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Crypto Taxes 2020 – Interview Video with Ivan on Tech

In my interview video with Ivan on Tech, we discuss crypto taxes in 2020. From regulation changes to foreign filing and more, tune in crypto owners.

Taxes in general are a serious topic that is important to handle correctly. Now for crypto traders, it’s become even more serious. Cryptocurrency is becoming a larger presence in our world and with that, more clarity is coming about regarding regulations and especially cryptocurrency taxation. I talk about this and more in my interview video with Ivan on Tech.

Crypto Taxes 2020 Overview

In this recent interview video with Ivan on Tech, we talk about:

the latest regulation changes for US crypto tax reporting
foreign filing obligations
how the IRS thinks and will go after crypto traders
crypto reporting tools
crypto audit protection
true-life stories and examples
and more

A Sneak Peek of Crypto Taxes 2020 Interview Video

IVAN: What kind of news is the latest when it comes to US crypto tax reporting?

CLINTON: There is now a question about cryptocurrency on the US tax form 1040 that every tax payer has to answer. It ask, “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?“.

Everybody has to answer that, which is significant because when you sign a tax return, it’s signed with an oath that is under penalty of perjury. Answer that incorrectly and you’re committing a felony.

IVAN: Should everyone with crypto be concerned with the tax authorities?

CLINTON: Yes. The IRS considers crypto traders to be low-hanging fruit. It’s a branch of the government that wants to make money.

GET MY EBOOK: Why Crypto Traders Are Low-Hanging Fruit For The IRS

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4 Tips for Planning for Your Post-Retirement Future

As we age, the importance of financial planning becomes a greater priority. Learn about the many factors that affect retirement planning.

With age, the focus often turns from planning for the purchase of a bigger home to planning to have enough income to live well after retirement. Many factors contribute to this calculation, but following are four common considerations:

Do I need an income portfolio for retirement?

Spending down the money you’ve saved and planned for over your working life is a concept that makes many of us uncomfortable. It may mean going below whatever benchmark figure we struggled to achieve. It takes a mental leap to realize that what you really saved for is spending down. The primary consideration isn’t whether you need an income portfolio, but rather is whether you have a tax-efficient, diversified income fund that will give you the income you need to maintain the lifestyle you want to have.

Should I invest in stocks and bonds?

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Because your ultimate goal is having the income you need on an annual basis, the answer is that you need a mix so that you can maximize the inflation-adjusted after-tax return on your investments. As has been obvious recently, the stock market can be erratic. High-quality bond rates stay stable even when stocks fall. That’s why financial advisers recommend having both in your portfolio. The percentage of each fluctuates with factors, such as age and risk tolerance.

Is it a smart idea to have a mortgage?

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Maybe. It depends on your goals. But here’s something to consider: will you make more by paying down your mortgage and investing that money than you will by paying a mortgage? The calculation to consider is whether your mortgage rate is higher or lower than the value of the tax deduction for your mortgage.

Should I buy long-term care insurance?

This can be a tricky question, in part because the thought of not having a plan in place feels so unsettling. But here are some facts to think about: Most women who need long-term care need it for about 2.5 years; men need it for about 1.5 years — which means you will need at least $300,000 (in today’s dollars) to fund this expense.

High-net worth individuals can plan to self-fund; those with few assets will have to rely on Medicaid and other government programs. People in the middle can choose to use assets like the sale of their homes to fund their care, or they can purchase a long-term care or hybrid life/long-term care product — each of which offers advantages and disadvantages.

Any money you spend on long-term care will decrease the amount you can leave to your heirs.

These are but a few of the questions that need to be answered as you plan for your financial future. Many factors affect the answers that are right for you as you plan for a comfortable, stress-free retirement, but having a plan that addresses these four issues is a good start. For other considerations and guidance, contact us today.

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The SECURE Act: Major Last-Minute Retirement Plan Changes

The SECURE Act has ended 2019 with Congress planning to enact a number of changes that will significantly affect your retirement plan. Learn more here.

Despite all the gridlock in Washington, as well as an impeachment, the SECURE Act is poised for imminent passage and signing into law. It changes a number of important retirement plan rules. The act runs over 120 pages, so the experts will be poring over it for some time. Meanwhile, a number of sources have weighed in on what they think are the key provisions. (Note that last-minute alterations and more detailed analysis may lead to additional changes in the coming weeks.)

What Will The SECURE Act Allow?

