The US Internal Revenue Service has postponed this year's tax day from April 15 to July 15, and that may mean that many Americans are not thinking about taxes during this difficult time. They are cleverly focusing on the variety of new government programs that are part of the CARES Act, promulgated to try to stimulate the paralyzed economy and put a few dollars needed in the hands of people.
CARES includes provisions for consumer control and commercial benefits, with different types of loans, tax credits, and other types of benefits designed to help keep the economy alive and prevent damage to companies closed. Between all the chaos and worries, it can be easy to lose sight of some basic tax rules.
However, when we all start to go beyond the limits of remote working and need to rethink our tax returns, these tax principles should be remembered, as they will be relevant again this year.
Whenever you start thinking about taxes this year, for yourself or your business, these important tax rules can put money in your pocket and simplify your interactions with the IRS.
First, remember that cryptocurrencies generate revenue and that the IRS has tried to fuel its enforcement efforts. It is increasingly difficult to claim ignorance. A new IRS application appears at the top of Schedule 1 on the 1040 2019 form. You will be asked if you have received, sold, sent, exchanged, or acquired a financial interest in a virtual currency at any time of the year.
Do not ask for numbers or details, even if you sell them, it should go elsewhere in the tax return. Because the IRS classifies cryptocurrencies as property, any sale must generate a profit or a loss. Many other transfers do too, so when the IRS asks you for information about cryptocurrencies in your taxes, be very careful.
Also, think about the information the IRS receives about you. Don't forget about the Forms 1099, K-1, etc. These tax return forms that you can get from January are coded with your Social Security number, and the IRS always receives a copy. Pay attention to them. IRS 1099 forms are essential, so keep track of each.
Of course, just because you didn't receive a Form 1099 doesn't mean that a payment isn't taxable. The IRS invoices all income from any source, in cash and kind.
Also, keep in mind that filing and paying tax returns are often separate and truly independent. So irrespective of how much money you have, don't forget to save the returns, even if you can't pay. Many taxpayers do not file on time, probably because there's no money to pay. They would be much better if they were shipped on time. Payment could be made later and could be subject to an IRS payment agreement. Also, the penalties will be lower if you register on time.
Line coloring is another useful concept when it comes to preparing tax returns. Tax returns should be concise. Don't explain too much, and don't give too many tax returns. If an explanation or disclosure is required, stay concise. All tax returns attachments should be limited to tax forms and, if necessary, to simple sheets of paper containing additional deductions, income, etc. Do not attach any other documents. If the Internal Revenue Service wants documents, it will ask for them.
Just as a crypto activity seems to be a real deal to the IRS, so are foreign bank accounts. Be sure to report them. Of course, they can generate income, but contrary to the interests of an American bank. You will not receive a Form 1099 from a foreign bank. However, reporting is crucial, not just for tax reporting.
If the total balance of all your overseas accounts exceeds $ 10,000 at any time during the year, you must also register a foreign bank and a financial or FBAR account. These separate forms are submitted (online) to the Crime Execution Financial Network, another division of the United States Department of the Treasury. With FATCA, IRS control is high, and it can be difficult to move from previous reporting failures to current compliance. Note, to date; the IRS has collected $ 10 billion in offshore compliance.
Much of the business with the IRS is about attention to detail, even when it doesn't seem important. Respond to all letters from the IRS, unless you specifically asked not to. You may want to answer and try to give what the IRS wants to explain or offer. Sometimes it also means paying the IRS what they need. For example, if you receive a small invoice, it is generally advisable to pay it, even if the IRS is incorrect. What is "small" varies, but does not risk an audit or a dispute that grows when you fight for small dollars.
When talking about audits, always remember how long the IRS can audit. The usual IRS limitation status is three years after you file your returns, but there are many other IRS statutory rules that everyone should be aware of. For instance, if you decrease your income by 25% or more, the IRS gets six years. For security reasons, keep records for seven years and keep copies of tax returns forever.
If you need to amend your tax return, do not take it lightly. Amended returns have a high review rate, especially if they require a refund. The IRS says that you should only amend your return if you find an error after it has been filed, but the only time you should actually amend it is if you know when you filed the original return, it was false. If you choose to amend, the amended return should correct everything, not just the items in your favor. Do you get a high refund? Consider asking for next year's tax payments instead of asking for money, especially if it's big. If you receive a tax refund, not applying the refund will reduce your profile with an initial or amended return.
Speaking of your profile, do not speak to the IRS if they visit you. If the IRS comes to your house or to your office, not saying a word will be the best thing to do, rather inform them that your lawyer will call. If you wish, you can prepare your declarations with software, but if you have an audit or a dispute, consider hiring an accountant or a tax specialist to manage it. Even the simplest of audits can spread to other areas if you are not careful.
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