Posted on July 01, 2022 in Taxation Law

There are a variety of situations where U.S. taxpayers may face penalties related to foreign assets. Some taxpayers are required to report these accounts to the IRS by filing a Foreign Bank and Financial Account Report (FBAR). Failure to file these reports when required or failure to include accurate information when filing can result in significant penalties. However, there has been some confusion about what constitutes a violation and what penalties may apply. The U.S. Supreme Court will be addressing this issue in an upcoming case.

Penalties for Non-Willful FBAR Violations

Different courts have addressed FBAR violations in different ways, and this has resulted in different penalties being applied depending on where a case was heard. The confusion involving FBAR penalties is related to non-willful violations, or situations where a person did not properly report foreign accounts because they were unaware of how the tax laws applied to them or did not know about their reporting requirements. Courts have differed on whether penalties should apply based on a report that was incorrect or based on each individual account that was not reported correctly.

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 Posted on June 24, 2022 in Taxation Law

Cryptocurrencies such as Bitcoin and Ethereum have become more and more popular in recent years, and they are now widely used for multiple purposes. Some employers may pay employees in virtual currency, and these currencies may be used to purchase goods or services. Cryptocurrency can also represent a valuable investment, and as the value of different virtual currencies increase, they may be sold or transferred, allowing investors to earn significant profits. For those who have invested in cryptocurrency, it is important to understand the tax implications, including the gift taxes or estate taxes that may apply to certain types of transfers.

Taxes Issues Affecting Cryptocurrency Gifts and Donations

The IRS treats cryptocurrency as property, meaning that when it is sold or transferred to another party, capital gains taxes will apply to the gains or losses. For example, if cryptocurrency were valued at $1,000 when a person originally acquired it and it was worth $2,000 when it was sold or exchanged to someone else, this would be considered a gain of $1,000, and the person would be required to pay capital gains tax on this amount.

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 Posted on June 21, 2022 in Taxation Law

Taxpayers in the United States often have difficulty navigating the complex tax laws. For U.S. citizens or residents who live in other countries, these issues can become even more complicated since a person may be required to pay U.S. taxes on income they earn, and they may also need to pay taxes in that country as well. Fortunately, U.S. taxpayers who live abroad can take advantage of a number of benefits that will allow them to address their tax issues properly and avoid unfair financial burdens. However, they will also need to make sure they are properly reporting their foreign income and the assets they own in other countries, which will help them avoid potential penalties.

Tax Benefits for Those Who Live Abroad

To address the concerns that affect taxpayers who live primarily in another country, the Internal Revenue Service (IRS) has made the following provisions:

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 Posted on May 18, 2022 in Taxation Law

Businesses will need to address multiple types of tax issues, including paying all required employment taxes. One of the key issues that can affect these taxes involves how workers are classified. Different requirements apply for employees and independent contractors, and by ensuring that workers are properly classified, an employer can avoid potential penalties or other problems 

Understanding Federal Tax Requirements for Employees and Independent Contractors

Employees who work directly for an employer have certain rights, including the right to receive a minimum wage and overtime pay. They can also receive certain benefits, including workers’ compensation for work-related injuries or illnesses, unemployment insurance, and other benefits provided by an employer, such as sick pay, vacation or personal days, and the ability to participate in a health insurance plan or an employer-sponsored retirement savings account.

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 Posted on May 17, 2022 in Taxation Law

Business owners will need to address multiple types of tax issues, including withholding payroll taxes from employees’ incomes and paying these taxes to the IRS and the California Employment Development Department (EDD). These issues can become more complicated when a business hires independent contractors or when other types of payments are made. In general, payments that are reported on 1099 forms do not require a payer to withhold taxes. However, there are certain situations where the IRS may require backup withholding.

What Is Backup Withholding?

Form 1099 is an information return that lets the IRS know about certain types of payments made by a business. The recipients of these payments are expected to report and pay taxes on these payments. However if there are issues related to the reporting of payments, a payer may be required to withhold a certain percentage of these payments and pay these taxes to the IRS. The tax rate for backup withholding is 24 percent.

