Thursday, 29 December 2022

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Tax Answers Advisor Transcript

Marcelino: Welcome to The Tax Answers Advisor. I am Marcelino Dodge, Enrolled Agent. So happy to have you joining us today, we have interesting quote from an unknown source. “A person doesn’t know how much he has to be thankful for, until he has to pay taxes on it.” Isn’t that so true? When we pay taxes on it, then all of a sudden we do become thankful for it. Also, sometimes we do complain too.

I do want to give a big shout out and thanks to all those listening to this podcast around the world, not just course here in the United States but like in China, Germany, Canada, Ireland and the Netherlands really appreciate you taking the time to listen to this program and get this information that’s so valuable. On the US taxes to help you to do even better on your tax return and of course the many, many areas that I talk about and how we assist you, not just with income tax, but with the overall financial success by taking a look at key indicators for you, please, please feel free to give me a call 844-394-4287.

Or of course you can visit my website which is Cash Tracks Financial, or email me, it’s success@cashtracksfinancial.com. You can also find us on Facebook. Well it’s been quite a week already. The President signed the COVID-19 Relief Bill, which we’ve heard a lot of information about it but perhaps a lot of areas have been ignored about it, we’re going to go ahead and discuss these items today. Before we get into why it is so important to be very careful on who you choose as your tax professional.

Yes, that is a vital need as we’re going preparing to go into the tax season we’re especially this year it’s going to be challenging, with all of the different items that are up, especially the items I’m going to bring out today that you really need a professional for to be able to help you out. Now notice here, the big item of course that is talked about is the recovery rebate credits that individuals are going to get $600 per individual $1200 for a married couple, and plus $600 per qualifying child and those phase out and higher incomes, just like the economic income payments did earlier this year.

Now also, since the tax returns for 2020 haven’t been filed yet, these payouts will be based on the 2019 tax returns, just as the initial payments were. Another part of this bill, back on the recovery rebate payments. Some of those are actually starting to already show up if you had direct deposit set up and you received the first set via direct deposit. Some people from what I’ve heard reports are already starting to have them are getting notices from their banks and if they didn’t get them today they may be showing up within the next few days. So certainly, that’s going to be a big help to a lot of people. Another area that’s going to be a big help to some are the unemployment benefits, there’s been that extension of $300 per week. That is going to continue beginning retroactively back to December 26th. And that’s going to be extended all the way up to March 14th.

Let’s have a good benefit for those who are in need of those extra unemployment benefits because of government shutdowns and being mandated for certain businesses to close or was it been laid off. So for those people who it’s going to be a very nice benefit as well. We also consider that back in August, the President signed an order that allowed for deferment of payroll taxes, but withholding, what would normally be withheld from an employee’s paycheck.

Well, what we need to keep in mind or we need to think about now is that those were originally to be repaid beginning between January and March of 2021. But now with this bill, that extension has been deferred until December 31st of 2021 for those payments of those deferred payroll taxes to be made, so that’s helps employees out for the few that are taken advantage of that. Personally, I didn’t recommend any of my employers do that because it could have ended up being a bigger hassle or in some cases actually end up being more of a withholding issue for the employer.

And the employees could be causing more problems down the road. So I actually did not recommend any employers do this deferment with their employees, and so it. I don’t know how popular it was but the tax professionals I have spoken with, many of them have not taken advantage or recommend this to their employees, well because of the potential issues that could have arise out of but, for those who did once again the repayment is extended until December 31st 2021.

Now, the Educator Expense Deduction which many educators take sometimes you got a teacher, or other professional, teaching professional on a tax return maybe there’s two, sometimes with limited 250 per year it’s above the line deduction. Now for this year, they did go ahead and include expenses that teachers would have had to buy PPE, the personal protective equipment, or perhaps other supplies that were used in prevention of the spread of the COVID 19.

All of these items as a result of this bill are now eligible expenses for teachers to claim the educator expense deduction on their tax return this year. So that’s a very nice reason, the very important educators, the made the roles that they play in educating the children, they work very hard, and to give them this eligibility for some for them to get these deductions for getting the personal protective equipment, which many, many I’m sure did, that’s a very good option that they had and very good that they’re able to take those for those. Now, a big, big area, which affects many of the employers I work with, and many businesses I look forward to working with is on the PPP loans. Now, some and many businesses that I work with, and I’m sure there are several around the country, that have already applied for forgiveness of their PPP loans, and in many cases, and I’ve seen that come through for the majority of my employers that I work with, is that the banks have received the notice and have notified their employers that the PPP loan has been forgiven.

Now a big area that had previously existed in the prior law is that with the forgiven PPP loan, is that you wouldn’t be able to deduct those expenses that were paid with a PPP loan. Now, what is nice is that there’s been some clarification with this bill in regards to forgiving PPP loans is now if you paid expenses, whatever expenses you pay, and of course, that could be payroll. And in some cases, even some non-payroll items, which depending on employer, you may have done as long as you met the 60% threshold, you could deduct, you could get the PPP loan forgiven.

