National Taxpayer Advocate's Annual Report to Congress

The National Taxpayer Advocate (NTA) submits two reports to Congress each year: an Annual Report, delivered in January, and an Objectives Report, delivered in June.

The National Taxpayer Advocate delivers these reports to the Senate Committee on Finance and the House Committee on Ways and Means with no prior review or comment from the Commissioner, the IRS Oversight Board, the Secretary of the Treasury, any other Treasury officer or employee, or the Office of Management and Budget.

Latest Objectives Report:
https://taxpayeradvocate.irs.gov/reports/fy-2019-objectives-report-to-congress/full-report

Lastest Annual Report:
https://taxpayeradvocate.irs.gov/reports/2017-annual-report-to-congress/full-report

 

Defendants Sentenced in India-Based Call Center Scam

The U.S. Department of Justice has announced that 21 members of a massive India-based fraud and money laundering conspiracy that defrauded thousands of U.S. residents of hundreds of millions of dollars were sentenced this week to terms of imprisonment up to 20 years. Three other conspirators were sentenced earlier this year for laundering proceeds for the conspiracy, which was operated out of India-based call centers that targeted U.S. residents in various telephone fraud schemes.

"The stiff sentences imposed this week represent the culmination of the first-ever large scale, multi-jurisdiction prosecution targeting the India call center scam industry," said Attorney General Sessions. "This case represents one of the most significant victories to date in our continuing efforts to combat elder fraud and the victimization of the most vulnerable members of the U.S. public. The transnational criminal ring of fraudsters and money launderers who conspired to bilk older Americans, legal immigrants and many others out of their life savings through their lies, threats and financial schemes must recognize that all resources at the Department's disposal will be deployed to shut down these telefraud schemes, put those responsible in jail, and bring a measure of justice to the victims."

Taxpayers must remain wary of unsolicited telephone calls from individuals claiming to be IRS employees. If any taxpayer believes they or someone they know is a victim of an IRS impersonation scam, they should report it to TIGTA at www.tigta.gov or by calling 1-800-366-4484.

Miteshkumar Patel, 42, of Illinois, was sentenced to serve 240 months in prison followed by three years of supervised release on the charge of money laundering conspiracy. According to the factual basis of his plea agreement, Patel served as the manager of a Chicago-based crew of "runners" that liquidated and laundered fraud proceeds generated by callers at India-based call centers. Those callers used call scripts and lead lists to target victims throughout the United States with telefraud schemes in which the callers impersonated U.S. government employees from the IRS and U.S. Citizenship and Immigration Services (USCIS). The callers duped victims into believing that they owed money to the U.S. government and would be arrested or deported if they did not pay immediately. After the victims transferred money to the callers, a network of U.S.-based runners moved expeditiously to liquidate and launder fraud proceeds through the use of anonymous stored value cards. In addition to recruiting, training, and tasking runners in his crew, Patel also coordinated directly with the Indian side of the conspiracy about the operation of the scheme. Patel was held accountable for laundering between $9.5 and $25 million for the scheme.

 References- www.justice.gov (July 20, 2018)

 

Tax Treatment of Fringe Benefits

Tax Treatment of Fringe Benefits

The term “fringe benefit” refers to any benefit provided to an employee that is in addition to money. All benefits provided to an employee are taxable unless the law specifically excludes or defers tax on the benefit. Thus, a fringe benefit can either be taxable, tax-deferred, or excluded from taxation.

The personal use of an employer-provided vehicle is an example of a taxable fringe benefit. An employer contribution to a qualified retirement plan on behalf of the employee is an example of a tax-deferred fringe benefit. Employer-provided health insurance for an employee is an example of a tax-free fringe benefit.

IRS Releases Updated Form W-4 and Withholding Calculator

IRS Releases Updated Form W-4 and Withholding Calculator

 

The IRS has released a new version of Form W-4 and a revised Withholding Calculator on irs.gov (IR-2018-36). These updated tools can help you check your 2018 tax withholding to determine if it's still appropriate following passage of the Tax Cuts and Jobs Act in December 2017. The IRS urges taxpayers to use these tools to make sure they have the right amount of tax withheld from their paychecks, taking into account significant changes to the tax law for 2018.

