Taxes Are Sexy! Transcribed Interview Between Clinton Donnelly and Paul Jordan

Get excited to learn about taxes in this podcast interview between Clinton Donnelly and Paul Jordan. Find out why taxes are sexy!

Taxes. Do they have intrigue? Can they be interesting? Excitingly appealing? Even sexy?  

We think so! At Donnelly Tax Law, we believe taxes are sexy because the knowledge that can save you big money on your taxes is desirable. 

In this interview on Life, Love, and Coffee with Paul Jordan, we provide clarity on how you can get your taxes right because of how quickly everything is changing moment by moment. 

Paul says, you’ve got to make sure you stay on top of those types of things, so he wanted to talk about where we are now and where we should be when it comes to taxes.

What makes crypto taxes complicated?

taxes

Clinton Donnelly: Well, Paul, I talk to a lot of crypto traders. A lot of crypto traders are unique because this is the only time they’ve ever invested.

Until getting involved with cryptos, their tax lives had been simple. 

They took their documents to a tax professional, or they used Turbo Tax, plugged in the numbers, and filed a return. 

But once they started trading cryptos, they moved into the echelon of a complex tax return. 

It’s a complicated tax return because:

  • the accountants don’t know what to do with a crypto tax return
  • the tax software packages like TurboTax and TaxAct don’t know what to do with a crypto tax return

So crypto traders wind up on their own. And it’s scary for everybody. 

What hit me in these last couple of months is that most people don’t know how to do a tax return in general. 

Before using tax software, you went down to the post office, and they would have racks of tax forms. 

You’d go home, fill out the forms, sign it, and mail it in. You had a basic familiarity with these things.  

But now, people have no idea how to read them.

By relying on high volume tax preparer companies and depending on tax software packages, we’ve made ourselves ignorant about how taxes work and how they operate. 

That’s why many younger crypto traders are overwhelmed by the impact of their crypto trading on their taxes.

Getting Back To Basics With Your Taxes

I’ve developed some educational things, and this is my passion. I realized I don’t need to teach people how to do crypto taxes; I want to teach people how to do taxes in general. Nobody’s ever done that.

We’re creating courses at DonnellyTaxLaw.com to help you overcome your fear of the IRS and learn to do your taxes. 

Paul Jordan: Oh yeah, say more.

Clinton Donnelly: There are a lot of topics to cover. One is, what is tax? Is it our income? Is it our profit? What are those things? And then we move into what are the forms? And then, how do you submit the documents? Do I use a preparer or do it myself? And then what happens if I get a letter from the IRS? 

I’m excited about teaching people to do their taxes and taking control of their lives so that taxes are not a thing that makes you terrified before the taxes are due in April.

When I was growing up, nobody ever taught me about the most significant expense I’d have in my entire life: taxes. Or how to fill out my tax form. The forms that are the most considerable interaction I’d ever have with the U.S. government.

And today, my issue with the accounting profession is that they’ve entirely abandoned crypto owners. Most accountants will not accept any responsibility for your crypto tax return.

Taxes Fall Into Three Categories

Clinton Donnelly: The first category would be an income tax. You’re taxed on income that you make. Many people hate this tax, but I would rather make a million dollars and pay $200,000 in taxes than make $20,000 and pay no taxes. So taxing my income, that’s not bad. I can swim faster than they can come after me.

The second tax category is a consumption tax. This would be a sales tax, or licenses and things like that, or excise tax. They consume you with buying things. When we think of the Boston Tea Party, there was a 2% excise tax placed on the sale of tea, and they decided to protest on that 2%.

The third category of taxes is a wealth tax. Now, this is a very harsh tax, in my opinion. It taxes you every year because you own something. You didn’t earn money; you didn’t consume it; you just have it. This would be property taxes. For example, your home in the United States.

Crypto Traders and Taxes

Bitcoin halving

My mini-courses will teach you to think differently about taxes, about retirement, about your assets, and how to report cryptocurrencies. 

Education can help you overcome your fears, and most people are just afraid of taxes.

There are a couple of things that crypto traders need to understand: when you trade with cryptocurrencies, every time you trade from coin one to coin two, that’s a taxable event. 

Now, what do I mean by a taxable event? Well, if you made money on that coin. 

If you bought the original coin in U.S. dollar terms, and you bought it for $1,000 and you sold it for $2,000,then that’s a $1,000 gain, right? 

