IRS and FTB providing tax relief for victims of severe winter storms, flooding, and mudslides in California

February 27, 2023/in Featured, IRS Reporting /by Jeff

New announcement extends tax deadlines to October 16, 2023.

The IRS announced on January 10, 2023 that California storm victims have until May 15, 2023 to file various federal individual and business tax returns and make tax payments. Subsequently on January 13, 2023 the California Franchise Tax Board (“FTB”) announced that California storm victims also have until May 15, 2023 to file various California individual and business tax returns and make tax payments.

The IRS announced on January 19, 2023 that Storm victims in parts of Georgia and Alabama now have until May 15, 2023 to file various federal individual and business tax returns and make tax payments.

New announcement extends tax deadlines to October 16, 2023.

The IRS announced on February 24, 2023 that Storm victims in the areas designated by the Federal Emergency Management Agency (FEMA) encompassed in the IRS’ prior announcements, as qualifying for individual assistance, will not have until October 16, 2023 to file various federal individual and business tax returns and make tax payments.

IRS Tax Relief Details

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance.

For California – Currently, relief is available to affected taxpayers who live or have a business anywhere in Colusa, El Dorado, Glenn, Humboldt, Los Angeles, Marin, Mariposa, Mendocino, Merced, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Bernardino, San Diego, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Ventura, Yolo, and Yuba counties.

For Georgia – Currently, relief is available to affected taxpayers who live or have a business anywhere in Butts, Henry, Jasper, Meriwether, Newton, Spalding and Troup counties in Georgia.

For Alabama – Currently, relief is available to affected taxpayers who live or have a business anywhere in Autauga and Dallas counties in Alabama.

The current list of eligible localities is always available on the disaster relief page on IRS.gov. The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area.

The additional relief postpones until October 16, 2023, various tax filing and payment deadlines, including those for most calendar-year 2022 individual and business returns. This includes: individual income tax returns, originally due on April 18, 2023 (May 15, 2023 per the previous IRS announcement); various business returns, normally due on March 15^th and April 18^th of 2023; and returns of tax-exempt organizations, normally due on May 15, 2023.

Among other things, this means that eligible taxpayers will also have until October 16, 2023 to make 2022 contributions to their IRAs and health savings accounts.

In addition, farmers who choose to forgo making estimated tax payments and normally file their returns by March 1, 2023 (May 15, 2023 per the previous IRS announcement) will now have until October 16, 2023, to file their 2022 return and pay any tax due.

The October 16, 2023 deadline also applies to the estimated tax payment for the fourth quarter of 2022, originally due on January 17, 2023. This means that taxpayers can skip making this payment and instead include it with the 2022 return they file, on or before October 16, 2023.

The October 16, 2023 deadline also applies to 2023 estimated tax payments, normally due on April 18^th, June 15^th and September 15^th of 2023. It also applies to the quarterly payroll and excise tax returns normally due on January 31^st, April 30^th and July 31^st of 2023.

FTB Tax Relief Details

On March 10, 2023 the FTB announced that it too would follow IRS allowing taxpayers impacted by 2022-23 winter storms to have an extension to October 16, 2023 to file individual and business tax returns and make certain tax payments. This includes:

Individuals whose tax returns and payments are due on April 18, 2023.
Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
Business entities whose tax returns are normally due on March 15 and April 18.
Pass-through entity (PTE) elective tax payments due on March 15, 2023 and June 15, 2023.

However, the postponement of time to file and pay does not apply to residents and businesses located in the following 7 counties: Imperial, Kern, Lassen, Modoc, Plumas, Shasta, and Sierra.

Residents and businesses located in the above 7 counties must file and pay by the normal established deadlines. This includes:

Individuals whose tax returns and payments are due on April 18, 2023.
Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
Business entities whose tax returns are normally due on March 15 and April 18.
PTE elective Tax payments due on March 15, 2023, and June 15, 2023.

Tax Planning Tip

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2023 return normally filed next year), or the return for the current year (2022).

Be sure to write the FEMA declaration number on any return claiming a loss. That number being: “FEMA-3591-DR” for California or “FEMA 4685-DR” for Georgia or “FEMA 4684-DR” for Alabama.

When filing a California return claiming a loss, be sure to write the name of the disaster in blue or black ink at the top of your tax return to alert FTB.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. The FTB has up to four years to select a tax return for audit. In some cases this period is extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper. By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
Written letters from charities confirming your monetary donations from the previous year.
Receipts for business expenses you claimed.
Mileage Logs for business use of vehicle.
Entertainment and Travel Logs for business

Tips On Reconstructing Records

Reconstructing records after a disaster is important for several reasons including insurance reimbursement and taxes. Most importantly, records can help people prove their disaster-related losses. More accurately estimated losses can help people get more recovery assistance like loans or grants.

Whether it’s personal or business property that has been lost or destroyed, here are some steps that can help people reconstruct important records.

Tax records

Get free tax return transcripts immediately using the Get Transcript on IRS.gov or through the IRS2Go app. Tax return transcripts show line-by-line the entries made on your Federal income tax returns. The most three recent tax years are available.

Financial statements

People can gather past statements from their credit card company or bank. These records may be available online. People can also contact their bank to get paper copies of these statements.

Property records

To get documents related to property, homeowners can contact the title company, escrow company or bank that handled the purchase of their home or other property.
Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

Develop And Implement Your Backup Plan

Do not wait for the next disaster to come for then it may be too late to retrieve your important records for a tax audit or for that matter any legal or business matter. And if you do get selected for audit and do not have all the records to support what was claimed on your tax returns, you should contact an experienced tax attorney who can argue the application of your facts and circumstances to pursue the least possible changes in an audit.

The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you. And if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

Tax Planning For Businesses – What You Need To Know About Business Meals, Business Travel, And Advertising And Marketing Costs

February 23, 2023/in Featured /by Jeff

Under prior law, a taxpayer generally can deduct business-related meal and entertainment expenses paid or incurred in entertaining a client, customer, or employee. The taxpayer had to show that the item was directly related to (or, in certain cases, associated with) the active conduct of the taxpayer’s trade or business. In such case, a deduction is allowed, although it is generally limited to 50% of the expense amount.

Starting with 2018 more stringent rules apply with respect to a deduction for meal and entertainment expenses paid after 2017. The Tax Cuts And Jobs Act Of 2017 (“TCJA”) TCJA signed into law by President Trump on December 22, 2017, repeals the deduction for most entertainment expenses, effective for amounts incurred after 2017. There was no exception for amount incurred that are directly related to, or associated with, the active conduct of the taxpayer’s trade or business. This repeal would extend to the cost of tickets to sporting events, stadium license fees, private boxes at sporting events, theater tickets, golf club dues, etc.

However, it is still possible that some amounts may still be deductible if they meet the exceptions in IRC § 274(e), a provision that was not touched by the TCJA.

