background image

Glen E. Frost

Attorney at Law *
Certified Public Accountant **
Certified Financial Planner®
Master of Laws in Taxation
Every Tax Problem has a Solution

10480 Little Patuxent Pkwy, Ste. 400
Columbia, MD 21044
Phone:  (410) 497-5947
Fax:      (888) 235-8405

Pages: << 1 ... 4 5 6 7 8 9 10 11 12 13 14 ... 35 >>

05/02/18

Permalink 02:44:46 pm, by admin Email , 559 words   English (US) latin1
Categories: News

IRS Reminds You To Report Virtual Currency Transactions

By: Mary Lundstedt, Esq.


On March 23, 2018, the IRS issued IR-2018-71, reminding taxpayers that they must report income from virtual currency transactions on their income tax returns. The IRS defined virtual currency as "a digital representation of value that functions in the same manner as a country's traditional currency." The IRS emphasized that, as with any other property transactions, virtual currency transactions are taxable.


We have previously alerted our readers to the fact that in Notice 2014-21, 2014-16 I.R.B. 938, the IRS provided guidance on how existing general tax principles apply to virtual currency transactions. The Notice is clear that for federal tax purposes, virtual currency is treated as property. For example, the Notice clarifies for taxpayers that if the fair market value of property received in exchange for virtual currency, such as Bitcoin, exceeds the adjusted basis of virtual currency, the taxpayer has a taxable capital gain. For example, a taxpayer using Bitcoin with an adjusted basis of $70 to buy property worth $100 has realized a gain of $30. On the other hand, the taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of Bitcoin. Taxpayers and their return preparers should carefully review Notice 2014-21.


The IRS elaborated in IR-2018-71 that Notice 2014-21 also clearly provides the following:


  • Payments made with virtual currency are subject to information reporting just as any other payment made in property.

  • Virtual currency payments made to independent contractors and other service providers are taxable, and self-employment tax rules are generally applicable. Typically, a payer must issue Form 1099-MISC. Wages paid with virtual currency are taxable to the employee.

  • An employer must report wages paid to an employee in virtual currency on a Form W-2.

  • Wages paid with virtual currency are subject to both federal income tax withholding and payroll taxes.

  • A Form 1099-K, Payment Card and Third Party Network Transactions, is required from certain third parties settling payments made in virtual currency for merchants accepting virtual currency from customers.

  • The character of gain or loss from a sale or exchange of virtual currency is determined by whether the virtual currency is a capital asset in the taxpayer's hands.

  • According to the IRS, currently over 1,500 known virtual currencies exist-with Bitcoin and Ethereum being among the most popular. The IRS was clear in IR-2018-71 that "because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, some taxpayers may be tempted to hide taxable income from the IRS." However, the IRS stated that "taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest." The IRS continued by warning taxpayers that they could even face criminal prosecution for failing to properly report virtual currency transactions. Tax evasion and filing a false tax return were listed as criminal charges a taxpayer may confront. The penalties for either of these charges are heavy. The IRS explained that "anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000."


    If you need assistance with reporting income from the sale of virtual currencies, contact Frost & Associates, LLC today.

    04/04/18

    Permalink 03:50:32 pm, by admin Email , 628 words   English (US) latin1
    Categories: News

    IRS Clarifies New Tax Law Did Not Kill Home Equity Interest Deduction

    By Mary Lundstedt


    According to the February 21, 2018, IRS news release, IR-2018-32, there are still circumstances for which interest on home equity loans is still deductible under the Tax Cuts and Jobs Act of 2017. The IRS has now clarified that "taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labelled [emphasis added]."


    Before the Tax Cuts and Jobs Act of 2017, a taxpayer who itemized deductions, could deduct mortgage interest for the acquisition of a qualified residence in an amount up to $1,000,000, plus an additional $100,000 of home equity debt. "Acquisition debt" is considered a loan used to buy, build or substantially improve the home, leaving any other mortgage debt as "home equity debt."


    Under the Tax Cuts and Jobs Act of 2017, the deduction for interest on home equity indebtedness is suspended for tax years beginning after December 31, 2017, and before January 1, 2026. The language of the new tax law left many tax professionals and taxpayers concerned that interest paid on "home equity debt" might no longer be deductible under any circumstances.


    The IRS advised that, pursuant to the Tax Cuts and Jobs Act of 2017, the deduction for interest paid on home equity loans and lines of credit is suspended from 2018 until 2026, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan. For instance, the new law typically allows an interest deduction when a home equity loan is used to build an addition to an existing home; however, interest on the same loan used to pay a credit card debt for personal expenses is not deductible.