Let’s say you flip it around the other way. You bought it at $2,000 and it went down to $1,000 when you sold it. That’s a negative gain. That’s a negative $1,000 gain, or we might call it a loss. There’s a positive gain or there’s a negative gain.

Now, I’m not saying taking the cash out. I’m just saying that if I jump from coin A to coin B. When I do that conversion, I’m selling coin A. I have to look at what I bought coin A for, and that’s the gain. Every single one of those, every single gain, is a taxable event, positive and negative. 

We add them all up, you net it out at the end of the year, and you have to pay taxes on the gain. It does not matter whether you took those profits out in cash to your bank account. That is not relevant because it is a gain nonetheless. 

Many crypto traders are starting to become aware of the fact, “Oh yeah, well, if I have gains, I’ve got to pay taxes on the gain.” But guess what? If you had a loss, those losses are negative gains. Those negative gains reduce how much you have to pay on the positive gains because you add them all together. You want negatives to offset your positives.

I helped a guy reduce his taxable gains by $15,000 last week by claiming all his losses. That’s about $4,000 that he cut off his tax bill from losses.

Paul Jordan: Wow. Wow.

Most Americans Still Need To File Their Taxes

I did a poll recently, and about 70% of Americans haven’t done their taxes. I encourage Americans to give it a try on their own.

Taxes are the most significant expense that you’re ever going to have in your life. One-third of everything you earn is going to go to taxes. It’s time to start thinking about it.

If you need a consultation, if you want us to do your taxes, or you have a question, sign up for a consultation, and we will talk. My website is donnellytaxlaw.com. 

I have an advanced law degree in international financial regulation, including taxation. I’m an enrolled agent. I’ve specialized in complex tax returns, particularly crypto tax returns and tax returns for ex-pats, people living outside the U.S. We also specialize in doing foreign corporation reporting. 

Cryptocurrencies have a lot in common with people outside the United States because you’re investing in crypto exchanges outside the United States. You start to run afoul of a whole slew of U.S. anti-money laundering laws, so really focus on the anti-money laundering compliance because this is the easiest way for the IRS to crush anybody on their crypto taxes.

I’ve done over 1,000 tax amnesty returns and about 800 crypto returns. My largest trader is up into like 200,000 transactions a year, that type of thing. So we will never reach a point of being paralyzed.

Tax Returns That Are Bulletproof Against The IRS

taxes

An excellent tax preparer pays for themselves. 

You can have a bulletproof crypto tax return, a tax return that keeps you safe from the IRS when they shoot their bullets, which is my focus. Not only do we do tax returns, but I defend crypto tax returns before the IRS.

We have one going on right now where we’re protecting them. We’re on top of the research, the legal analysis, and all that stuff. You might be surprised to hear this, but 98% of all tax preparers have never defended a tax return before the IRS. That’s like getting in the car with a taxi driver who just got his license yesterday.

Paul Jordan: Right.

Clinton Donnelly: So that’s the difference in our company: we love what we do, we love helping people. My biggest passion right now is to help as many people as possible, so I’m creating these tools to empower people to build their own crypto bulletproof tax returns.

So that’s a bit about me and Donnelly Tax Law. Love to help anybody, set up a call if you have a question.

Paul Jordan: That’s fantastic. Well, I think that’s an excellent jumping-off point. I want to thank you so much for coming on the podcast today, educating us, and getting us to move forward on taking care of our tax responsibilities.

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IRS Offers Identity Protection PIN

The IRS is gradually rolling out a new identity protection program that prevents anyone who has stolen your Social Security from misusing it. Learn more.

Identity protection is of even more concern these days when it comes to taxes. The IRS can now give eligible taxpayers an “IP PIN,” a six-digit code to help prevent the misuse of Social Security numbers on fraudulent federal income tax returns. As the IRS explains, this PIN helps the agency verify a taxpayer’s identity and accept his or her electronic or paper tax return.

Who's Eligible For The Identity Protection PIN

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Not everyone can get one yet. If you are a confirmed victim of identity theft and the IRS has resolved your tax account issues, the agency will mail you a CP01A Notice with your IP PIN.

Also, to be eligible for 2020, you must have filed a federal return last year as a resident of Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Illinois, Maryland, Michigan, Nevada, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, Texas or Washington. This is as of February; the list will grow in the future.