Business Meals

The main exceptions in IRC § 274(e) allowing deductibility are:

Expenses for food and beverages (and facilities used in connection therewith) furnished on the business premises of the taxpayer primarily for the taxpayer’s employees.
Expenses for recreational, social, or similar activities (and facilities used in connection therewith) primarily for the benefit of employees, other than highly-compensated employees.
Expenses incurred by a taxpayer which are directly related to business meetings of the taxpayer’s employees, stockholders, agents, or directors.
Expenses directly related and necessary to attendance at a business meeting or convention of any certain organizations such as business leagues, chambers of commerce, real estate boards, and boards of trade.
Expenses for goods, services and facilities made available by the taxpayer to the general public.

This lack of clarity by the TCJA created a lot of confusion in the business community which the IRS was looking to address. On October 3, 2018 the IRS issued guidance, Notice 2018-76, clarifying that taxpayers may generally continue to deduct 50% of the food and beverage expenses associated with operating their trade or business, despite changes to the meal and entertainment expense deduction by the TCJA. Taxpayers can rely on the guidance in the notice until the IRS issues proposed regulations.

Under the interim guidance, taxpayers may deduct 50% of an otherwise allowable business meal expense if:

The expense is an ordinary and necessary business expense under IRC § 162(a) paid or incurred during the tax year when carrying on any trade or business;
The expense is not lavish or extravagant under the circumstances;
The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished;
The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
For food and beverages provided during or at an entertainment activity, they are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

The interim guidance includes three examples illustrating how the IRS would apply these rules. All three examples involve attending a sporting event with a business client and having food and drink while attending the event.

Business Travel

Business travel deductions are available when employees must travel away from their tax home or main place of work for business reasons. A taxpayer is traveling away from home if they are away for longer than an ordinary day’s work and they need to sleep to meet the demands of their work while away.

Travel expenses must be ordinary and necessary. They can’t be lavish, extravagant or for personal purposes.

Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment length does not exceed one year.

Travel expenses for conventions are deductible if attendance benefits the business.

Deductible travel expenses include:

Travel by airplane, train, bus or car between your home and your business destination.
Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location.
Shipping of baggage and sample or display material between regular and temporary work locations.
Using a personally owned car for business.
Lodging and meals.
Dry cleaning and laundry.
Business calls and communication.
Tips paid for services related to any of these expenses.
Other similar ordinary and necessary expenses related to the business travel.

Advertising And Marketing Costs

The tax law allows businesses to deduct expenses that help them bring in new customers and keep existing ones. These costs may include expenses for advertising and marketing. Here are some details about this valuable tax deduction that can help small businesses save money on their taxes.

Advertising and marketing costs must be ordinary and necessary to be tax deductible.

An ordinary expense is one that is common and accepted in the industry.
A necessary expense is one that is helpful and appropriate for the trade or business. An expense does not have to be indispensable to be considered necessary.

Here are a few advertising expenses that are usually deductible:

Reasonable advertising expenses that are directly related to the business activities.
An expense for the cost of institutional or goodwill advertising to keep the business name before the public if it relates to a reasonable expectation to gain business in the future. For example, the cost of advertising that encourages people to contribute to the Red Cross or to participate in similar causes is usually deductible.
The cost of providing meals, entertainment, or recreational facilities to the public as a means of advertising or promoting goodwill in the community.

Generally, small businesses cannot deduct amounts they pay to influence legislation, which includes advertising in a convention program of a political party, or in any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate.

What Should You Do?

Like with any expense you are looking to deduct it is important to make sure that the tax law would support a deduction and that you have the required backup documentation in case you are audited by the IRS. Also, be mindful that in any audit by IRS, an agent will be making sure that taxpayers are not inflating the amount charged for food and beverages in order to circumvent the disallowance of entertainment.

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Additionally, if you are involved in the cannabis industry, check out Cannabis Tax Attorney. Also, if you are involved in crypto currency, check out what a Bitcoin tax attorney can do for you.

IRS Issues Guidance On Taxability Of State Tax Payments

February 23, 2023/in Featured, IRS Reporting /by Jeff

On February 10, 2023 the IRS announced the federal tax status involving special payments made by 21 states in 2022. The IRS has determined that in the interest of sound tax administration and other factors, taxpayers in many states will not need to report these payments on their 2022 tax returns.

The IRS stated it will not challenge the taxability of payments related to general welfare and disaster relief. This means that people in the following states do not need to report these state payments on their 2022 tax return: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. Alaska is in this group as well, but subject to certain limitations described below.

In addition, many people in Georgia, Massachusetts, South Carolina and Virginia also will not include state payments in income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit.

Refund of state taxes paid

If the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied) the payment is not included in income for federal tax purposes.

Payments from the states of Georgia, Massachusetts, South Carolina and Virginia in 2022 fall in this category and will be excluded from income for federal tax purposes unless the recipient received a tax benefit in the year the taxes were deducted.

General welfare and disaster relief payments

If a payment is made for the promotion of the general welfare or as a disaster relief payment, for example related to the outgoing pandemic, it may be excludable from income for federal tax purposes under the General Welfare Doctrine or as a Qualified Disaster Relief Payment. Determining whether payments qualify for these exceptions is a complex fact intensive inquiry that depends on a number of considerations.

The IRS has classified the payments made by various states in 2022 and determined that in the best interest of sound tax administration and given the fact that the pandemic emergency declaration is ending in May 2023 (making this an issue only for the 2022 tax year), if a taxpayer does not include the amount of one of these payments in its 2022 income for federal income tax purposes, the IRS will not challenge the treatment of the 2022 payment as excludable for income on an original or amended return.

Payments from the following states fall in this category and the IRS will not challenge the treatment of these payments as excludable for federal income tax purposes in 2022.

Alaska (Only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend)
California
Colorado
Connecticut
Delaware
Florida
Hawaii
Idaho
Illinois (If multiple payments were issued, one shall be treated as a refund of taxes and the other in the category of disaster relief payment)
Indiana
Maine
New Jersey
New Mexico
New York (If multiple payments were issued, one shall be treated as a refund of taxes and the other in the category of disaster relief payment)
Oregon
Pennsylvania
Rhode Island

Other payments

Other payments that may have been made by states are generally includable in income for federal income tax purposes. This includes the annual payment of Alaska’s Permanent Fund Dividend and any payments from states provided as compensation to workers.

What Should You Do?

If you already filed your 2022 Federal Individual Income Tax Return including any of these payments as taxable contrary to this announcement by IRS, you should have an amended 2022 Federal Individual Income Tax Return prepared and filed.

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Additionally, if you are involved in the cannabis industry, check out Cannabis Tax Attorney. Also, if you are involved in crypto currency, check out what a Bitcoin tax attorney can do for you.

Getting Ready For Tax Season 2023 – What You Need To Know About Reporting Cryptocurrency

January 25, 2023/in Featured, IRS Reporting /by Jeff

Getting Ready For Tax Season 2023 – What You Need To Know About Reporting Cryptocurrency.

Cryptocurrency / Bitcoin – Is this the 21^st century answer to hiding assets in Swiss bank accounts?