Working With a Financial Advisor

Working With a Financial Advisor

The world of 50 years ago was a lot different than it is today. An individual often worked at the same job all his or her adult life, lived in the same house, and stayed married to the same spouse. In those days, too, one spouse could support a family, paying for college ordinarily didn't require taking out a second mortgage, and people could look forward to retiring on Social Security and possibly a company pension.

Today, your hopes and dreams are no different. Like most people, you probably want to buy a home, put your children through college, and retire with a comfortable income. But the world has become a more complex place, especially when it comes to your finances. You may already be working with financial professionals--an accountant or estate planner, for example--each of whom advises you in a specific area. But if you would like a comprehensive financial plan to help you secure your future, you may benefit from the expertise of a financial advisor.

Taxation of Investments

Taxation of Investments

It's nice to own stocks, bonds, and other investments. Nice, that is, until it's time to fill out your federal income tax return. At that point, you may be left scratching your head. Just how do you report your investments and how are they taxed?

Is it ordinary income or a capital gain?

To determine how an investment vehicle is taxed in a given year, first ask yourself what went on with the investment that year. Did it generate interest income? If so, the income is probably considered ordinary. Did you sell the investment? If so, a capital gain or loss is probably involved. (Certain investments can generate both ordinary income and capital gain income, but we won't get into that here.)

If you receive dividend income, it may be taxed either at ordinary income tax rates or at the rates that apply to long-term capital gain income. Dividends paid to an individual shareholder from a domestic corporation or qualified foreign corporation are generally taxed at the same rates that apply to long-term capital gains. Long-term capital gains and qualified dividends are generally taxed at special capital gains tax rates of 0 percent, 15 percent, and 20 percent depending on your taxable income. (Some types of capital gains may be taxed as high as 25 percent or 28 percent.) The actual process of calculating tax on long-term capital gains and qualified dividends is extremely complicated and depends on the amount of your net capital gains and qualified dividends and your taxable income. But special rules and exclusions apply, and some dividends (such as those from money market mutual funds) continue to be treated as ordinary income.

The distinction between ordinary income and capital gain income is important because different tax rates may apply and different reporting procedures may be involved. Here are some of the things you need to know.

I'm marrying someone with bad credit. How will this affect me?

I'm marrying someone with bad credit. How will this affect me?

You are not responsible for your future spouse's bad credit or debt, unless you choose to take it on by getting a loan together to pay off the debt. However, your future spouse's credit problems can prevent you from getting credit as a couple after you're married. Even if you've had spotless credit, you may be turned down for credit cards or loans that you apply for together if your spouse has had serious problems.

You're smart to face this issue now rather than wait until after you're married to discuss it. Attitudes toward spending money, along with credit and debt problems, often lead to arguments that can strain a marriage. Order copies of both of your credit reports from one or more major credit reporting bureaus. Then, sit down and honestly discuss your past and future finances. Find out why your future spouse got into trouble with credit.

Next, if there is still outstanding debt, consider going through credit counseling together. Credit counseling may help your future spouse clean up his or her credit record and get back on track financially. One nonprofit organization, Consumer Credit Counseling Services (CCCS), offers one-on-one credit and debt counseling that may help you learn how to better handle your joint finances. Visit credit.org to learn more.

Finally, seriously consider keeping your credit separate, at least until your spouse's credit record improves. You don't have to combine your credit when you marry. For instance, apply for credit by yourself instead of applying for joint credit after you're married. You can have separate "associate" cards issued for your spouse to use. Even if your spouse has bad credit, your credit rating will remain unaffected. However, keeping separate credit can be complicated. For one thing, your spouse may resent that you control all of the credit in the household. It's also possible that you'll have a harder time qualifying for loans (e.g., a mortgage) alone than if your spouse's income could also be counted.