Taxpayers eligible for the IP PIN Opt-In Program must use the online Get an IP PIN tool, explains the IRS. If you do not already have an account on irs.gov, you must register to validate your identity. Before attempting to register, read about the secure access identity authentication process. Taxpayers cannot obtain an IP PIN by calling the IRS.

How Do You Use An IP PIN?

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Enter the six-digit IP PIN when prompted by your tax software product or provide it to your trusted tax professional preparing your tax return. An incorrect or missing IP PIN will result in the rejection of your e-filed return or a delay of your paper return until it can be verified.

Do not reveal your IP PIN to anyone. It should be disclosed only to your tax professional and only when you are ready to sign and submit your return. The IRS will never ask for your IP PIN. Avoid phone, email or text scams trying to trick you into revealing your IP PIN.

For more details on using the IP PIN and the latest updates, go to the IRS IP PIN page. It also contains a FAQ that answers the most common questions.

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Child Tax Credit Offers $2000 Per Child

The child tax credit is temporarily increased. Find out for how long and what qualifies you to benefit from this provision of the Tax Cuts and Jobs Act.

The enhanced child tax credit is one of the provisions of the Tax Cuts and Jobs Act of 2017 designed to lower overall tax liability for middle-class families.

Increases in the Child Tax Credit

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The child tax credit is temporarily increased from $1,000 to $2,000 per qualifying child for tax years 2018 through 2025. As much as $1,400 of that amount is refundable. The child tax credit now includes a new $500 nonrefundable credit for qualifying dependents other than qualifying children. In addition, more families will be able to take advantage of the credit due to an increase in the adjusted gross income phaseout thresholds.

Although the deduction for personal and dependency exemptions is temporarily repealed for tax years 2018 through 2025, the definition of a dependent is still applicable for the child tax credit and other tax benefits. A qualifying child for purposes of claiming the $2,000 child tax credit is the same as that for claiming a dependency exemption, except that the child must not have attained the age of 17 by the end of the year and must be a U.S. citizen, national, or resident.

How to Claim the Child Tax Credit

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A taxpayer must include on his or her return a qualifying child’s Social Security number (SSN) to receive either the refundable or nonrefundable portion of the credit with respect to that child. A SSN issued by the Social Security Administration (SSA) to the qualifying child is valid for purpose of the refundable portion only if the child is a U.S. citizen or the SSN authorizes the individual to work in the United States. In addition, the SSN must be issued to the qualifying child on or before the due date of the taxpayer’s return.

The $2,000 child tax credit per qualifying child phases out once the taxpayer’s modified adjusted gross income (MAGI) exceeds $400,000 if married filing jointly, or $200,000 for all others. The new phaseout threshold is more than double the old phaseout threshold and will allow more taxpayers to benefit from the child tax credit. The credit is reduced by $50 for $1,000 (or fraction thereof) that a taxpayer’s modified adjusted gross income (MAGI) exceeds the threshold amount. The threshold amounts are not indexed for inflation.

Non-Qualified Children

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For each dependent who is not a qualifying child for purposes of the child tax credit, the Tax Cuts and Jobs Act provides a new nonrefundable credit of $500, if the dependent is a qualifying relative (and not a qualifying child) for purposes of claiming a dependency exemption; or a qualifying child over the age of 16. In addition, a taxpayer who cannot claim the child tax credit because a qualifying child does not have a SSN may nonetheless qualify for the nonrefundable $500 credit for the child. To claim the $500 credit, the taxpayer must include the dependent’s SSN, taxpayer identification number (TIN), or adoption taxpayer identification number (ATIN) on his or her return.

Let Us Help You With The Child Tax Credit

If you have any questions related to your eligibility or the available amount of the tax credits, please schedule a consultation with us today. We are here to help you understand how you may benefit.

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Introducing Crypto Tax Tools by CryptoTaxAudit

We’ve created Crypto Tax Tools as part of our ongoing mission to help as many crypto owners as possible. See what premiere tutorials are in this toolbox.

The topic of crypto tax can be a scary one, especially with so few resources out there. But it doesn’t have to be. In our ongoing mission to help as many crypto traders as possible, we’ve created Crypto Tax Tools. Think of it as your toolbox if you like, powerfully aiding you in being proactive to file a great crypto tax return. Just how helpful can they be? 

Learn about our premiere video tutorials that are now available, and at a discounted price for members of CryptoTaxAudit.

