Worried about mistakes on tax returns? Don't! There are simple ways to correct it:
A superseding return has been updated or revised after the initial or extended due date. The revisions on a superseding return are considered part of your original return by the IRS. A qualified amended return is one that you file after the return's due date (including extensions) and before one of many occurrences. The most common of which is when the IRS notifies you about an examination of the return. You can avoid the 20 percent accuracy-related penalty if you file a qualified amended return. It's essential to have the ability to recognize errors before the IRS recognizing them. Then, when it comes to the IRS, if you make a mistake, correct it as soon as you realize it to avoid fines, penalties, interest, and the hassle of an IRS review of your return. If you see a problem with your return, please get in touch with us to start working on fixing it.
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The tax code can come back to harm you in the most unexpected ways. The nanny tax is an example of this.
Did your nanny or caregiver for an elderly relative move in with you during the pandemic? Do you have a live-in housekeeper in your household? You may have recruited someone to assist you during the difficult times brought on by the COVID-19 debacle. Perhaps it was only a temporary arrangement, or maybe it has become permanent. The dreaded nanny tax issue might come into play in either situation. The nanny tax refers to your obligation to withhold and deposit a household employee's and employer's portion on Social Security and Medicare taxes on wages received to the employee. Let's start by defining who qualifies as a home employee. Household employees, according to IRS Publication 926, Household Employer's Tax Guide, are those who work in households, such as as a nanny, caretaker, private nurse, babysitter, housekeeper, maid, driver, or butler. Only conduct services in or around your own home as part of your household work. A person is your employee if you control the "how" and the "what" of their job. So, if a person visits your home regularly and you manage their work, they are most likely an employee. It doesn't matter if the position is full-time or part-time or whether the employee hired through an agency. But, on the other hand, the worker is not your employee if the worker is supplied by an agency that controls what work is done and how it is done. Yard care workers, pool service people, maids, and others who provide services to the general public and come to your house regularly are not your employees. If you pay a household employee $2,300 or more during the year, you are subject to the FICA tax in 2021. The nanny tax requirements are complex, and adhering to them can be a time-consuming chore. Don't hesitate to contact me if you'd like to talk about the nanny tax. Here's a vehicle topic that may intrigue you.
The IRS examined DJ's 2018 tax return, which is now in appeals. The vehicle in question is an SUV that weighs 5,700 pounds curb weight and 6,100 pounds gross vehicle weight.
Because his SUV is based on a car chassis, the IRS lawyer processing his appeal tells DJ that he must utilize curb weight. DJ is entitled to the $55,000 deduction. However, because the law permits it, the IRS lawyers are mistaken. The SUV must avoid the luxury vehicle depreciation limits on deductions (or Section 179 expensing) to qualify for bonus depreciation. It does so by the following facts:
An SUV, regardless of chassis, can qualify as a truck under DOT guidelines. For more information or questions regarding bonus depreciation or Section 179, Please don't hesitate to contact me. When purchasing commercial or investment real estate, such as an apartment building, you often pay a single flat amount for the land, buildings, and other upgrades. Therefore, there is no breakdown of costs.
Land does not depreciate because it does not wear out. As a result, the land is worthless in terms of depreciation. What you'll need is a system for allocating that lump cash to land, buildings, improvements, and equipment. The property owner must first make a factual determination when allocating costs to land and structures for tax purposes. The IRS offers no guidance on how to distribute land and building values. It simply states: "To calculate the foundation for depreciation of the buildings, divide the cost between the land and the buildings. The proportion of the total cost that you allocate to each asset is the ratio of that asset's fair market value to the total cost of the property at the time you buy it." This allocation is applied in various ways since you are not obligated to employ any specific method—just one that is appropriate. If you have any questions regarding cost allocation or any other tax concerns, contact us. Cryptocurrencies have become widely accepted. Bitcoin is used to purchase far more than you might expect. Google "What can I buy with bitcoin? To find out. There will be about 880,000 hits, because you can almost purchase anything with virtual currency.
However, there are federal income tax ramifications to using cryptocurrency that may surprise you. Cryptocurrencies are a prevalent issue for the IRS. Bitcoin and other cryptocurrencies have become more widely accepted as forms of payment, and the taxing authority wants to cash in on it as well, making it a prevalent issue. The 2020 Form 1040 (the form you recently filed or will soon file) asks if you received, sold, sent, swapped, or otherwise acquired any financial interest in any virtual currency at any point during the year. If you did, you must select the "Yes" option. The IRS is rampant about enforcing compliance with the applicable tax rules, as evidenced by the fact that this question is on page 1 of Form 1040, directly below the lines for providing taxpayer information such as your name and address. Just a heads up! Virtual currency transactions for which you should check the "Yes" box, according to the 2020 Form 1040 guidelines, include but are not limited to:
To determine how much tax you will from a cryptocurrency transaction is to compute the cryptocurrency's fair market value (FMV), measured in US dollars, on the day you get it, and the date you use it to pay anything. You must register taxable gain or loss when you trade bitcoin for other property, such as US dollars, another cryptocurrency, services, or anything else, just as you would when selling stock in your brokerage account that is subject to tax.
Based on how long you had the cryptocurrency before using it in a transaction, the taxable gain or loss from exchanging will be a short or long-term capital gain or loss. Suppose you spend one bitcoin on tax-deductible materials for your business. Bitcoins are worth $61,000 each on the day of acquisition. So you have a $61,000 business deduction. However, another aspect of this transaction is the tax gain or loss from keeping bitcoin and then using it. Suppose you purchased that bitcoin for $31,000 in May of the current year, then you would have realized a gain of $30,000. Since you did not hold the bitcoin for more than a year, the 30,000 gain is a short-term capital gain. Detailed records are essential for compliance. It would be best if you keep the following documents:
If you have questions concerning cryptocurrency, don't hesitate to contact us. |
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances. AuthorKeana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients. |