Now, this has been clarified that the expenses paid by the PPP loan are now allowed deductions. And the bonus on this as well is that of course if your PPP loan is forgiven, that’s also is not income to the employer. So it’s been a very, very nice provision. Good clarification we got for PPP loans. Also, some non-payroll costs were also added for definitions within the PPP loan. Some of these non-payroll costs now include items such as computer costs, inventory, personal protective equipment, and it goes a little bit on and on and on there.

So some additional items that can be used for claiming on PPP loans. Another significant development with this, on the PPP loans, which is good for employers, is that again, previously to this law, is that if you received a PPP loan, you are not eligible to take the Employee Retention Credit that has now been changed and updated. So that if you received a PPP loan, you may now also qualify for the employee retention credit.

Now there is some specifics in with that, that would be needed to be clarified and used. But just for purposes here, you can indeed now claim that credit which is an area that we can help ones to go ahead and take advantage of once we look at your particular situation, we can help to determine that information for you. Also, as we can appreciate that the idle grants or idle advances that were given when you went on to The SBA website, and you fill out the information.

And you would get up to a $10,000 like advance or a grant from SBA based on the number of employees up to 10. So if you had two employees, you got 2000 or five employees, you got 5000. Now, significant development on that, also through this bill is the fact that idle grants, which previously prior to this bill, the idle grant you got was considered taxable income. Now, they have a change that so quickly, as we see movement happens, these idle grants are not taxable income to the business now. So when we go to complete the tax returns, we’ll have an idle grant perhaps in there, but that has to be separated out from other income.

In fact, I got lines on the sheets that I do, the profit and loss statements I do for various businesses, that actually has the idle grant separate anyway, I just did them that way. So I knew exactly what that grant was, where that grant, when it came in. I wasn’t anticipating that they would make it non-taxable, but I just did that anyway, just make sure that it is easy to find and easy to make that adjustment.

Now also with these idle or economic income disaster loan advances, prior to this legislation, these particular advances were going to reduce the amount of PPP loan forgiveness you got, for example, consider if you under just prior to this, if you had, for example, like a $55,000 PPP loan, but you also received a $10,000 idle grant. Well, what would happen or what is happening or what was happening prior to this law, is that you’d apply for your PPP loan forgiveness, you had a PPP loan of 55,000.

But because you got the 10,000 grant, you would only get $45,000 of that forgiven. But what we appreciate is that this law changed that. So now, essentially, you had a $55,000 PPP loan, that whole loan can now be forgiven, well will be forgiven. Based on this legislation from this act. Now what we think about is banks are waiting for how this is actually going to go down. But yet, for employers who have applied for forgiveness on these loans, they’re good.

Now this legislation has really made that a lot easier. Now we think about it too, if you are going to end up paying back say, say that 10,000 in the example I had given, you didn’t even actually even have to start making payments to like September of 2021. So there was quite period in there. But at least they did something right and getting this taken care of, we really do think that was a very smart move on their part.

And interesting part on this that might didn’t anticipate in this is that business meals, which normally and forever, as long as I’ve been doing taxes have been 50% deductible. Now, business meals will be 100% deductible for tax years, 2021 and 2022. That’s your business-related meals that you buy for clients, taking them out for a meal 100% deductible now, that is going into 2021. That’s a very interesting development. I don’t know what to think about that.

That’s just the change that from 50%, which benefits so many and actually eliminate some calculations that I normally have to do every year. It’s very interesting, but we’re gonna really appreciate that. Also, we consider in the original legislation, back in the spring, there was an above the line $300 deduction for charitable contributions, that is cash, charitable contributions, a $300 above the line deduction. Now, when that was first put through, that deduction was limited to $300 per tax return. Now, if you have a couple that is married filing jointly, that is increased to $600 for married couples.

So if you have the means and you can make a donation before the end of the year, this is the 30th get something donated out so you get your whole $600 deduction. Also, what we have here is going back to what was, had been the law for years until tax cut and Jobs Act came out toward the end of 2017. This is basically reverting back permanently on unreimbursed medical expenses that you pay out of pocket.

There’s the 7.5% limitation has now permanently extended for those who are able to claim, medical expenses, as well, and then be able to itemize on their tax return so 7.5% limitation is now permanent. If you have had flexible spending accounts at your place of work, which many places have these you are now if you’ve been doing it for dependents, or for health, a flexible spending account, you are now allowed to roll those balances in anything that’s left over from 2020 into 2021.

That is a unique provision hadn’t seen usually there had been kind of a little period you can go into the next year that allowed you to do that. And they’ve had that like that 30 or 60-day period for several years. But now you can roll them all in just roll them into 2021. So that was a very interesting provision, something that I certainly wasn’t thinking about and anticipating but it is there for those that have flexible spending accounts.

We’re going to cover just a little bit more on these updates on this COVID-19 bill here we got just a few more to cover but we will do so when we return in just a couple minutes here. This is Marcelino Dodge, The Tax Answers Advisor on the Voice America Business Channel.