The Joys and Financial Challenges of Parenthood

The Joys and Financial Challenges of Parenthood

 

Children are your greatest responsibility, as well as your most important--and expensive--commitment.

Parenthood can be both wonderfully rewarding and frighteningly challenging. Children give gifts only a parent can understand--from sticky-finger hugs to heartfelt pleas to tag along on Saturday morning errands. You raise them with a clear goal that you secretly dread will actually take place - that someday they will be grown, independent, and ready to move out on their own, and your work will be over.

As your children travel this long and never-dull road from infancy to adulthood, you try to protect them. You want to make sure that they are financially secure, but meeting expenses can be challenging.

Tax Cuts and Jobs Act: 529 Plans Expanded

Tax Cuts and Jobs Act: 529 Plans Expanded


In December 2017, the Tax Cuts and Jobs Act, a sweeping $1.5 trillion tax-cut package, became law. College students and their parents dodged a major bullet with the legislation, as initial drafts of the bill included the elimination of Coverdell Education Savings Accounts, the Lifetime Learning Credit, and the student loan interest deduction. Also on the table in early drafts of the bill was the taxation of tuition waivers, which are used primarily by graduate students and employees of higher-education institutions. In the end, none of these provisions made it into the final legislation. What did make the final cut was the expanded use of 529 plans.

Which states offer a 529 plan state tax benefit?

A total of 34 states and the District of Columbia offer a full or partial state income tax deduction for contributions to a 529 plan (however, most restrict the deduction to contributions made to the in-state plan only). California, Delaware, Hawaii, Kentucky, Massachusetts, Minnesota, New Jersey, North Carolina, and Tennessee do not offer a state income tax deduction; and Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have a state income tax.

Source: The Smart Student Guide to Financial Aid, www.finaid.org, January 14, 2018

Tax Cuts and Jobs Act: Impact on Businesses

Tax Cuts and Jobs Act: Impact on Businesses

The Tax Cuts and Jobs Act, a $1.5 trillion tax cut package, was signed into law on December 22, 2017. The centerpiece of the legislation is a permanent reduction of the corporate income tax rate. The corporate rate change and some of the other major provisions that affect businesses and business income are summarized below. Provisions take effect in tax year 2018 unless otherwise stated.

Virtual Currency Generates Tax Liability in the Real World

Virtual Currency Generates Tax Liability in the Real World

Cryptocurrencies can be used entirely within a virtual economy or can be used instead of a government-issued currency to purchase goods and services in the real economy (GAO Report: Virtual Economies and Currencies —Additional IRS Guidance Could Reduce Tax Compliance Risks (GAO-13-516), (June 18, 2013)). Cryptocurrency, also known as virtual currency, is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but is not backed by a government-issued legal tender. A few examples of popular cryptocurrencies are Bitcoin, Ethereum, and Litecoin.

Since virtual currencies don’t have the status of legal tender, the Internal Revenue Service has said it will treat virtual currency as property rather than currency, since it is not regulated by any central banking system (IRS Notice 2014-21).  This means that the sale or exchange of a virtual currency that has gained value since they were acquired could trigger a tax liability.

Through certain exchanges, virtual currencies can be digitally traded between users and purchased or exchanged for U.S. dollars, other foreign currencies, or other crypto-currencies. Accordingly, taxpayers can have gain or loss on the exchange of virtual property. The tax treatment of that gain or loss, well, depends on a number of factors.  Many of these factors have not been completely defined, as the AICPA points out in its comment letter to the IRS (AICPA Comments on Notice 2014­21, June 10, 2016). 