Consider The Cost of A Bad Crypto Tax Return

Our Crypto Tax Tools are designed to save you money. The video tutorials provided can keep you from having to hire a tax attorney, whose rates range anywhere from $225 to $500 per hour. You’ll find that the vast majority of tax attorneys aren’t even knowledgable about cryptocurrencies and don’t deal with crypto taxes and foreign reporting obligations.

READ MORE: Responding to an IRS Letter of Audit or Examination – What’s Involved

Most important of all, a properly filed crypto tax return can save you the $10,000 penalty fee for not filing the FBAR and other anti-money laundering forms.

Our Crypto Tax Tools Video For Filing the FBAR and Form 8938

Learn how to correctly file your cryptocurrency on the FBAR and form 8938.

This video explains how to file these essential forms, specifically with cryptocurrency activity in mind. It covers: 

  • the requirements of filing the anti-money laundering forms
  • that crypto exchanges are considered to be foreign bank accounts
  • the penalties and cost at risk
  • if you qualify for filing these forms
  • step-by-step instructions on filling out the forms
  • and more

Our Crypto Tax Tools Video For Using TurboTax To File Crypto Tax

Learn how to use TurboTax to report cryptocurrencies on U.S. income tax return.

This video goes way beyond the basic crypto support of TurboTax to explain how to:

  • report mining income
  • claim tax breaks for losses to scams and lost coins
  • file the two anti-money laundering forms required of all crypto traders
  • use a disclosure statement to protect against audits
  • and more

These two video tutorials are just the beginning. Over time, we’ll be adding even more powerful crypto tax tools, from videos to ebooks, and more.

Crypto Tax Tools + CryptoTaxAudit

These videos are prepared by myself, Clinton Donnelly, founder of Donnelly Tax Law and CryptoTaxAudit. I’m one of the leaders in the field of crypto tax reporting and defense and have prepared hundreds of crypto tax returns.

READ MORE: Introducing Crypto Audit Defense with CryptoTaxAudit

On top of saving money with our Crypto Tax Tools, you can have peace of mind when you subscribe to CryptoTaxAudit. As a member, you’ll be protected against crypto tax audits and have access to free resources and ongoing discounted pricing of our Crypto Tax Tools. 

Now as a crypto owner, you can rest assured that you’re safe. 

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Rental Real Estate Safe Harbor Under Section 199A

Understand the aspects of the rental real estate safe harbor and which expenses meet the standard for qualified business income for rental properties.

When the Tax Cuts and Jobs Act of 2017 added the qualified business income (QBI) deduction (also called the Section 199A deduction), it didn’t clarify when a rental activity rises to the level of a qualified trade or business. On September 24, 2019, the Internal Revenue Service (IRS) finalized a limited safe harbor for taxpayers who are direct and indirect owners in rental real estate enterprises (Rev. Proc. 2019-38).

Who Qualifies?

rental real estate

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Subject to certain limitations, taxpayers who qualify for the safe harbor are eligible for the 20% QBI deduction. If your enterprise is profitable, taking this deduction may be a good tax strategy — at least through 2025 when it is set to expire if Congress does not extend it.

The enterprise can include multiple properties in the same general category, either commercial or residential. To be eligible under the safe harbor rules, the rental real estate enterprise must meet the following requirements:

  • Perform 250 or more hours of rental services each year. Enterprises that have been in existence for more than four years, must meet this requirement in three of the last five years. Owners, employees, agents or independent contractors can perform these hours.
  • Maintain separate books and records for each rental real estate enterprise. These records should document the hours and dates of all services performed, provide a description of all services performed and include a list of who performed the services. (Beginning in 2020, these records will have to be maintained contemporaneously.)
  • Submit a signed statement stating that all of the tests have been satisfied for each year this deduction is claimed.

Which Services Can Be Included?

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For purposes of the safe harbor rule, rental services include the following: daily operations, maintenance, repairs, rent collection, payment of expenses, provision of services to tenants and efforts to rent the property (such as advertising). They do not, however, include financial or investment management services, arranging financing, procuring property, reviewing financial statements or operating reports or time spent traveling to and from the rental property.

The following types of rental properties are specifically excluded from claiming the QBI deduction:

  • Property used as residence for any part of the year, such as a vacation home.
  • Property subject to a triple net lease.
  • Property rented to a business with common ownership.
  • Property where a part is treated as a specified service business excluded from claiming the QBI deduction.