    Furthermore, beginning in 2018, taxpayers are only allowed to deduct interest on $750,000 of qualified residence loans. The new lower dollar limit, stated the IRS, applies to "the combined amount used to buy, build or substantially improve the taxpayer’s main home and second home."


    The IRS provided the following examples to further illustrate the new law’s impact on the deduction:


    Example 1: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home with a fair market value of $800,000. In February 2018, the taxpayer takes out a $250,000 home equity loan to put an addition on the main home. Both loans are secured by the main home and the total does not exceed the cost of the home. Because the total amount of both loans does not exceed $750,000, all of the interest paid on the loans is deductible. However, if the taxpayer used the home equity loan proceeds for personal expenses, such as paying off student loans and credit cards, then the interest on the home equity loan would not be deductible.


    Example 2: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, the taxpayer takes out a $250,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages does not exceed $750,000, all of the interest paid on both mortgages is deductible. However, if the taxpayer took out a $250,000 home equity loan on the main home to purchase the vacation home, then the interest on the home equity loan would not be deductible.


    Example 3: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, the taxpayer takes out a $500,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages exceeds $750,000, not all of the interest paid on the mortgages is deductible. A percentage of the total interest paid is deductible (see Publication 936).


    If you have questions regarding a home equity loan and tax implications, please contact Frost & Associates, LLC.

     
    Permalink 03:43:13 pm, by admin Email , 513 words   English (US) latin1
    Categories: News

    End of Offshore Voluntary Disclosure Program Imminent

    By Eli S. Noff, Partner and Mary Lundstedt


    On March 13, 2018, the IRS issued news release, IR-2018-52, announcing that the Offshore Voluntary Disclosure Program (OVDP) will close on September 28, 2018. The OVDP’s objective has enabled willful US taxpayers with undisclosed foreign assets to become compliant with US tax laws, while simultaneously avoiding substantial statutory civil penalties and virtually eliminating their risk of criminal prosecution. Now, willful US taxpayers with undisclosed foreign financial assets have just over 6 months to use the program.


    The news release quotes Acting IRS Commissioner David Kautter as stating, "All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so."


    Versions of the program date back to 2009, and the IRS reports that, since the initial launch, over 56,000 taxpayers have voluntarily complied. The IRS calculates that the program has generated a total of $11.1 billion in back taxes, penalties and interest.


    The IRS states that "the planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations." Significantly, the end of the program also likely stems from an increased IRS confidence in its ability to unveil the identities of those who have undisclosed foreign assets. Besides the wealth of information available from a number of sources, including tax treaties, the Foreign Account Tax Compliance Act (FATCA), the Foreign Financial Asset Reporting (IRC §6038D), and whistleblower submissions, the IRS assembled its elite international tax enforcement unit in 2017-- dedicated to working and developing significant international tax cases.


    The news release provides the following from Don Fort, Chief, IRS Criminal Investigation, "The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics." Fort continued, saying, "Stopping offshore tax noncompliance remains a top priority of the IRS."


    While the OVDP is ending, the Streamlined Filing Compliance Procedures program is currently still available to qualifying taxpayers; however, the IRS cautions that it may end this program just as it ended OVDP.


    According to the news release, the IRS considers that "the implementation of the Foreign Account Tax Compliance Act (FATCA) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to undisclosed foreign financial assets." Noting that "the circumstances of taxpayers with foreign financial assets vary widely," the IRS stated that it will continue to provide the following options for non-compliant taxpayers with respect to those assets:


    1. IRS-Criminal Investigation Voluntary Disclosure Program;


    2. Streamlined Filing Compliance Procedures;


    3. Delinquent FBAR submission procedures; and


    4. Delinquent international information return submission procedures.


    Remember, a 6-month window remains to submit an offshore voluntary disclosure. Without a voluntary disclosure, willful taxpayers run the increasing risk of IRS detection, substantial penalties (including fraud and foreign information return penalties), and criminal prosecution.


    If you have questions regarding international tax issues, contact Frost & Associates, LLC.

    << 1 ... 4 5 6 7 8 9 10 11 12 13 14 ... 35 >>

    * Licensed to practice in Maryland, Florida, and the District of Columbia. May represent taxpayers nationwide in IRS disputes.
    ** Licensed in Maryland

    10480 Little Patuxent Pkwy, Ste. 400
    Columbia, MD 21044
    (410) 497-5947
    © 2018 Glen E. Frost