announces More Than $1.5 Billion of Unclaimed Tax Refunds for 2016 Tax Year

The IRS announced that more than $1.5 billion of unclaimed income tax refunds awaited an estimated 1.4 million individual taxpayers who did not file a 2016 federal income tax return. The IRS extended the due date for filing tax year 2016 returns and claiming refunds for that year to July 15, 2020, as a result of the COVID-19 pandemic. The IRS urged taxpayers who haven't filed past due tax returns no later than this year's extended tax due date of July 15, 2020 to claim refunds. However, the IRS reminded taxpayers that there would be no penalty for filing late when a refund is involved. The law provides most taxpayers with a three-year window of opportunity to claim a tax refund, in cases where a tax return was not filed. Further, taxpayers are required to properly address, mail and ensure the tax return is postmarked by the July 15 date. It is worth noting that checks of taxpayer's seeking a 2016 tax refund may be held if they have not filed tax returns for 2017 and 2018. Additionally, the refund would be applied to any amounts owed to the IRS or state tax agency and may be used to offset unpaid child support or past due federal debts, such as student loans. Taxpayers stand to lose more than just their refund of taxes withheld or paid during 2016, if they fail to file a tax return. Many low- and moderate-income workers may be eligible for the Earned Income Tax Credit (EITC). Finally, current and prior year tax forms (such as the tax year 2016 Form 1040, 1040A and 1040EZ) and instructions are available on the IRS Forms and Publications page or by calling toll-free 800-TAX-FORM (800-829-3676). Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney's Office, Central District of California, Tax Division and Criminal Division. For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC Newport Beach and Yorba Linda, California Tel: (949) 397-2292 (Newport Beach Office) Tel: (714) 463-4430 (Yorba Linda Office)

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Taxation for Self-Employed American Expats

Taxation for Self-Employed American Expats

All American citizens and Green Card holders, including expats, who earn over just $400 a year from self-employment are required to file a US federal tax return, reporting all of their worldwide income.

Many self-employed expats are surprised to learn that they have to file - understandably, seeing as America is the only developed nation to require all expats to file.

US filing deadlines for self-employed expats

Expats receive an automatic filing extension until June 15th, and they can request a further extension until October 15th if they still require more time to file. This may be necessary if they have to file foreign taxes first.

Expats still must pay any tax due by April 15th though.

Provisions to protect expats from double taxation

Many expats also have to file taxes in their country of residence too, exposing them to the risk of double taxation. Bright!Tax, the best US expat tax service, advises that the tax treaties that the US has signed with other countries don’t help to mitigate this risk unfortunately. Instead, the IRS has made available a couple of provisions that expats can claim when they file, both of which are accessible to self-employed expats.

The first is called the Foreign Earned Income Exclusion, and it lets expats who can prove that they live abroad according to IRS rules exclude the first around $100,000 of their earned income from US taxation, regardless of whether they’re paying foreign taxes or not. The Foreign Earned Income Exclusions is a useful provision for many self-employed American Digital Nomads. It can be claimed by filing form 2555.

Expats who pay foreign taxes may be better off claiming another provision called the US Foreign Tax Credit though, which lets them claim US tax credits up to the same value of the foreign taxes that they’ve paid. This can be advantageous for self-employed expats who earn over $100,000, however the Foreign Tax Credit can only be applied to foreign source, and not US source, income. Self-employed expats with both US source and foreign source income who earn over $100,000 may be able to claim both provisions though, applying the Foreign Earned Income Exclusion to their US source income and claiming the Foreign Tax Credit to eliminate the US tax liability on their foreign source income.

US self-employment taxes

Self-employed expats are also required to pay US self-employment taxes, which consist of a 12.4% social security tax, and a 2.9% Medicare tax on their entire income, taking the total to 15.3%.

Unfortunately, these self-employment taxes can’t be offset with either the Foreign Earned Income Exclusion or the Foreign Tax Credit.

There are however a couple of scenarios in which self-employed expats don’t have to pay US self-employment taxes: firstly, if they set up a corporation in a no-tax jurisdiction, then the corporation invoices the expat’s clients, and employs the expat. This way the expat is employed by a foreign corporation so isn’t liable to pay US social security taxes.

This method of reducing taxes for self-employed expats used to be very popular, however following rule changes made as part of the 2017 tax reform, the benefits are no longer so clear for all self-employed expats, depending on how much they earn. Self-employed expats should also bear in mind that not paying social security taxes may affect their ability to receive social security payments in retirement.

Totalization Agreements

Self-employed expats who live in one of the twenty six countries with which the US has a Totalization Agreement may also be exempt from US social security taxes.

Totalization Agreements are tax treaties designed to prevent double social security taxation. They typically state that an expat who is abroad for a shorter period of three to five years (each Agreement specifies the exact time) will continue paying social security taxes to their country of origin, whereas those who stay or intend to stay for longer will only pay them in the host country. Payments count towards either system in terms of qualifying for retirement payments though.

Estimated payments

Self-employed expats who do have to pay US taxes or social security taxes are required to make quarterly estimated payments.

FATCA and FBAR

Self-employed expats shouldn’t imagine that the IRS isn’t aware of their foreign source income and international financial circumstances. The 2010 Foreign Account Tax Compliance Act (FATCA) requires all foreign banks and investment firms to report their American account holders account and balance details directly to the IRS or face fines when they trade in US money markets. Almost all foreign financial firms are now complying. The US also has foreign tax exchange of information agreement with most foreign governments, too, so the IRS knows exactly how much money expats have and earn.

Expats who have a total of over $10,000 in foreign financial accounts at any time during a year are also required to report all their foreign accounts by filing an FBAR (Foreign Bank Account Report). Qualifying accounts include business accounts that may not be in the expat’s name but they still have signatory authority or control over, investment, pension and joint accounts.

Bright!Tax is an award-winning, leading provider of expat tax services for the 9 million Americans who live abroad.