How Do Losses Affect The Reduction?

Remember that if your rental property generates losses, the QBI deduction may not be the best tax strategy for your enterprise to pursue. Those losses would reduce the 20% deduction. For some rental real estate enterprises with losses, claiming the QBI deduction can cost thousands. It may make more sense to simply deduct your losses against your ordinary income. As with any tax planning strategy, you need to evaluate the pros and cons in your specific situation.

To verify your situation with a qualified professional, contact us today.

© 2020

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Introducing Crypto Audit Defense with CryptoTaxAudit

The best investment any crypto owner can make is in our new crypto audit defense service, CryptoTaxAudit. Learn more today to protect yourself all year!

You’ve most likely heard of audit defense services, but what about crypto audit defense? The area of taxes regarding cryptocurrencies has been a confusing and stressful experience for crypto traders. More guidance has finally been coming out, but this also means more crack-down is soon to follow. During the year 2020, the IRS is expected to begin examining and auditing tax returns by crypto traders. So how should you be prepared as a crypto trader? There’s now a solution that provides crypto audit defense with our new service CryptoTaxAudit

Why You Need A Crypto Audit Defense Service

enrolled agent crypto

As a crypto trader you need special protection. Traditional audit defense services from companies like TurboTax, TaxACT, and H&R Block are inadequate coverage for crypto owners. They don’t have expertise in defending crypto returns. They only cover a specific year’s return, protect you for only three years instead of the needed six years, and don’t defend the anti-money laundering forms.

Our audit defense service provides the expert protection that you need as a crypto trader. 

  • We have expertise in defending crypto returns.
  • We protect the anti-money laundering forms.
  • Our protection covers returns from any year, not just a specific year’s returns.
  • We protect you for all six years that are needed.
  • While other services are reactive we’re proactive and include tools like our book Do My Crypto Tax Returns Need Surgery a crypto tax health check included for free so you reduce your chances of getting an IRS letter in the first place. 

How Does Our Crypto Audit Defense Work?

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By paying a small annual fee, you’re a member of CryptoTaxAudit. This means that we defend you in any IRS examination of your crypto activity that you receive notice of. 

While a member, if you get a letter from the IRS, you pay a small fee for the initial consultation call where we develop a strategy for your case. Then any further work we do on that case is at no charge, including: 

  • drafting written responses
  • escalating IRS management
  • researching laws
  • communicating with the IRS
  • updating you on the progress
  • and more…

The Crypto Audit Defense That Will Truly Protect You

We’re committed to helping as many crypto owners as possible with their tax responsibilities. It’s a new and evolving technology but doesn’t have to be stressful and costly for you. 

Even if you’ve received a letter from the IRS but don’t have a membership with CryptoTaxAudit, we can still help you with crypto audit representation

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Businessman Evaded IRS Assessments, Leading to $1.5 Million Loss

According to court records, a Pittsburgh businessman evaded IRS assessments, leading to his conviction of guilt for tax evasion. Learn more.

He evaded IRS assessments by telling his company’s bookkeeper to stop issuing checks and to have his company pay his personal expenses.

This Pennsylvania businessman pleaded guilty in federal court to tax evasion.

According to court records, Robert Rionda Jr., of Pittsburgh, Penn., owned and operated Arms Insurance Group from 2002 through May 2014. In October 2011, the IRS opened a case on Rionda for unpaid income taxes for the 2009, 2010 and 2011 tax years. In May 2012, the IRS’s attempts to obtain payments from Rionda were unsuccessful, and the IRS levied his personal bank accounts.

Evading IRS Assessments

IRS assessments

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Rionda responded to IRS levies by directing the company’s bookkeeper to stop issuing salary checks to Rionda and his wife and pay all of his personal bills from the company’s bank accounts rather than from his personal bank accounts.

Over the next several years, Rionda continued to file apparently accurate corporate returns on behalf of Arms Insurance Group, as well as personal income tax returns, but he made only minimal payments to the IRS for the personal income taxes he owed.

Don't Hide from IRS Assessments

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During the years 2009 to 2014, Rionda received distributions from the company each year which varied from approximately $376,000 to $1.6 million. He sold the company to his son in 2014 but continued to receive distributions through 2016.

The total tax loss, including assessed interest and penalties, is more than $1.5 million. Rionda faces up to five years in prison and a fine of up to $250,000.

© 2019

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