The IRS thinks this is the case which is why the IRS has stepped up its investigation efforts to uncover non-compliant taxpayers just like the IRS successfully did in its investigation of the Swiss banks leading Congress to enact the Foreign Account Tax Compliance Act (“FATCA”). FATCA forces foreign banks to disclose information on U.S. account holders which the IRS receives and matches the information reported by U.S. taxpayers. No longer can taxpayers avoid reporting income on their foreign bank accounts. No longer can taxpayers avoid disclosing their foreign bank accounts.

With more businesses willing to accept and transact in cryptocurrencies, the absence of specific rules related to the reporting of business income from cryptocurrency transactions has created a “tax gap” that the IRS intends to close.

The IRS now groups cryptocurrency, convertible virtual currency, stablecoins and non-fungible tokens (NFTs) as “digital assets”.

How To Report Cryptocurrency On Your 2022 Income Tax Return.

The IRS treats cryptocurrencies like property, meaning that anytime you spend, exchange, or sell your cryptocurrency, you create a taxable event. So just like stocks, you would look at how much you paid for your cryptocurrency, which is the cost basis, and the market value at the time you spent it or sales price when you sold it. That difference if disposed at a gain is subject to tax. If disposed at a loss, that loss can offset your capital gains. You would report these transactions on Form 8949, Sales And Other Dispositions Of Capital Assets.

In determining the cost basis of the cryptocurrency disposed, you get to pick and choose which cryptocurrency acquisition was the source of the disposition. To show the smallest gain (or largest loss), you should pick the most expensive acquisition of that cryptocurrency later disposed. This accounting method is known as “HIFO” accounting. HIFO stands for “highest in, first out”. By keeping detailed records of your cryptocurrency transactions and cost basis to employ this method of accounting, a taxpayer should be able to save on taxes.

How IRS Targets Cryptocurrency.

The IRS has one of the most extensive data collections in the world. Traditionally its power to enforce has come through the matching of data. For example, you received a W-2 Form from your employer showing how much you earned. That same form is submitted by your employer to the IRS. Now the IRS can match your return to that form to make sure you are reporting the income. The same thing goes for 1099 forms showing your earnings from miscellaneous income, gambling winnings, interest and dividend income, sales of assets, deductions, and so on.

But with Bitcoin and other cryptocurrencies, there is no such third-party reporting. Digital exchanges are not broker-regulated by the IRS. Exchanges do not issue a 1099 form, nor do they calculate gains or cost basis for the trader.

On May 20, 2021, U.S. Department Of Treasury released a report that included a set of proposed tax compliance initiatives with the goal of closing the gap between taxes owed and taxes actually paid. These measures are encompassed in the American Families Plan, which establishes rules for the proper reporting of cryptocurrency including a new rule that would require businesses to file a current transaction report when they receive cryptocurrency worth more than $10,000, just as most businesses are required to report cash payments in these amounts.

On August 10, 2021, H.R. 3684, known as the Infrastructure Investment and Jobs Act, was passed by the Senate. Although this bill has yet to be considered by the House of Representatives, it includes a provision that would require broker reporting of crypto-asset transfers. Section 80603 of the bill imposes new crypto-assets information reporting requirements on brokers. The Sec. 6045(c)(1) definition of “broker” is expanded to include anyone who for consideration effectuates “transfers of digital assets on behalf of another person”. For these purposes, “digital asset” is defined as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology.” Furthermore, the bill would amend Sec. 6045A to require brokers to provide information returns reporting any transfers of digital assets to accounts that are not maintained by a broker.

But the IRS does not stop there …

Chainalysis Reactor Software

The IRS and other federal agencies want to catch up on, and make sense of, the worldwide web of bitcoin and other cryptocurrencies. Chainalysis is a company that created a cryptocurrency-tracing software dubbed “Reactor” which is being used by at least 10 federal agencies including the IRS. The IRS Cyber Crimes Unit (CCU), a five-year-old division of its larger Criminal Investigation (CI) wing and the leader in the IRS’ cryptocurrency crimes investigations, uses this software as a tool to help identify taxpayers who could be non-compliant in the tax laws or involved in criminal activity.

Virtual currency is an ongoing focus area for IRS Criminal Investigation.

In 2018 the IRS announced a Virtual Currency Compliance Campaign to address tax noncompliance related to the use of virtual currency through outreach and examinations of taxpayers. The IRS will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations.

IRS Access To Cryptocurrency Transactions.

A John Doe Summons issued by IRS was ruled enforceable by U.S. Magistrate Judge Jacqueline Scott Corley in November 2017 (United States v. Coinbase, Inc., United States District Court, Northern District Of California, Case No.17-cv-01431). Coinbase located in San Francisco is the largest cryptocurrency exchange in the United States. Under the order, Coinbase will be required to turn over the names, addresses and tax identification numbers on 14,355 account holders. The Court has ordered Coinbase to produce the following customer information: (1) taxpayer ID number, (2) name, (3) birth date, (4) address, (5) records of account activity, including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, and the names of counterparties to the transaction, and (6) all periodic statements of account or invoices (or the equivalent).

ON MARCH 16, 2018 COINBASE COMPLIED WITH THIS SUMMONS AND TURNED OVER DATA OF 14,355 ACCOUNT HOLDERS TO IRS.

Now while this net may not pick up taxpayers whose accounts have less than $20,000 in any one transaction type (buy, sell, send, or receive) in any one year from 2013 to 2015, it should be clear that this is the first step for the IRS to crush non-compliance for all taxpayers involved with cryptocurrency just like the IRS was successful in battling taxpayers having undisclosed foreign bank accounts.

10,000 Cryptocurrency Owners Receiving Warning Letters From The IRS

After years of analyzing data from third parties involved in the cryptocurrency exchanges, the IRS announced in a press release on July 26, 2019 that it has started sending letters to cryptocurrency owners advising them to report their cryptocurrency transactions and pay their taxes. More than 10,000 taxpayers have been identified by IRS as being involved in cryptocurrency transactions but who the IRS believes may not have been compliant in reporting these transactions on their tax returns.

Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.

Notices Being Sent To Taxpayers Are The First Step In IRS Enforcement Action

The IRS is using three types of notices to send to more than 10,000 taxpayers by the end of August 2019 – notices 6173, 6174 or 6174-A. All three notices indicate the IRS has information that the taxpayer receiving the notice currently has or has had virtual currency. However, it is Letter 6173 that is most serious as it requires a signature from the recipient under perjury that they are compliant with the U.S. tax code or requiring taxpayers to respond to the IRS and either file delinquent returns for tax years 2013 through 2017 or amend previously filed returns and include the applicable forms or schedules reporting cryptocurrency transactions. If you receive a Letter 6173, it should be a virtual certainty that you will be selected for examination.

If you receive Letter 6173, you should consult with a tax attorney as the submission of a statement signed under penalties of perjury that is false can result in serious consequences including criminal prosecution.

Form 1040 Makes It Harder For U.S. Taxpayers To Avoid Non-compliance Or Claim Ignorance.

On the 2022 Form 1040, you are required to answer the following checkbox question:

At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)? ◊ Yes ◊ No

Taxpayers will now be required to check the appropriate box to answer the virtual currency question. This question has been on individual income tax returns starting with 2019; however, the term “digital assets” has replaced “virtual currencies,” a term used in previous years. This requirement is similar to how the IRS includes questions on Schedule B inquiring whether a taxpayer has foreign bank accounts.

