Tax Time and the IRS: In a Nutshell

Many people are likely to feel panicked during tax time this year, and the IRS is trying to reduce this panic by offering some helpful tips. This is Tax Time and the IRS in a nutshell so everyone knows where the IRS stand and how they can plan accordingly for their taxes.

 

Axed Notice

The IRS announced last week that it would not be sending out automated warnings to filers whose taxes are overdue, as the agency continues to struggle with a backlog of about 6 million unprocessed individual returns.

“In many situations, the tax return may be part of our current paper tax inventory and simply hasn’t been processed,” said an IRS spokesperson in a statement. “Stopping these letters — which could have been sent to thousands of taxpayers — will help avoid confusion.”

It will also avoid angst, Charlotte Crane, a law professor at Northwestern University, added. “Ordinarily, the IRS has computers set to send notices to taxpayers warning them when a tax return is overdue,” she said in an email. “But right now, there’s a big backlog of taxpayers’ returns that have been filed but have not yet been processed.”

 

Crane says that many taxpayers who have filed their returns are actually in good standing with the IRS because they have made payments through withholding, estimated tax payments or by paying the taxes due when they file their return, even though their returns haven’t been fully processed.

Instead of sending an alarming automated notice to a taxpayer who has filed a return that has not yet been processed, the IRS has opted to wait to send an alert once the missing return is actually discovered.

Brian Marks, who leads the entrepreneurship and innovation program at the University of New Haven, says, “It’s a prudent move on the IRS’ part.” “With this enormous backlog of unprocessed tax forms as a result of the pandemic, this is a wise approach,” he said. “It helps to minimize the confusion and will help the IRS get on with their main task, which is processing tax forms.”

 

Left to dry

Due to the IRS not receiving increased funding to help it operate better. The agency is struggling to hire more workers, modernize its computer system, and coupled with pandemic-related constraints, the IRS has been seen to have a hard time processing tax filings in a timely fashion.

The IRS has about a million tax returns to process at the beginning of the filing season, but this year that number is expected to reach six million, according to the agency. “Our employees have worked hard, long hours during the pandemic to assist taxpayers and successfully modify our systems, despite lacking the funding that we need to adequately serve the American people,” IRS Commissioner Chuck Rettig said.

The IRS has stopped sending CP80 notices to taxpayers who have made a payment and appear not to have filed, spokesman Eric L. Smith said.

“Due to processing delays for 2019 and 2020 tax returns, the issuance of CP80 and CP080 (Unfiled Tax Return — Credit on Account) notices has been suspended,” the IRS said . “If you receive a notice for your 2019 return and you filed more than six months ago, please refile the return. If you receive a notice for your 2020 return DO NOT refile.

A lot of IRS centers where paper forms are accepted for processing were forced to close their doors due to Covid. Due to the closure of the IRS Centers, coupled with budget cuts, the IRS has seen its staff count reduced by about 25%.

The Internal Revenue Service was inundated with an increased workload when the federal government introduced programs aimed at helping the country through the pandemic, such as expanded child tax credits and stimulus payments.

As John Koskinen, former IRS commissioner under Presidents Barack Obama and Donald Trump, told The Washington Post recently, “By definition, no matter how much more efficient you are, you can’t lose 25 percent of the workforce and assume you can do the same volume of work.”

The April 18 tax-filing deadline for income earned in 2021 has been set by the Internal Revenue Service. There are no plans to extend that deadline this year, the agency said.

 

In a nutshell

The IRS has had its work cut out for them for the past year especially when Covid hit and they had to shave their workforce off by 25%. A staggering figure especially when they are expected to continue with the workload they have with a reduced workforce. They are doing some steps to streamline the process by axing a notice that causes confusion to taxpayers. They hope that this move could help them finish their backlog from the previous years.

Dealing with the IRS is a tiresome ordeal, but the good thing is you don’t have to! Send us a message today and let our experienced tax professional deal with the hassle of doing your taxes and dealing with the IRS!

Get in touch with us today!

 

IRS To End One Type Of Taxpayer Notice This Year

Tax News

The Internal Revenue Service said it will temporarily pause one of its notices to taxpayers, in an attempt to reduce aggravation during the tax-filing season that has plenty of challenges. While tax-practitioner organizations applauded the step, they said there was more the IRS could do to help taxpayers lower their blood pressure.