Generally, convertible virtual currency (e.g., Bitcoin), which has an equivalent value in or acts as a substitute for real currency, is treated as property for federal tax purposes. Transactions using convertible virtual currency are subject to the general tax principles that apply to property transactions. A taxpayer who receives convertible virtual currency as payment for goods or services must include in gross income the currency's fair market value, measured in U.S. dollars, as of the date it was received. If a taxpayer successfully "mines" convertible virtual currency (e.g., uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger), the currency's fair market value is includible in gross income as of the date of receipt (IRS Notice 2014-21) (U.S. Master Tax Guide® (2018), 785, Taxation of Miscellaneous or Other Income).

Selling or Exchanging Virtual Currency

Generally, stocks and virtual currencies are taxed the same when held as capital assets by the taxpayer, according to the IRS Notice.  The character of gain or loss from an exchange of virtual currency for property depends on whether the virtual currency is a capital asset in the taxpayer’s hands. Thus, if virtual currency is a capital asset in the taxpayer’s hands, the taxpayer realizes capital gain or loss from the exchange of virtual currency for property. If the virtual currency is not a capital asset in the taxpayer’s hands, the taxpayer realizes ordinary gain or loss.

Taxpayers who exchange virtual currency for other property will have gain or loss on the transaction. Like other exchanges of property, the amount of gain or loss is based on the difference between the fair market value of the property received and the adjusted basis of the property given up. Thus, a taxpayer has taxable gain if the fair market value of the property received in exchange for the virtual currency exceeds the taxpayer’s adjusted basis for the virtual currency. A taxpayer has a loss if the fair market value of the property received in exchange for the virtual currency is less than the taxpayer’s adjusted basis for the virtual currency.

Like-kind exchange

Taxpayers who engage in a like-kind exchange of property held for investment or for productive use in a trade or business may defer gain on the transaction. However, like-kind exchanges cannot be used for certain types of property including stocks, bonds, and foreign currencies. It is not clear if cryptocurrency can be disposed of in a like-kind exchange; and, if it can be, what would qualify as like-kind property.  The AICPA has requested that the IRS clarify "if there are particular factors that distinguish one virtual currency as like­kind to another virtual currency for section 1031 purposes" (AICPA Comments on Notice 2014­21, June 10, 2016).

Receiving Virtual Currency for Earned Income

Taxpayers have gross income if they receive virtual currency as payment for providing goods or services.

Employers and employees. Individuals who receive virtual currency, such as bitcoin, from their employer as payment for services must include the fair market value of the virtual currency in income. Employers that pay their employees’ wages in virtual currency must withhold tax on the wages. The fair market value of the virtual currency paid is subject to federal income tax withholding, Federal Insurance Contributions Act (FICA) tax and Federal Unemployment Tax Act (FUTA) tax. Employers must report such amounts on Form W-2, Wage and Tax Statement.

Independent contractors. An individual who receives virtual currency for performing services as an independent contractor has self-employment income equal to the fair market value of the virtual currency measured in U.S. dollars on the date of receipt.

Miners of virtual currency. Individuals will have gross income if they receive virtual currency for successfully mining virtual currency. An example of mining is using computer resources to validate bitcoin transactions and maintain the public bitcoin transaction ledger. When a “miner” successfully mines virtual currency, the miner has gross income equal to the fair market value of the virtual currency on the date of receipt of the currency.

An individual who mines virtual currency as a trade or business and not as an employee is subject to self- employment tax on the income derived from the mining activities. Self-employment tax is applied to the individual’s net earnings from self-employment from the mining activity, which is the gross income derived from the trade or business of mining less allowable deductions.

Gifts or Inheritance

The current IRS guidance on virtual currency transactions does not address the tax treatment of gifts and inheritances involving virtual currency. Since the IRS’s stated taxing principle is to treat virtual currency as property, gifts or inheritances of virtual currency should be treated as gifts or inheritances of other kinds of property.

Regarding Fair Market Value

Fair market value of virtual currency. In order to calculate gross income, gain or loss, or basis for virtual currency transactions, taxpayers must determine the fair market value of the virtual currency. Since virtual currency transactions are reported in U.S. dollars for tax purposes, taxpayers must determine the fair market value of virtual currency in U.S. dollars as of the date of payment or receipt of the virtual currency.