Normally, a taxpayer must check the “yes” box if they:

Received digital assets as payment for property or services provided;
Transferred digital assets for free (without receiving any consideration) as a bona fide gift;
Received digital assets resulting from a reward or award;
Received new digital assets resulting from mining, staking and similar activities;
Received digital assets resulting from a hard fork (a branching of a cryptocurrency’s blockchain that splits a single cryptocurrency into two);
Disposed of digital assets in exchange for property or services;
Disposed of a digital asset in exchange or trade for another digital asset;
Sold a digital asset; or
Otherwise disposed of any other financial interest in a digital asset.

Normally, a taxpayer who merely owned digital assets during 2022 can check the “No” box as long as they did not engage in any transactions involving digital assets during the year. They can also check the “No” box if their activities were limited to one or more of the following:

Holding digital assets in a wallet or account;
Transferring digital assets from one wallet or account they own or control to another wallet or account they own or control; or
Purchasing digital assets using U.S. or other real currency, including through electronic platforms such as PayPal and Venmo.

Taxpayers who answer “no” and for who the IRS later determines should have answered “yes” could face civil or criminal penalties and it could affect their success in having penalties abated for reasonable cause.

Penalties For Filing A False Income Tax Return Or Under-reporting Income

Failure to report all the money you make is a main reason folks end up facing an IRS auditor. Carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.

Criminal Fraud – The law defines that any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).

The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).

And even if the IRS is not looking to put you in jail, they will be looking to hit you with a big tax bill with hefty penalties.

Civil Fraud – Normally the IRS will impose a negligence penalty of 20% of the underpayment of tax (Code Sec. 6662(b)(1) and 6662(b)(2)) but violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty. In lieu of the 20% negligence penalty, the civil fraud penalty is 75% of the underpayment of tax (Code Sec. 6663). The imposition of the Civil Fraud Penalty essentially doubles your liability to the IRS! And this is why the IRS is first sending Letter 6173 requiring a signature from the recipient under perjury that the taxpayer is compliant with the U.S. tax code BEFORE the IRS then decides to audit the taxpayer.

Voluntary Disclosure – The Way To Avoid Criminal Fines & Punishment

The IRS has not yet announced a specific tax amnesty for people who failed to report their gains and income from Bitcoin and other virtual currencies but under the existing Voluntary Disclosure Program, non-compliant taxpayers can come forward to avoid criminal prosecution and negotiate lower penalties.

What Should You Do?

With only several hundred people reporting their crypto gains each year since bitcoin’s launch, the IRS suspects that many crypto users have been evading taxes by not reporting crypto transactions on their tax returns. And now that like-exchange treatment is prohibited on transactions that occur after 2017, now is the ideal time to be proactive and come forward with voluntary disclosure to lock in your deferred gains through 2017, eliminate your risk for criminal prosecution, and minimize your civil penalties. Don’t delay because once the IRS has targeted you for investigation – even it’s is a routine random audit – it will be too late voluntarily come forward.

Take control of this risk and engage a bitcoin tax attorney at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Bay Area (San Francisco, San Jose and Walnut Creek) and other California locations. We can come up with solutions and strategies to these risks and protect you and your business to mitigate criminal prosecution, seek abatement of penalties, and minimize your tax liability. Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you.

IRS providing tax relief for victims of Georgia and Alabama severe winter storms

January 20, 2023/in Featured, IRS Reporting /by Jeff

The IRS announced on January 19, 2023 that Storm victims in parts of Georgia and Alabama now have until May 15, 2023 to file various federal individual and business tax returns and make tax payments.

IRS Tax Relief Details

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. Currently, relief is available to affected taxpayers who live or have a business anywhere in Butts, Henry, Jasper, Meriwether, Newton, Spalding and Troup counties in Georgia and Autauga and Dallas counties in Alabama.

The tax relief postpones various tax filing and payment deadlines falling on or after January 12, 2023, and before May 15, 2023, additional time to file through May 15, 2023. As a result, affected individuals and businesses will have until May 15, 2023 to file returns and pay any taxes that were originally due during this period. This includes 2022 individual income tax returns due on April 18, 2023 as well as various 2022 business returns normally due on March 15, 2023 and April 18, 2023. Among other things, this means that eligible taxpayers will have until May 15, 2023 to make 2022 contributions to their IRAs and health savings accounts.

In addition, farmers who choose to forgo making estimated tax payments and normally file their returns by March 1, 2023 will now have until May 15, 2023 to file their 2022 return and pay any tax due. The May 15, 2023, deadline also applies to the quarterly estimated tax payments, normally due on January 17, 2023 and April 18, 2023. This means that individual taxpayers can skip making the fourth quarter estimated tax payment, normally due January 17, 2023, and instead include it with the 2022 return they file, on or before May 15, 2023.

The May 15, 2023 deadline also applies to the quarterly payroll and excise tax returns normally due on January 31, 2023. In addition, penalties on payroll and excise tax deposits due on or after January 12, 2023, and before January 27, 2023, will be abated as long as the tax deposits are made by January 27, 2023.

Tax Planning Tip

Be sure to write the FEMA declaration number on any return claiming a loss. That number being: “FEMA 4684-DR” for Alabama or “FEMA 4685-DR” for Georgia.

Importance To Preserve Records

Essential Records to Have for a Tax Audit

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
Written letters from charities confirming your monetary donations from the previous year.
Receipts for business expenses you claimed.
Mileage Logs for business use of vehicle.
Entertainment and Travel Logs for business

Tips On Reconstructing Records

Whether it’s personal or business property that has been lost or destroyed, here are some steps that can help people reconstruct important records.

Tax records

Financial statements

People can gather past statements from their credit card company or bank. These records may be available online. People can also contact their bank to get paper copies of these statements.

Property records

To get documents related to property, homeowners can contact the title company, escrow company or bank that handled the purchase of their home or other property.
Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

Develop And Implement Your Backup Plan

IRS and FTB providing tax relief for victims of severe winter storms, flooding, and mudslides in California

January 16, 2023/in Featured, IRS Reporting /by Jeff

The IRS announced on January 10, 2023 that California storm victims now have until May 15, 2023 to file various federal individual and business tax returns and make tax payments. Subsequently on January 13, 2023 the FTB announced that California storm victims also have until May 15, 2023 to file various California individual and business tax returns and make tax payments.

IRS Tax Relief Details

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. Currently, relief is available to affected taxpayers who live or have a business anywhere in Colusa, El Dorado, Glenn, Humboldt, Los Angeles, Marin, Mariposa, Mendocino, Merced, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Bernardino, San Diego, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Ventura, Yolo, and Yuba counties.

The tax relief postpones various tax filing and payment deadlines falling on or after January 8, 2023, and before May 15, 2023, additional time to file through May 15, 2023. As a result, affected individuals and businesses will have until May 15, 2023 to file returns and pay any taxes that were originally due during this period. This includes 2022 individual income tax returns due on April 18, 2023 as well as various 2022 business returns normally due on March 15, 2023 and April 18, 2023. Among other things, this means that eligible taxpayers will have until May 15, 2023 to make 2022 contributions to their IRAs and health savings accounts.