 

Welcome News

The IRS said that it was suspending notices issued when the agency’s systems show a tax bill has been paid but no income-tax return has been filed. If the IRS has your return in physical form, you’ll receive a notice that it’s been received, the agency said. “Stopping these letters — will help many taxpayers avoid confusion,” the IRS said.

According to Erin Collins, the IRS’ National Taxpayer Advocate, as of late December the IRS was coping with a backlog of 6 million unprocessed tax returns, 2 million unprocessed amended returns, and 5 million pieces of taxpayer correspondence. In response, U.S. senators and a coalition of tax-preparer organizations suggest that the IRS use various tools to smooth out the filing season this year, including a brief pause for the coming months on all automated collection and compliance notices.

 

The Problem

The IRS, however, said that it has to send the letters because, in many cases, it is legally required and cannot stop just because Congress has not modified the law. “We will continue to explore areas where the IRS can make changes and are in the process of reviewing the full set of notices that we send to determine where we can make adjustments while we continue to work through unprocessed returns and taxpayer correspondence,” said the agency.

“The actions taken today by the IRS signal the desire to help taxpayers, but we believe there is more they can do,” said Barry Melancon, President, and CEO of the American Institute of Certified Public Accountants, one of the tax groups that disagrees with the IRS’s assertion that legislative action is needed to suspend the issuance of notices.

If you got a Child Tax Credit (CTC) advance payment in July through December, don’t be surprised if your tax bill looks different next year. Some notices on prior CTC payments are incorrect, according to some tax professionals.

The IRS pointed out that the problems with “Letter 6419” are isolated.

“The IRS is reviewing the situation, but we believe this is a limited group of taxpayers involved out of a much larger set of advance Child Tax Credit recipient,” the agency said in a statement Thursday. “There is no indication to support speculation that this could involve hundreds of thousands of taxpayers.”

 

Bottomline

The IRS is making a substantial step to ease the process of doing taxes. However, tax groups and tax advocates say that they can do more to make the lives of taxpayers easier when tax day comes. As a taxpayer, news like this can be overwhelming since it adds up to the already vast information needed to properly file your taxes. If you don’t want to tangle or burden yourself with keeping up with the latest tax news, you can always talk to a tax professional! Send us a message today and we’ll help make your life as a taxpayer easier.

Get in touch with us today!

 

Cryptocurrency Tax Filing for 2022

If you invested in cryptocurrencies last year, don’t panic! Tax season is just around the corner, and if you’re unsure about how to compute your cryptocurrency tax filing for 2022, we’ve got you covered!

In 2021, interest in cryptocurrencies like Bitcoin spiked among investors of all ages—more than half of current Bitcoin investors began investing in the last 12 months, according to a recent study by Grayscale Investments. The crypto market hit multiple all-time highs and lows throughout the year, leading to large gains and losses for many investors.

It’s no surprise that crypto tax season is now upon us, as “crypto did a lot of exciting things in 2021, and then there’s a lot of people that got into crypto in the last 12 to 24 months, so it might be their first time paying crypto taxes,” says Laura Walter, a certified public accountant and founder of Crypto Tax Girl.

While the vast majority of crypto traders can simply report their gains and losses as taxable events, more active traders may run into some issues when their returns are not reflected in their tax returns.

Here are the things that you need to know about Cryptocurrency Tax Filing for 2022.

 

When to Report Cryptocurrency Trades on Your Tax Return

Purchasing Cryptocurrency with Dollars

Some people think they have to pay taxes on cryptocurrency, but buying virtual currency with U.S. dollars and keeping it within the exchange where you made the purchase or transferring it to your personal wallet does not mean you’ll owe taxes on it at the end of the year.

If your only crypto-related activity this year was purchasing a virtual currency with U.S. dollars, you don’t have to report that to the IRS when you file your Form 1040 tax return.

Trading Cryptocurrency

The IRS considers cryptocurrency a kind of property — at least for tax purposes. This means that if you sell your crypto for cash, trade one type of cryptocurrency for another, or buy goods and services with virtual coins, you’re liable to pay tax on any “gains” you realize as a result.