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The Society for Human Resource Management listed several changes as particularly noteworthy. The act will allow:

An increase in the business tax credit to make setting up 401(k) plans more affordable for small businesses.
Unrelated small employers to organize themselves for an “open” 401(k) multiple-employer plan (MEP). This would presumably reduce the costs and administrative work each company would otherwise bear alone.
Delay of the 401(k) required distribution from the current age of 70 1/2 to 72. Critics have pointed out that only the well-off are really affected by this, people who can put substantial assets into a 401(k) and don’t need money from the fund immediately.
Automatic enrollment of safe-harbor 401(k) plans to increase the cap on automatically raising payroll contributions.
A 401(k) safe harbor for in-plan annuities. This provision has also faced criticism, as many industry experts do not believe annuities are a good value in these situations.

The Major Changes Caused by The SECURE Act

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Kiplinger also put together a list of major changes, noting that the act:

Removes the age restriction for IRAs. If you work into your 70s and beyond, you can still contribute.
Makes it easier for part-time workers to join their employer’s 401(k) plan.
Allows a parent to take out up to $5,000 penalty-free from a 401(k) plan for costs connected to a birth or adoption. Kiplinger noted that this may encourage younger workers to start funding retirement plans earlier, as parenthood is on the horizon much sooner than retirement.
Eliminates the “stretch” provision. Until now, nonspouse IRA beneficiaries could stretch the required distribution of the IRAs over their own lifetimes. Going forward, with a few exceptions, beneficiaries will have to take full disbursement by the end of 10 years. This could mean a lot more of the inheritance going to the government.

Finally, the government will be repealing the controversial Cadillac tax on high-end health plans. This repeal is part of a year-end spending bill.

Applying The SECURE Act

All these changes will be phased in at different times. There are also exceptions and other subtleties. Whether you’re concerned about your own family’s issues or plans that your company runs, it’s best to keep in close touch with financial professionals to make sure you make a smooth transition to the new rules.

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IRS Releases Radically New Form W-4

The IRS has just released the new Form W-4. Learn about the new changes involved, what it means for your tax filing, and benefit helpful resources.

The IRS has been promising a new version of Form W-4, Employee’s Withholding Certificate, for some months, and it recently published it, with a brief announcement in its e-News service. The form is very similar to a draft version published earlier in 2019. Although the IRS has not yet published extensive new guidance, it did outline the changes in a FAQ list last updated in August 2019.

What's New in Form W-4

At that time, the IRS noted, “Allowances are no longer used for the redesigned Form W-4 to increase transparency, simplicity and accuracy. In the past, the value of a withholding allowance was tied to the amount of the personal exemption. Due to changes in law, currently you cannot claim personal exemptions or dependency exemptions.”

Visual Changes in Form W-4

According to the IRS, a few of the visual changes that were made in the last draft shared include:

It is now a full page.
There are no withholding allowances (which is why the title of the form changed to “Employee’s Withholding Certificate”).
Steps 1 through 5 to guide employees through the form.
Instructions, worksheets, and tables follow the first page.

Probably the biggest question for both companies and employees is “Does everyone have to fill out the new form?” The answer, according to the August guidance, is no. The IRS says, “Employees who have submitted Form W-4 in any year before 2020 are not required to submit a new form merely because of the redesign. Employers will continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.”

Form W-4 Resources

The new Form W-4.
The IRS FAQ from August 2019.
The IRS Form W-4 information page.

We will have further updates when the IRS provides additional guidance.

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IRS Bluff About Crypto Like-Kind Exchange Backfired

A recent IRS bluff about like-kind exchange for crypto not only backfired, but also showed their true stance on the treatment. And it could benefit you.

This month, an IRS faux pax caused them to reveal their true position on like-kind exchange treatment for cryptocurrencies. Like-kind exchange treatment, Section 1031, eliminated tax on crypto-to-crypto trades prior to 2018. This was a treatment most taxpayers assumed.

Recent Statements About Like-Kind Exchange

At a November 2019 annual national convention of CPAs (AICPA), two guest speakers were associate lawyers at the IRS Office of Chief Counsel. This is the office responsible for all IRS court cases and formulating formal legal opinions by the IRS. One of the lawyers was the author of a recent IRS Revenue Ruling on the treatment of cryptocurrency hard forks and airdrops.

In a Q&A session at the conference, she stated that the Chief Counsel’s office didn’t believe that crypto-to-crypto trades were eligible for like-kind exchange treatment. Never before had the IRS stated any official position on this topic. Immediately, crypto news services broadcasted her comments as the official position of the IRS causing many taxpayers to become alarmed.

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The Official Stance On Like-Kind Exchange

Within a week, an official spokesperson from the IRS Office of Chief Counsel announced that her comments were not the official position of the IRS. He further explained that the IRS would consider the use of like-kind exchange on a case-by-case basis. All audit cases are handled on a case-by-case basis, therefore, like-kind exchange for cryptos is not a position the IRS is automatically going to attack unless it is reported incorrectly on a case.