The May 15, 2023 deadline also applies to the quarterly payroll and excise tax returns normally due on January 31, 2023. In addition, penalties on payroll and excise tax deposits due on or after January 8, 2023, and before January 23, 2023, will be abated as long as the tax deposits are made by January 22, 2023.

FTB Tax Relief Details

To help alleviate some of the stress many have endured during this trying period, the FTB has extended the filing and payment deadlines for individuals and businesses in California until May 15, 2023.

This relief applies to deadlines falling on or after January 8, 2023, and before May 15, 2023, including the 2022 individual income tax returns due on April 18^th and the quarterly estimated tax payments, typically due on January 17, 2023, and April 18, 2023.

“This extension offers much-needed relief to taxpayers impacted by these powerful storms,” said Governor Newsom. “For some, this will provide additional time to file their California tax returns or make their quarterly estimated tax payment to the state.”

Tax Planning Tip

Be sure to write the FEMA declaration number on any return claiming a loss. That number being: “FEMA-3591-DR”.

When filing a California return claiming a loss, be sure to write the name of the disaster in blue or black ink at the top of your tax return to alert FTB.

Importance To Preserve Records

Essential Records to Have for a Tax Audit

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
Written letters from charities confirming your monetary donations from the previous year.
Receipts for business expenses you claimed.
Mileage Logs for business use of vehicle.
Entertainment and Travel Logs for business

Tips On Reconstructing Records

Whether it’s personal or business property that has been lost or destroyed, here are some steps that can help people reconstruct important records.

Tax records

Financial statements

People can gather past statements from their credit card company or bank. These records may be available online. People can also contact their bank to get paper copies of these statements.

Property records

To get documents related to property, homeowners can contact the title company, escrow company or bank that handled the purchase of their home or other property.
Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

Develop And Implement Your Backup Plan

IRS providing tax relief for victims of severe winter storms, flooding, and mudslides in California

January 11, 2023/in Featured, IRS Reporting /by Jeff

The IRS announced on January 10, 2023 that California storm victims now have until May 15, 2023 to file various federal individual and business tax returns and make tax payments.

IRS Tax Relief Details

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. Currently, relief is available to affected taxpayers who live or have a business anywhere in Colusa, El Dorado, Glenn, Humboldt, Los Angeles, Marin, Mariposa, Mendocino, Merced, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Bernardino, San Diego, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Ventura, Yolo, and Yuba counties.

The May 15, 2023 deadline also applies to the quarterly payroll and excise tax returns normally due on January 31, 2023. In addition, penalties on payroll and excise tax deposits due on or after January 8, 2023, and before January 23, 2023, will be abated as long as the tax deposits are made by January 22, 2023.

Tax Planning Tip

Be sure to write the FEMA declaration number on any return claiming a loss. That number being: “FEMA-3591-DR”.

Importance To Preserve Records

Essential Records to Have for a Tax Audit

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
Written letters from charities confirming your monetary donations from the previous year.
Receipts for business expenses you claimed.
Mileage Logs for business use of vehicle.
Entertainment and Travel Logs for business

Tips On Reconstructing Records

Whether it’s personal or business property that has been lost or destroyed, here are some steps that can help people reconstruct important records.

Tax records

Financial statements

People can gather past statements from their credit card company or bank. These records may be available online. People can also contact their bank to get paper copies of these statements.

Property records

To get documents related to property, homeowners can contact the title company, escrow company or bank that handled the purchase of their home or other property.
Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

Develop And Implement Your Backup Plan

It’s All How About Much You Keep – NFL Player Odell Beckham Taking His 2021 Salary In Bitcoin Ended Up With A Big Loss

December 26, 2022/in Featured /by Jeff

Towards the end of 2021 Bitcoin was in its last bull run of the year that would result in a record highs around $60,000. Since then Bitcoin and other cryptocurrencies have drastically fallen in value – around $16,000 at the end of 2022, and there is no sign of them appreciating anytime soon. The party who is in the best position in this environment is Uncle Sam. That’s because (a) there is no limitation on how much in income from cryptocurrency taxpayers must report and in some instances that income could be taxed at the higher rates imposed on ordinary income; and (b) the deductibility of losses is limited.

So if you bought or earned Bitcoin and other crypto currencies when their prices were high, you may be looking at a financial disaster like Odell Beckham Jr.

The Story Of Odell Beckham Jr.

Odell Beckham Jr. opted to get paid in Bitcoin under his 2021 NFL contract after signing with the L.A. Rams for $750,000.

The $750,000 he earned is taxed as ordinary income regardless of how he was paid (bitcoin or dollars). Figuring a combined Federal & State effective tax rate of 50% that would leave him with a net amount of $375,000 which is 6.25 Bitcoins (I am using a rate of $60,000 for one Bitcoin).

Now Bitcoin is worth around $16,000 which means that Beckham’s Bitcoin holdings are worth $100,000. That equates to a loss of $275,000.

So How Are Losses From Cryptocurrency Taxed?

Under Notice 2014-21 issued by the Internal Revenue Service (IRS), cryptocurrencies are treated an investment property, rather than a currency. Thus, whenever you trade cryptocurrency, the transaction is either a capital gain (where you make money) or a capital loss (where you lose money); and any losses this year could ultimately result in a smaller tax bill. Where your capital losses exceed your capital gains, you are still allowed to deduct up to $3,000 in capital losses. Losses beyond that amount get carried over to the next year to offset capital gains before applying another $3,000 excess loss application to your other income.

Going back to Beckham’s case, assume that after the markets took a big hit he sold off his Bitcoin holdings, walking away with $100,000. Assume further that he has no capital gains to report for any other transactions. Under this scenario he lost $275,000 of which $3,000 he can deduct in the year of sale and the other $272,000 of loss gets carried forward to the next year subject to the same loss deduction limitations.

To summarize – Beckham’s contract worth $750,000 diminished to $100,000 after consideration of taxes and investment losses.

Taxation of Crypto Currency.

Notice 2014-21 as further amplified by Revenue Ruling 2019-24 provides these tax rules:

Trading cryptocurrencies produces capital gains or losses, with the latter being able to offset gains and reduce tax.
Exchanging one token for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses.
Receiving payments in crypto in exchange for products or services or as salary is treated as ordinary income at the fair market value of the coin at the time of receipt.
Spending crypto is a tax event and may generate capital gains or losses, which can be short-term or long-term. For example, say you bought one coin for $500. If that coin was then worth $700 and you bought a $700 gift card, there is a $200 taxable gain. Depending on the holding period, it could be a short- or long-term capital gain subject to different rates.
Converting a cryptocurrency to U.S. dollars or another currency at a gain is a taxable event, as it is treated as being sold, thus generating capital gains.
Air drops are considered ordinary income on the day of the air drop. That value will become the basis of the coin. When it’s sold, exchanged, etc., there will be a capital gain.
Mining coins is considered ordinary income equal to the fair market value of the coin the day it was successfully mined.
Initial coin offerings do not fall under the IRS’s tax-free treatment for raising capital. Thus, they produce ordinary income to individuals and businesses alike.