Daniel Johnson, a financial advisor and founder of RE|Focus Financial Planning in Asheville, North Carolina says “You’ve got to be careful if you’re doing a lot of trading. If you’re going in and out of different types of cryptocurrency, every single time you place that trade, it is a taxable event.”

Cryptocurrency transactions are becoming more difficult to hide, so if you’ve been avoiding reporting your cryptocurrency on your taxes in the past, this tax season might not be the one where you get away with it.

 

When You’ll be Taxed on Cryptocurrency

The IRS considers bitcoins to be property. Therefore, your taxable income is based on capital gains or losses — essentially, how much value your holdings gained or lost in a given period.

“‘When you trade cryptocurrencies or spend them to purchase something, those actions can trigger capital gains taxes, because you’re trading a harder-to-regulate asset for something which is easier to track,’ says Shehan Chandrasekera, CPA, head of tax strategy at CoinTracker.io, a crypto tax software company.

What you will declare on your taxes depends on the difference between what you paid for the crypto (known as its cost basis) and how much you earn for its sale. If you bought $100 worth of Bitcoin and sold it for $500, you’d see a capital gain of $400. If your Bitcoin lost value in that time, you’d instead face a capital loss. If your losses exceed your gains, you can deduct up to $3,000 from your taxable income (for individual filers).

 

Reporting Cryptocurrency Income

Some people receive virtual currency as payment for services. For example, you may earn crypto as income instead of cash, or you may earn coins or tokens as reward for certain activities. Regardless of how you earn your crypto, you’ll need to record the value of the crypto in U.S. dollars when you buy it with cash or cash equivalents and report that income on your tax return.

Pat White, co-founder and CEO of Bitwave, a company that helps businesses with crypto tax reporting, says: “If I get paid one Bitcoin for services, I have to grab the fair market value for that Bitcoin at the moment I receive it. Right now, if Bitcoin is at $54,000, I have to record $54,000 of revenue as personal income.”

The IRS says that if you receive “virtual currency” as payment for goods or services, the fair market value of this virtual currency must be included in your gross income.

If you buy something with the crypto that you mine or are given, then you will need to keep track of its cost basis. This involves keeping track of how much the crypto is worth when you used it to make the purchase. You can find more information about this on the IRS website.

 

Track Your Activity

When you begin to deal in cryptocurrency, it’s your responsibility to keep track of your taxable activities and the fair market value of your crypto throughout those activities.

The IRS offers only general guidance about the records you’ll need to keep for tax reporting purposes. Some examples given by the agency include records of any time you receive, sell, or exchange virtual currency, as well as the fair market value of your virtual currency.

Some exchanges might provide a Form 1099-B to help you determine your capital gains and losses, but most don’t. You’re responsible for keeping track of your taxable activities and your currency’s fair market value. Starting with the 2023 tax year, cryptocurrency exchanges will be required to issue 1099-Bs. This law was passed as part of a $1.2 trillion bipartisan infrastructure bill that was signed into law by President Biden last November.

Don’t expect cryptocurrency exchanges to give you a tax form this year, says Shehan. The bill for 1099-B forms applies to the 2023 tax year. For 2021 and 2022 tax years, you won’t get a 1099-B.

It’s easy to keep track of your cryptocurrency if you leave it on the exchange you buy it on. But if you buy it, move it to a wallet, and then send it somewhere else, or if you have crypto in multiple places, you may need to be more diligent in tracking your transactions.

There are crypto-focused tax software programs that can help you manage your taxes. These programs let you import data from all exchanges and wallets used, as well as calculate your capital gains and losses for a given year. Some of these programs are  CoinTracker, TokenTax, CryptoTrader.Tax, and more.

 

Got Crypto? Here’s how to prepare for this year’s Tax Season

To simplify your crypto-related tax filing in 2021, start planning ahead now. Don’t wait until April 1, 2022, to begin gathering your reports and figuring out what you owe.

You will have more success with cryptocurrency taxes if you treat it like a business. That means tracking your profits and losses on a monthly basis, keeping your taxes up to date, and being more proactive about it.

