Mar 08, 2021
The growing popularity of cryptocurrency has resulted in the IRS including a new question on the 1040 Form which asks: “At any time in 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” This left many confused as to whether purchasing cryptocurrency via the US dollar would require them to check ‘yes’. For some taxpayers there was also the concern over being taxed on their crypto assets if they checked ‘yes’ or on the flip side, being penalized for falsified reporting if they marked ‘no’.
Earlier this week, the US Internal Revenue Service issued updates to its Frequently Asked Questions (FAQs) page providing clarity around cryptocurrency indicating that buying and holding of such virtual currency, if purchased with real government-issued money, does NOT need to be reported on a 1040 Form.
It should be noted, this new ruling only applies to cryptocurrency purchased with Fiat money (or fiat currency) which is a currency a government has declared to be legal tender. If you purchase cryptocurrency using other virtual currency, you are required to check ‘yes’ which may trigger a taxable event.
Should you have questions regarding your cryptocurrency tax liability, please connect with one of William Vaughan Company’s tax advisors today.
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Categories: Tax Compliance
Jan 26, 2021
As many small businesses are already preparing for complex accounting issues as a result of COVID-19 relief funds from the 2020 CARES Act, the IRS announced their intent to increase audits by 50%.
These audits and their repercussions could be targeted at businesses that have historically been overlooked including family-owned operations, online businesses created as a result of the pandemic, and investment funds.
De Lon Harris, the IRS deputy commissioner of examination for small businesses, recently noted, “[we] are focusing our efforts to increase compliance activity in this area of not only partnerships but also investor returns related to pass-throughs.”
The IRS can audit returns up to 3 years old, and if significant problems are found, are able to look further into past filings. With new audit procedures passed by Congress in 2015, the IRS is able to collect any underpaid taxes directly from the partnership instead of tracking down each investor. The agency is placing 50 new specialized auditors on these cases beginning in February in order to meet the projected increase.
Here are a few tips to prepare you and your business for the possibility of an audit:
- Maintain clear records – Accurate and adequate documentation makes an auditor’s job easier and may reduce the chance of further inquiry.
- Make estimated tax payments – Businesses expecting to owe more than $500 should be making quarterly payments. Failure to do so can increase your chance of being audited.
- Impact of the Bipartisan Budget Act of 2015 (BBA) – Review of businesses’ formation documents, elections, and governing documents will help to determine if you will be subject to the Centralized Partnership Audit Regime and how it will impact your business.
- Enlist the experts – Seek guidance from a CPA to ensure your returns are filed timely and accurately, to help you determine if estimated payments are needed, and to resolve possible red flags due to questionable reporting.
Should you have questions about your specific situation, please contact your William Vaughan Company advisor or reach out to our contributor, Juli Seiwert in our firm’s audit department.
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Juli Seiwert, CPA
Audit Senior Manager, William Vaughan Company
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