Penalties For Filing A False Income Tax Return Or Under-reporting Income.

And even if the IRS is not looking to put you in jail, they will be looking to hit you with a big tax bill with hefty penalties.

Voluntary Disclosure – The Way To Avoid Criminal Fines & Punishment

What Should You Do?

When it comes to cryptocurrency, make sure you get the right advice to minimize the adverse tax consequences. And if you have not been reporting crypto transactions on your tax returns, don’t delay in contacting tax counsel because once the IRS has targeted you for investigation – even if it is a routine random audit – it will be too late voluntarily come forward. Let a bitcoin tax attorney at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and offices elsewhere in California get you set up with a plan that may include being qualified into a voluntary disclosure program to avoid criminal prosecution, seek abatement of penalties, and minimize your tax liability. Also, if you are involved in cannabis, check out how our cannabis tax attorneys can help you.

New Tax Rule Affecting People Who Use Venmo, Paypal Or Other Payment Apps Put On Hold

December 26, 2022/in Featured /by Jeff

IRS announces delay for implementation of $600 reporting threshold for third-party payment platforms’ Forms 1099-K

From renting spare rooms and vacation homes to car rides or using a bike…name a service or a craft & handmade item marketplace and it’s probably available through the gig economy which is proliferating through many digital platforms like Uber, Lyft, Doordash, Postmates, Instacart and Airbnb.

And if you use payment apps like PayPal, Venmo, Square, and other third-party electronic payment networks to pay for goods and services, you should be aware of a tax reporting change that was to go into effect in January 2022.

Starting with the 2022 calendar year, payment app providers will have to start reporting to the IRS a user’s business transactions if, in aggregate, they total $600 or more for the year. The reporting form to use is a Form 1099-K. A business transaction is defined as payment for a good or service.

Prior to this change, app providers only had to send the IRS a Form 1099-K if an individual account had at least 200 business transactions in a year and if those transactions combined resulted in gross payments of at least $20,000.

The expansion of the reporting rule is the result of a provision in the American Rescue Plan, which was signed into law in 2021. The IRS was looking to use this information to uncover unreported income and recover lost tax revenues.

But on December 23, 2022 the IRS announced a delay in reporting thresholds for third-party settlement organizations set to take effect for the upcoming tax filing season.

Acting IRS Commissioner Doug O’Donnell stated “The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan. To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”

The IRS did affirm that the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect.

Federal Government’s Independent Contractor Ruling

The U.S. Department of Labor on January 6, 2021 announced a final rule to define whether workers are employees or independent contractors making it easier for companies to classify workers as independent contractors.

The change bases worker classification on an “economic reality test” focused primarily on whether a worker is economically dependent on an employer. Under the test, individuals are classified as employees if they are economically dependent on the employer; but if an individual is in business for themselves and not economically dependent on someone else’s business, that individual should be classified as an independent contractor.

Independent contractors are not entitled to benefits for companies they render work for and independent contractors are responsible to pay self-employment taxes on their income.

California law updated in 2020 to expand independent contractor status

California Assembly Bill (“AB”) 5 codified the California Supreme Court holding in Dynamex Operations West, Inc. v. Superior Court and adopted the “ABC” test to determine whether independent contractors should be treated as employees with various exceptions. Effective January 1, 2020 under the “ABC” test, workers are presumed to be employees unless they satisfy three conditions:

The worker is free from the employer’s control and direction in connection with the work performed, both under the contract and in fact;
The work performed is outside the usual course of the employer’s business; and
The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Under AB 5, certain occupations were excluded from the ABC test, including doctors, lawyers, dentists, licensed insurance agents, accountants, architects and engineers, private investigators, real estate agents, and hairstylists.

Since the enactment of AB 5, the California Legislature introduced subsequent legislation (AB 257) to allow more workers to be treated as independent contractors by increasing the availability of exemptions to the ABC test as follows:

Translators, appraisers, home inspectors and registered foresters.
For the entertainment industry to include recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, musical engineers, musicians, vocalists, music album photographers, independent radio promoters, and certain publicists.
For referral agencies to include consulting, youth sports coaching, caddying, wedding and event planning, and interpreting services.

Lastly, in November 2020, California voters passed Proposition 22 which allows workers in the gig economy that serve as app-based drivers to be treated as independent contractors.

Four tips you should know about how the gig economy might affect your taxes:

The activity is taxable.

If you receive income from a sharing economy activity, it’s generally taxable even if you don’t receive a Form 1099-MISC, Miscellaneous Income, Form 1099-K, Payment Card and Third Party Network Transactions, Form W-2, Wage and Tax Statement, or some other income statement. This is true even if you do it as a side job or just as a part time business and even if you are paid in cash and to minimize how much you need to pay in taxes, it is imperative that you keep track of your business expenses.

Some expenses are deductible.

The tax code allows you to deduct certain costs of doing business from gross income. For example, a taxpayer who uses their car for business may qualify to claim the standard mileage rate, which is 57.5 cents per mile for the first 6 months of 2022 and 62.5 cents for the last 6 months of 2022. Generally, you cannot deduct personal, living or family expenses. You can deduct the business part only, such as supplies, cell phones, auto expenses, food and drinks for passengers, car washes, parking fees, tolls, roadside assistance plans, taxes, and incentives associated with certain electric and hybrid vehicles.

Example: You used your car only for personal purposes during the first 6 months of the year. During the last 6 months of the year, you drove the car a total of 15,000 miles of which 12,000 miles were driven to provide transportation services through a company that provides such services through requests to its app. This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. Your business use for the year is 40% (80% × 6/12).

Example: You use your car both for personal purposes and to provide transportation arranged through a company that provides transportation service through its app. You must divide your personal and business expenses based on actual mileage. You can deduct the business part of these actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. Depending on the facts and circumstances, you may be providing the services either in a self-employed capacity or as an employee. If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate.

You Could Be Subject To Self Employment Tax

The net income from your service-related activity with the sharing economy facilitator is subject to Self-Employment taxes, (Social Security and Medicare), at a 15.3% rate. Now you will get to deduct one-half of these Self Employment taxes on your Form 1040 but if you consider that you still have income taxes to pay as well, the effective tax rate can easily exceed 30% and you will also have your state’s income tax on top of that.

So whether you are using your personal car for business or part of your residence as a home office, you will need to have good personal records of your expenses. In a situation where you are using your personal car for business you typically can deduct either “actual” costs for the percentage of business use, (though cell phone and food probably are not pertinent) or you can deduct mileage at a standard rate for business use. If you go the “simple” route and deduct mileage instead of “actual” expenses your Schedule C would consist of exactly 2 lines so it’s not very hard – but you will lose out on a lot of deductions and pay a lot more in taxes.

Beware Of Requirement To Make Estimated Tax Payments.