If you’re somebody dealing with large amounts of money, you’re making DeFi transactions, staking or mining operations, those people will want to have an Enrolled Agent  to sit down and do tax planning and tax-saving strategies.”

 

Bottomline

If you have questions about your specific tax obligation related to virtual currencies or if you’re unsure if you’re reporting correctly, consider speaking with a tax professional who has experience interpreting the tax code.

The IRS and other regulators are trying to learn more about virtual currencies and the new issues they raise, but they cannot issue guidance on every situation. That’s why it is important to choose a tax professional who understands how the IRS treats cryptocurrency. It is also a good idea to choose someone who has experience reporting cryptocurrency gains and losses.

Reporting your taxes with only your dollar income in mind is already complicated, add to that complexity is knowing when are your taxable events whenever you go near cryptocurrency. Knowing when you are taxable, and how to report your cryptocurrency taxes is half the battle. You need an experienced Enrolled Agent to help you with the other half! Send us a message today and we’ll get you in touch with our experienced Enrolled Agent to start helping you today!

Get in touch with us!

 

Prepare early for the 2022 tax filing season

Filing your tax return can be as complicated as always, especially if you received stimulus payments or advance child tax credit payments. However, taxpayers can take steps now to ease the process of tax filing by preparing early for the 2022 tax filing season. Despite the complications that may arise from changes in policy or law, here are four things tax payers can do to prepare early for the 2022 tax filing season.

 

Gather and Organize your Tax Records

When you have all the needed tax records organized ahead of time, preparing an accurate and complete tax return is easier. This reduces the chance of errors that lead to processing delays. It also reduces the chance that you will forget to include a necessary document with your tax returns. As a result, it helps you get your refund faster. Here are the important tax records you need to file a return:

• Forms W-2 from employers
• Forms 1099 from banks, issuing agencies, and other payers. Including unemployment compensation, dividends, distributions from a pension, annuity, or retirement plan.
• Form 1099-K, 1099-MISC, W-2, or other income statements for workers in the gig economy.
• Form 1099-INT for interest received.
• And other income documents and records of virtual currency transactions.

Note: Taxpayers should hold on to any receipts for income from self-employment and other sources, they should also keep copies of tax returns and any supporting documents for at least three years.

Income documents such as tax forms help you determine whether you can deduct or claim credits. For example, people who need to reconcile their advance payments of the child tax credit and Premium Tax Credit will need their related 2021 information. Those who did not receive their full third Economic Impact Payment will need their third payment amounts to figure and claim the 2021 Recovery Rebate Credit.

You should also keep end of year documents such as:

• Letter 6419, 2021 Total Advance Child Tax Credit Payments to reconcile advance child tax credit payments.
• Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim recovery rebate credit.
• Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance premium tax credits for Marketplace coverage.

 

Confirm Mailing and Email Addresses and Report Name Changes

To be sure that you receive your tax forms on time, you should provide the IRS with a new mailing address or email address for each employer, bank, and other payers. You can notify the IRS of an address change by completing Form 8822, Change of Address, and returning it to the IRS. You should also tell your local post office to forward your mail. You should also notify the Social Security Administration of a legal name change.

 

View Account Information Online

If you have not set up your Online Account, it’s time to do so now. If you already have an Online Account, be sure to check it regularly for updates about your federal tax account. Taxpayers can use Online Account to securely access the latest available information about their federal tax account.

 

Review Proper Tax Withholding and Make Adjustments if Needed

Taxpayers who find themselves with a tax bill or an unexpectedly large refund in 2021 might consider adjusting how much tax their employer withholds from their paychecks. Completing a new Form W-4 can help individuals keep more money in each pay period and also avoid a large tax bill at the end of the year. Life changes – getting married or divorced, welcoming a child, or taking on a second job – may be reasons to change withholding.

You should make quarterly estimated tax payments if you receive a lot of non-wage income such as self-employment profits, investment income, taxable Social Security benefits, or pension and annuity income.

 

Tax Season Is Fast Approaching

Filing taxes is an inevitable aspect of our lives, and with the tax law becoming more complex with every passing year, there’s no better time to get ready than right now! But you can save yourself the trouble by having a professional do it for you! Send us a message today and we’ll discuss how we can make your tax reporting a breeze!

Get in touch with us now!