This year’s tax day has been delayed by the United States Internal Revenue Service from the 15th of April to the 15th of July. This means a lot of Americans won’t be worrying about taxes during this difficult time. Their focus is obviously on the variety of new government programs that compromise part of the CARES Act. The bill was enacted to try to boost the economy that’s now slumped due to coronavirus and to give people some dollars into their hands.
Include in the CARES Act are provisions for checks for consumers and for business benefits, with various types of loans, tax credits, and other relief for the purpose of keeping the economy alive and keep businesses that are shuttered from going under. It can be easy to lose sight of some of the basic tax rules amid all the chaos and concern.
It doesn’t matter if you’re thinking about taxes this year for yourself or your business, these key tax rules could put some money in your pocket and relieve your interactions with the IRS.
The first thing you need to remember is that crypto transactions trigger income and enforcing efforts have been clearly laid by the IRS. Ignorance of the law is getting harder and harder to claim. At the top of Schedule 1 to your 2019 Form 1040, a new IRS question appears. You will be answering whether or not you received, sold, sent, exchanged, or otherwise acquired from any virtual currency any financial interest.
You won’t be asked for numbers or detail but if you do sell some, it should still appear elsewhere on your tax return. Any sale should produce gain or loss as the IRS classifies crypto as property. Answer carefully when the IRS asks about cryptocurrency since many other transfers do too.
You also need to think about the information being taken from you by the IRS. Keep IRS forms 1099, K-1, and others in your mind. If as early as January you received tax reporting forms, remember that they are keyed to your Social Security number and a copy is always provided to the IRS. Keep track of each IRS Forms 1099 because the IRS pays attention to them too.
Even if you didn’t receive a Form 1099, you can’t automatically assume that a certain payment is taxable. Almost everything is income whether or not you receive a Form 1099. Regardless if its cash or in kind, the IRS taxes all income from any source. Even if you don’t sell a diamond ring you found, you still pay tax on its fair market value.
Another thing to keep in mind is that obligations to file taxes and paying them are often separated. This means no matter how short of cash you might be right now, you still need to file returns even if you can’t pay. Since many taxpayers don’t have the tax money, they don’t file on time. Filing on time is actually the best move to make. It’s alright to pay later and the IRS installment agreement is also available. If you file on time, penalties will likely be smaller too.
When it comes to tax preparation, coloring within the lines is another useful concept. Be concise with your tax returns. There’s no need to explain too much or attach too much to your tax returns. Keep it succinct if you are required to give an explanation or disclosure. If you need to attached files on your tax returns, limit them to tax forms only and provide plain sheets of paper listing additional deductions, income, etc., where required. The IRS will ask you to attach other documents if they need them from you anyway.
Don’t forget to report foreign bank accounts because these are also being eyed on by the IRS right now and not just crypto activities. They may generate income of course but unlike interest from a bank in the U.S, a Form 1099 from a foreign bank may not be given to you. Reporting them however is key not only on your tax return.
You must file a Foreign Bank and Financial Accounts (FBAR) if the total balances of all your foreign accounts are more than $10,000 at any time during the year. You can file these separate forms online with the Financial Crimes Enforcement Network which is another division of the U.S Treasury Department. The name itself is a little scare. IRS scrutiny is high with FATCA and it can be delicate when you transition from failures to report in the past to present compliance. The IRS so far has collected $10 billion from offshore compliance so beware.
Consider consulting a tax professional for more information on the IRS (Non-stimulus) Tax Rules. Tax filing is already complicated by itself so be sure to ask the right person when it comes to taxes.
Tim Thompson CPA PLLC