The fair market value for popular virtual currencies, such as bitcoin, ethereum or litecoin, can easily be determined. If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value is determined by converting the virtual currency into U.S. dollars at the exchange rate in a reasonable manner that is consistently applied. If the virtual currency is converted into a different real currency, then that amount must be converted into U.S dollars. Virtual currency converters are widely available on the internet.

Although the fair market value of virtual currency can easily be determined if it is listed on an exchange, the IRS has not provided any guidance on determining the fair market value of the hundreds of virtual currencies that are not listed on an exchange.

 

Taxpayer Assistance

Taxpayer’s are responsible for maintaining adequate records and documentation to substantiate the accuracy and completeness of their tax return.  Also, it’s possible that each virtual currency transaction is reportable in some form on a taxpayer’s tax return.   Support of a tax professional who is familiar with the virtual currency environment is recommended to assist with reporting requirements.   We are excepting a limited number of new clients this tax season. Contact our office today to schedule a consultation.

 

No portion of this website and related content should be construed as legal, tax, accounting, or financial advice.  See this website’s terms of use.

 

 

Tax Cuts and Jobs Act: Impact on Individuals

Tax Cuts and Jobs Act: Impact on Individuals

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, a sweeping $1.5 trillion tax-cut package that fundamentally changes the individual and business tax landscape. While many of the provisions in the new legislation are permanent, others (including most of the tax cuts that apply to individuals) will expire in eight years. Some of the major changes included in the legislation that affect individuals are summarized below; unless otherwise noted, the provisions are effective for tax years 2018 through 2025.

Year-End Charitable Giving

Year-End Charitable Giving

With the holiday season upon us and the end of the year approaching, we pause to give thanks for our blessings and the people in our lives. It is also a time when charitable giving often comes to mind. The tax benefits associated with charitable giving could potentially enhance your ability to give and should be considered as part of your year-end tax planning.

Assume you are considering making a charitable gift of $1,000. One way to potentially enhance the gift might be if you increase it by the amount of any income taxes you save with the charitable deduction for the gift. With a 28% tax rate, you might be able to give $1,389 to charity ($1,389 x 28% = $389 taxes saved). On the other hand, with a 35% tax rate, you might be able to give $1,538 to charity ($1,538 x 35% = $538 taxes saved).

A word of caution

Be sure to deal with recognized charities and be wary of charities with similar sounding names. It is common for scam artists to impersonate charities using bogus websites and through contact involving email, telephone, social media, and in-person solicitations. Check out the charity on the IRS website, irs.gov, using the Exempt Organizations Select Check search tool. And don't send cash; contribute by check or credit card.

Understanding Your Paycheck

Understanding Your Paycheck

Congratulations! You've just landed a new job. Here are some important things to be aware of before you receive your first paycheck.

When will I receive my paycheck?

How often will you be paid? Typically, your payday will depend on the company you work for and which state you work in. You might be paid on a weekly, bi-weekly, bi-monthly, or monthly basis. Regardless of your employer's pay period, expect to receive your paycheck on your employer's set payday.

Bear in mind that state law requires your employer to pay you in a timely manner. Employers cannot pay less often than required, but they are allowed to pay more frequently.

Tips on Maintaining Your Financial Records

Tips on Maintaining Your Financial Records

An important part of managing your personal finances is keeping your financial records organized. Whether it's a utility bill to show proof of residency or a Social Security card for wage reporting purposes, there may be times when you need to locate a financial record or document--and you'll need to locate it relatively quickly.

By taking the time to clear out and organize your financial records, you'll be able to find what you need exactly when you need it.

Deduction Planning

Deduction Planning

Taxes, like death, are inevitable. But why pay more than you have to? The trick to minimizing your federal income tax liability is to understand the rules and make the most of your tax planning opportunities. Personal deduction planning is one aspect of tax planning. Here, your goals are to use your deductions in the most efficient manner and take all deductions to which you're entitled.