She was one of the key lawyers formulating the IRS’s crypto position. She was in a position to clearly know the management position on how to treat like-kind exchange. Her bluff backfired when management had to deny her statement.

This poor bluff forced IRS management to show their hand. It exposed the real IRS position on like-kind exchange for cryptocurrencies. They are not willing to prosecute a case where like-kind exchange is properly reported.

Photo by Dmitry Demidko on Unsplash

The Bad News and Good News About Like-Kind Exchange

This is good and bad news. This was good news for crypto traders who assumed like-kind exchange treatment was valid. This is bad news because most of these traders assumed they didn’t have to report the trades on their return. This was a mistake. If they didn’t report these trades on Form 8824, they can’t claim like-kind exchange treatment. The IRS would be correct to deny those traders like-kind exchange treatment and subject them large penalties for failing to report income.

From the legal research we have done at Donnelly Tax Law and CryptoTaxAudit, we believe the case for like-kind exchange is quite strong. I believe the case is so strong that the IRS Chief Counsel’s office persuaded the Congress’ Joint Committee on Taxation to change the law to limit like-kind exchange to real estate. Had they not done this, crypto traders would have kept their investments always in crypto and never in fiat, so that they would never have to pay taxes on that money again.

So, this bungled bluff should be an encouragement to traders to amend their 2017 returns to claim like-kind exchange treatment if it would save them significant taxes owed. Those traders who are on the fence as to whether the IRS would contest or not should also be encouraged to claim this option.

Featured image by André François McKenzie on Unsplash

Want to amend a return?

Here at Donnelly Tax Law we specialize in amending returns specifically dealing with cryptocurrencies and applying the like-kind exchange treatment if it’s beneficial for you (applicable for 2017 and prior years). Schedule a consultation with us to learn more.

Would you rather do it yourself? Consider our Crypto Tax Fixer Package >>

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Basics of Crypto Taxes

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Paying Taxes is Not a Choice

This Las Vegas lawyer thought he could evade paying taxes. He had been influenced by the teaching of several prominent tax defiers. Learn what happened.

A Las Vegas real estate broker was recently sentenced to 78 months in prison for tax evasion and willful failure to file tax returns.

He had been influenced by the teaching of several prominent tax defiers.

Evading Rather Than Paying Taxes

According to court records, William Waller Jr. sought to evade taxes by incorporating a shell entity, opening bank accounts in its name, and directing his income into those accounts rather than accounts in his own name. He also dealt extensively in cash and reduced his equity in his home.

Waller testified at trial that he believed that he was not required to file tax returns or pay taxes, but acknowledged that he was influenced by the teachings of several prominent tax defiers.

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The Consequences for Not Paying Taxes

In addition to his prison sentence, Waller was ordered to pay $1.45 million in restitution.

“Paying your taxes is not a choice,” said Chief Don Fort of IRS Criminal Investigation.

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Biggest IRS Crypto Tax Guidance and What it Means for Crypto Traders

The IRS’s recent release of crypto tax guidance heralds major changes for all US taxpayers. Make sure to learn what it means for you as a crypto trader.

In early October, the IRS made its biggest release of crypto tax guidance in the past five years. And it heralds a massive change in how crypto traders report their cryptocurrency income.

The New Crypto Tax Guidance

The IRS has published an early release of the 2019 version of Schedule 1 of Form 1040. The schedule now starts with the following new question,

"At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"

A yes or no answer is required. (The IRS defines cryptocurrencies as virtual currencies.)

This question requires all taxpayers to admit if they dabbled with cryptos during 2019.

Once a taxpayer checks this box, they are added to the list of known crypto traders for whom the IRS intends extra scrutiny.

Checking Yes to Crypto Tax

Photo by Julian Lozano on Unsplash.

So let’s say you check yes in 2019. What are the implications?

First, if you sold or exchanged cryptos in 2019, you must list your capital gains from those transactions. When listing a coin sold, you have to state the purchase date. If that date happens to be in a prior year, it begs the question, “did you accurately report your cryptos in that year?”.

Smart traders would go back and amend those prior year returns before the IRS finds out.

Checking No to Crypto Tax

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What are the implications of a crypto trader checking no?

When you sign a tax return, you are signing a statement that says under penalty of perjury, this return is true, correct and complete. Wrongly checking no would be a felony subject to fines or imprisonment.

This new Schedule 1 will cause all U.S. crypto traders to come out of the closet or permanently hide.

Need Crypto Tax Guidance?

To best learn how we can help you, let’s find out where your crypto taxes are at. Take our Crypto Tax Health Check (download below) and visit our store to benefit from my other ebooks.

Do you already know that you need our crypto tax services? Check out our Full-Service Crypto Tax Package or our do-it-yourself Crypto Tax Fixer Package.

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