Remember you are not an “employee” of the sharing economy facilitators; you are an “independent contractor”. As such, there is no withholding of any taxes from your checks; you are responsible for all taxes – Self Employment taxes and income taxes – on your net earnings. The U.S. tax system is pay-as-you-go. This means that taxpayers involved in the sharing economy often need to make estimated tax payments during the year. These payments for the 2023 tax year are due on April 18, 2023, June 15, 2023, September 15, 2023 and January 15, 2024. Taxpayers use Form 1040-ES to figure these payments.

Why The IRS Likes The Gig Economy.

Unlike traditional transactions where two parties directly deal with each other and nothing is reported to the IRS, gig economy facilitators who connect the two parties, collect the money from the paying party and transmit the revenue to the service provider will report the sale to IRS using Form 1099. The IRS now has a tool by which they can match up the amount of income you report on your tax return and if the Form 1099 amount is greater, you can be sure that the IRS will catch this and send you a tax bill.

What Should You Do?

As the gig economy continues to grow, so do the associated tax problems. The IRS obviously is interested in folks who earn money using their autos as on-call car services or rent their homes to out-of-towners. That is why it’s important to keep good records. Choose a recordkeeping system suited to your business that clearly shows your income and expenses. The business you’re in affects the type of records you need to keep for federal tax purposes. Your recordkeeping system should include a summary of your business transactions. Your records must also show your gross income, as well as your deductions and credits. Federal law sets statutes of limitations that can affect how long you need to keep tax records.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Additionally, if you are involved in cannabis, check out what a cannabis tax attorney can do for you. And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Starting January 1, 2024 – Banks & Financial Institutions To Report Beneficial Ownership Information Of Entity Accountholders

December 21, 2022/in Featured /by Jeff

The Federal government in its efforts to crack down on illicit finance and enhance transparency on September 29, 2022 issued a final ruling establishing a beneficial ownership information reporting requirement, pursuant to the Corporate Transparency Act (CTA). This rule will require most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners – the persons who ultimately own or control the company – to the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Designed to protect U.S. national security and strengthen the integrity and transparency of the U.S. financial system, FINCEN stated that this ruling will help to stop criminal actors, including oligarchs, kleptocrats, drug traffickers, human traffickers, and those who would use anonymous shell companies to hide their illicit proceeds.

“For too long, it has been far too easy for criminals, Russian oligarchs, and other bad actors to fund their illicit activity by hiding and moving money through anonymous shell companies and other corporate structures right here in the United States,” said Acting FinCEN Director Himamauli Das. “This final rule is a significant step forward in our efforts to support national security, intelligence, and law enforcement agencies in their work to curb illicit activities. The final rule will also play an important role in protecting American taxpayers and businesses who play by the rules, but are repeatedly hurt by criminals that use companies for illegal reasons.”

Reporting Companies

The CTA broadly defines a “reporting company” as any corporation, limited liability company, or other similar entity created by filing a document with the secretary of state or similar office in any state or territory or with a federally recognized Indian Tribe, or formed under the laws of a foreign country and registered to do business in the United States.

Entities Not Required To Be Reported

There are certain entities that are excepted from being reported: (1) entities in certain regulated industries that already are subject to beneficial ownership reporting, (2) publicly traded companies, (3) investment vehicles operated by investment advisors, nonprofits, and government entities, and (4) “qualified exempt entities”. A “qualified exempt entity” is an entity that (a) employs more than 20 employees; (b) filed in the previous year a tax return demonstrating more than $5 million in gross receipts or sales; and (c) has an operating presence at a physical office within the United States.

Beneficial Owners and the Information to Report

The CTA defines a “beneficial owner” of an entity as any individual who, directly or indirectly, (1) exercises substantial control over the entity or (2) owns or controls not less than 25% equity in the entity. The rule expressly excludes certain individuals from the definition of beneficial ownership, including (1) a minor child (as long as the child’s parent’s or guardian’s information is reported); (2) an individual acting as an intermediary or agent on behalf of another; (3) a person whose control over a reporting company derives solely from their employment; (4) an individual whose only interest in a reporting company is through a right of inheritance; or (5) a creditor of a reporting company (unless they qualify as a “beneficial owner” through substantial control or equity ownership).

What Information Gets Reported

In each report to FinCEN, a reporting company must provide each beneficial owner’s name, date of birth, residential or business address, and a unique identifying number from an acceptable identification document (such as a state driver’s license or passport).

Effective Date Is January 1, 2024.

The rule is effective January 1, 2024. Reporting companies created or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports. Once the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information.

The reporting rule is one of three rulemakings planned to implement the CTA. FinCEN will engage in additional rulemakings to: (1) establish rules for who may access beneficial ownership information, for what purposes, and what safeguards will be required to ensure that the information is secured and protected; and (2) revise FinCEN’s customer due diligence rule. In addition, FinCEN stated it continues to develop the infrastructure to administer these requirements, including the information technology system that will be used to store beneficial ownership information in accordance with the strict security and confidentiality requirements of the CTA.

Penalties for Violating CTA

Willfully providing false information to FinCEN or failing to report complete information to FinCEN can result in fines up to $10,000 and imprisonment for up to two years. However, the CTA contains a safe harbor from such civil and criminal liability for the submission of inaccurate information if the person who submitted the report voluntarily and promptly corrects the report within 90 days.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. You can expect the laws regarding customer due diligence requirements for financial institutions will also be updated to conform to the CTA as the CTA will be providing a new means for a financial institution to verify a customer’s “Know Your Customer” information. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Additionally, if you are involved in cannabis, check out what a cannabis tax attorney can do for you. And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

A Brilliant Lawyer-Benefit from His Expertise!

I had an issue which required both the expertise of a lawyer with a firm grasp of tax law—one that is always evolving—and that of a highly skilled accountant. And seeking for these qualifications in a single individual, I had the good fortune to discover Mr. Jeffrey Kahn, who indeed proved that a lawyer can be at the same time as an accountant. We worked together for over a year. Regardless of the complexity of the issues as they presented themselves, Mr. Kahn overcome each with admirable skill. At the conclusion of the matter that Mr. Kahn handled, I was utterly satisfied with the outcome, knowing that he had done his very best for me. I would recommend his services to family members, and friends, should they have a need for the rare expertise that Mr. Kahn has.

Richard

Incredibly friendly and extremely knowledgeable

Outstanding team and tax preparation service. I worked with Jeff and his team and this was hands down. Jeff helped me understand the complexities of my taxes. The staff is both incredibly friendly and extremely knowledgeable… Best tax preparation process I’ve ever dealt with. I can’t recommend Jeff’s office highly enough!

Mous

Jeff is awesome

We went through a very stressful experience when we came to know about FBAR and OVDI and it disturbed our peace of mind. I found about Jeff online and I was living in India at that time. Jeff was able to understand my situation in one phone call. Our OVDI process started and I was working with Jeff while I was in India. His team is splendid. They would update me on every small things and I couldn’t have had a more professional team. They guided me throughout the process , answered every question that I had and I felt a lot better over time. Finally after 4 overs , Jeff was able to resolve my scenario and it was such a relief. I really thank Jeff and his team and would highly recommend his services for anyone going through nightmares with IRS and taxation issues.