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 Posted on May 05, 2022 in Small Business Taxes

During the business formation process, a business’s owner, partners, investors, or shareholders will need to determine how the business will be structured. The selection of a business entity may determine how a company will be organized and managed, and it will also affect the taxes that the business will need to pay. By understanding how taxes apply to different types of business structures, owners or partners can determine which type of business entity will provide them with the most benefits.

Taxation for Different Types of Business Entities

The structure of a business will determine whether income taxes will apply to the business itself or to its owners, partners, and shareholders. If a business is a pass-through entity, profits and losses will be passed through to those who have an ownership share in the business, and individual income taxes will apply to these amounts. 

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 Posted on May 03, 2022 in Taxation Law

There are multiple different types of retirement accounts that a person may use to ensure that they will have the necessary financial resources later in life. These accounts can provide a number of tax benefits in addition to allowing money saved throughout a person’s career to grow significantly through well-managed investments. However, the treatment of these accounts by the IRS can sometimes become complicated, including in cases where a person dies either before or after they begin receiving distributions. Recently, the IRS issued a Proposed Rule that details the requirements that apply in these situations.

Changes to RMD Rules Under the SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was implemented in December 2019, made a few updates to the rules related to required minimum distributions (RMDs) for certain types of retirement accounts, including 403(b) plans and individual retirement accounts (IRAs). One major change was an update to the required beginning date (RBD) at which a person must begin receiving distributions. For people born after July 1, 1949, the RBD has been increased from age 70 ½ to 72.

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 Posted on April 20, 2022 in Taxation Law

The internet has allowed many people to pursue opportunities that had not previously been available, including when raising money for business purposes or to support charitable causes. “Crowdfunding” has become a popular way to raise funds, and multiple platforms are available for people and businesses that are looking to connect with individual people and receive donations or sell products or services. For example, Kickstarter is a platform that many people and businesses use to raise funds to publish books, record and release musical albums, create video games, or pursue other opportunities. Platforms such as GoFundMe have also helped people raise money for charitable purposes through donations, such as to pay for medical bills. As these platforms become more popular, these who receive money through these methods will need to understand their tax reporting requirements and the situations where they may need to pay income taxes on the money raised.

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 Posted on April 18, 2022 in Taxation Law

In recent years, virtual currencies have become a popular investment. Many people have been able to realize significant gains through buying, selling, and trading cryptocurrencies, and they have also used these currencies to complete multiple types of digital transactions. As the use of virtual currencies has continued to rise, the federal government has taken steps to ensure that assets and transactions are reported properly so that they can be taxed by the IRS. The way these currencies are treated may change in the future based on proposals from the administration of President Joe Biden.

Changes to Cryptocurrency Taxes Could Raise Billions in Tax Revenue

A budget proposal released by the Biden administration in March 2022 included several possible changes to how virtual currencies may be treated. These include:

• Cryptocurrency taxes may shift to using mark-to-market rules. Currently, virtual currencies are treated as property, and capital gains taxes are applied when cryptocurrencies are sold or traded. Under a mark-to-market system, increases in value of cryptocurrencies would be treated as income, and in some cases, owners would be required to pay income taxes to the IRS. However, virtual currencies would not be considered to be securities or commodities, and mark-to-market rules would only apply for currencies classified in a new third category of assets. The Treasury Department will determine which types of currencies are included in this category depending on whether they are actively traded, whether they are regularly bought and sold using currency issued by the United States or other countries, and whether reliable price quotes are available.

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 Posted on April 05, 2022 in Taxation Law

U.S. taxpayers who own assets in other countries must meet a number of requirements when filing tax returns with the IRS. Reporting of foreign assets can be complex, and in some cases, taxpayers may wish to avoid providing the IRS with more information than is necessary. Form 8938 (Statement of Specified Foreign Financial Assets) will provide information about multiple types of foreign accounts, and taxpayers may be required to submit this form along with their annual tax return. However, there are some exceptions to this requirement, and depending on the tax strategies a person uses and the extent of their assets, they may be able to avoid submitting Form 8938 in certain situations.

Exceptions to Form 8938 Requirements

Taxpayers who are considered “specified individuals” or “specified domestic entities” are required to submit Form 8938 if they own foreign assets with a value above a certain threshold. However, a person who is not required to file a tax return for a certain year will not need to submit Form 8938.

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