Sundar

Detailed and professional

I was looking for an attorney to draw up multiple custom agreements which included a promissory note, security agreement and marketing and support agreement. Mr. Kahn was extremely professional and very detail oriented. He went above and beyond to ensure I was fully protected and suggested new ideas to further enhance the agreements.

Edmund

Extremely Pleased

I highly recommend Mr. Kahn for any legal issues. He was very professional and gave me many ideas on how to resolve my legal issues during our consultation. I hired him soon after and was extremely pleased with how he handled my case. I would recommend him to anyone with tax concerns.

Jackie

Jeff save my company hundreds of thousands of dollars

When it comes to representation in dealing with the IRS there is no better than Jeff Kahn period. Jeff knows his stuff and he knows exactly how to maneuver around and through the IRS. Jeff was relentless at breaking down the IRS and knows all the procedures and all the loopholes, you couldn’t have a better attorney in your corner than Jeff Kahn. His team in Walnut Creek are lightning fast at getting things done are extremely professional, understanding and very friendly . Jeff Kahn, save my company literally hundreds of thousands of dollars in unpaid taxes. I can’t thank Jeff enough he was absolutely amazing. Jeff Kahn has an excellent reputation here in Northern California and is well known for his ability to take on the IRS. I can’t think Jeff and his crew in Walnut Creek enough. Job well done guys.

Eric

THANK YOU SO MUCH.

I have the most gratitude and appreciation for the work Jeffrey did for me to resolve my tax matter. To get to this point of conclusion, I cannot express in words how much this case got me in distress. And now I’m “free man”….literally. I thank you so much.

Yishak

Great Service!

Jeffrey did exactly what he said he would do. He resolved my problem with the IRS quickly and to my complete satisfaction. I found him to be knowledgeable, experienced, and responsive.

Mike

Great Service!

I hired Mr. Kahn to help me with a tax issue that came about after I raised money on GoFundMe for a sick friend. The IRS sent a notice that I owed taxes on the funds collected because they considered the donations as income for me. Mr. Kahn helped me eliminate all taxes due.

Denise

Great Service!

I sincerely thank you for your very effective handling of this IRS issue that had beleaguered me for over 12 years. Having unsuccessfully attempted to have this matter resolved by other tax firms on 3 prior occasions, I now know the difference between mediocre and excellent tax law representation. And what a peace of mind it has brought me.

Al N.

I Am Now A Taxpayer In Good Standing!

I was very pleased when hearing back from the FTB and IRS. It made me feel that they accepted the voluntary disclosure and now consider me as a taxpayer in good standing. Thanks to your work.

Mike.

Request A Case Evaluation Or Tax Resolution Development Plan

Get a Tax Resolution Development Plan from us first before you attempt to deal with the IRS. There are several options for you to meet or connect with Board Certified Tax Attorney Jeffrey B. Kahn. Jeff will review your situation and go over your options and best strategy to resolve your tax problems. This is more than a mere consultation. You will get the strategy or plan to move forward to resolve your tax problems! Jeff’s office can set up a date and time that is convenient for you. By the end of your Tax Resolution Development Plan Session, if you desire to hire us to implement the strategy or plan, Jeff would quote you our fees and apply in full the session fee paid for the Tax Resolution Development Plan Session.

Types Of Initial Sessions:

Most Popular GoToMeeting Virtual Tax Development Resolution Plan Session
Maximum Duration: 60 minutes - Session
Fee: $350.00 (Credited if hired*)
Requires a computer, laptop, tablet or mobile device compatible with GoToMeeting. Please allow up to a 10-minute window following the appointment time for us to start the meeting. How secure is GoToMeeting? Your sessions are completely private and secure. All of GoToMeetings solutions feature end-to-end Secure Sockets Layer (SSL) and 128-bit Advanced Encryption Standard (AES) encryption. No unencrypted information is ever stored on our system.

Face Time or Standard Telephone Tax Development Resolution Plan Session
Maximum Duration: 60 minutes - Session
Fee: $350.00 (Credited if hired*)
Face Time requires an Apple device. Please allow up to a 10-minute window following the appointment time for us to get in contact with you. If you are located outside the U.S. please call us at the appointed time.

Standard Fee Face-To-Face Tax Development Resolution Plan Session
Maximum Duration: 60 minutes - Session
Fee: $600.00. (Credited if hired*)
Session is held at any of our offices or any other location you designate such as your financial adviser’s office or your accountant’s office, your place of business or your residence.

Jeff’s office can take your credit card information to charge the session fee which secures your session.

* The session fee is non-refundable and any allotted duration of time unused is not refunded; however, the full session fee will be applied as a credit toward future service if you choose to engage our firm.

YES - I WANT THE SESSION WITH JEFF.

Office Locations

EAST BAY
WALNUT CREEK OFFICE

1255 Treat Boulevard, Suite 300
Walnut Creek, CA 94597
Telephone: 925.979.9929

SAN FRANCISCO OFFICE

One Market Street, Suite 3600
San Francisco, CA 94105
Telephone: 415.543.4434

SILICON VALLEY
SAN JOSE OFFICE

2033 Gateway Place, Suite 500
San Jose, CA 95110
Telephone: 408.573.7377

ORANGE COUNTY
IRVINE OFFICE

38 Executive Park, Suite 260
Irvine, CA 92614
Telephone: 949.724.0007

SAN DIEGO COUNTY
CARLSBAD OFFICE

701 Palomar Airport Road, Suite 300
Carlsbad, CA 92011
Telephone: 619.237.0405

EAST LOS ANGELES
ONTARIO OFFICE

3200 East Guasti Road, Suite 100
Ontario, CA 91761
Telephone: 909.418.6800

SOUTH LOS ANGELES
LONG BEACH OFFICE

111 West Ocean Blvd., Suite 400
Long Beach, CA 90802
Telephone: 310.215.9800

CONTACT US

Tel: 866-494-6829
Contact Us

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A Brilliant Lawyer-Benefit from His Expertise!

Incredibly friendly and extremely knowledgeable

Jeff is awesome

Detailed and professional

Extremely Pleased

Jeff save my company hundreds of thousands of dollars

THANK YOU SO MUCH.

Great Service!

Great Service!

Great Service!

I Am Now A Taxpayer In Good Standing!

Request A Case Evaluation Or Tax Resolution Development Plan

Office Locations

EAST BAY WALNUT CREEK OFFICE

SAN FRANCISCO OFFICE

SILICON VALLEY SAN JOSE OFFICE

ORANGE COUNTY IRVINE OFFICE

SAN DIEGO COUNTY CARLSBAD OFFICE

EAST LOS ANGELES ONTARIO OFFICE

SOUTH LOS ANGELES LONG BEACH OFFICE

CONTACT US

EAST BAY
WALNUT CREEK OFFICE

SILICON VALLEY
SAN JOSE OFFICE

ORANGE COUNTY
IRVINE OFFICE

SAN DIEGO COUNTY
CARLSBAD OFFICE

EAST LOS ANGELES
ONTARIO OFFICE

SOUTH LOS ANGELES
LONG BEACH OFFICE