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Many people want to build wealth or grow their business faster, save time and build a nest egg? Hire a tax pro who makes you money and does more than just file your tax return. Marcelino Dodge, Cash Tracks Financial identifies your key numbers works, year-round to improve your numbers, keeps you compliant and helps you achieve goals faster. Call Marcelino Dodge today 719-336-8739 to schedule your free tax strategy review. Call 719-336-8739 or visit cashtracksfinancial.com.

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This is The Tax Answers Advisor with host, Marcelino Dodge. To reach our program today, please call in the number is 1-866-472-5790. That’s 1-866-472-5790. You may also send an email to success@cashtracksfinancial.com. Now, back to The Tax Answers Advisor.

Marcelino: Welcome back to The Tax Answers Advisor. This is Marcelino Dodge, Enrolled Agent. I appreciate you listening to this program today as we are going to get here in a little bit to the topic of the day which is, “Why it is so important to carefully choose who prepares your tax return.” Been discussing for the early part of the show here about the recently passed Care’s Act Legislation that created a lot of challenges but yet, also a lot of good tax area came out of it there.

And as we mentioned before the break, I have just a few more of these and I’m going to cover in particular that I think’s the most relevant now the last one I’m going to mention actually is going to be an interesting idea that the lawmakers had when they did this. Is that if you’re a lower income tax payer, and you’ve been claiming the earned income tax credit the last few years, there’s an election you can make to actually use the income from 2019 to calculate the 2020 amount for the earned income tax credit that you will receive, it’s going to be interesting how this is actually done and calculated.

I’ll have to really look at the software carefully to see how we’re going to do this and how this calculation works, and of course, the IRS instructions as well to see how this is going to be done. But certainly, we’re going to look forward to all of these changes. And how many of these well, pretty much all of these benefit my employers very well, and benefit you very well. And we want to of course, help you through this murky water to be able to develop a good plan for you as we go into 2021 and beyond.

Now, I’m going to take, start taking a look at and consider some ideas, why it’s so important you need to be wise in choosing a tax preparer or who’s going to do your taxes. Because we as we think about and we look, there’s a lot of people and there’s a lot of dealing with identity theft out there. And whenever you do tax return that really opens up and exposes all of your information. We’re talking social security numbers, we’re talking about birthdays, we’re talking income, there’s a large amount of information, private personal information that is shared, or that is required to file a tax return.

And when you just use any person off of the street that says, Oh, I can do that tax return or I can do your tax return whatever. Are they really a professional? In many cases, this individual is not a professional. They’re just someone looking to make a quick buck, charging you maybe $25 or $50 or whatever to do it. And in many cases, the individuals who do this type of work, they’re not using a professional kind of tax software. They’re using some type of Do-it-Yourself software.

And what they’re doing is they’re just typing in the information, typing in answers to questions, and they’re totally trusting the software. Many times these individuals who do it for these such low prices really do not understand what the tax law is, or understand whether the information that they enter into the software goes into the right place. Because their thinking is the software must know how to do it.

The software is going to put it in the right place for me. So, with that kind of thinking, it’s not wise to use someone who’s going to do that because you just want to get it done cheaply, you’re better off. I mean, if you’re going to do that you’re better off just doing it yourself, frankly. So it’s very wise to think about this. Now, always remember that old adage, you get what you pay for. And certainly, if someone is quoting you a low, a very low price to do your tax return it’s usually comes back to that.

You get what you pay for, as well as there’s a few other points I’m gonna hit as I go through this. Why it is important to be wise when you select it? Because another big is you get that IRS letter a few months down the road in regards to that tax return. What are you going to do? Mister person down the street who did your tax return for $25 or 50 bucks. They’re going to be there to help you to answer that notice or to reply to that notice? Probably not.

Because, the way that tax return was probably submitted to the IRS is going to say self-prepared on it. That’s what I see when I see these 99% of the time because that individual did not follow the law. So, what we need to do look at when we go in to how we’re going to select a tax preparer? Who are we going to use? Oftentimes we speak to good friends, good family, and try to give an idea of who to use or particularly if we’re in a certain area or in a certain place. We try to always pick someone.

We try to use someone who we know, or someone who knows somebody that we knows. That way we can normally have someone that is good, and it’s good. I mean, you trusted friends and family can often provide a good little idea of who to use and they probably establish a relationship. And so that can be a good source to be able to do it. But yet also sometimes what we need to stop and look at is the fact of what are the qualifications of this tax preparer?

What kind of training do they have? How long have they been in the business? What perhaps licenses or designations that they have? Many times people will say, Oh, you need to go to a CPA, which is very widely recognized their state license individuals, and many of them in fact, most of them are going to say do a fantastic job. Now, the only the challenge with a CPA sometimes is not all of them specialize in taxes. Many of them do tax but there’s also a keep in mind with CPAs. There’s a lot of different types of work that CPAs do in related to accounting, and not all of it is tax.

So it’s good to really know if the CPA if you’re going to use a CPA, what do they do? They do a lot of tax. And so it’s always just good questions to ask. And sometimes there’s Tax Attorneys, also licensed by the states who I don’t know how much tax returns a tax attorney does, some may do several, some it just varies. So, many times tax attorneys are involved mostly in other legal matters regarding tax. Now, another highly recommended area that I say, you need to really look at is an individual who is an enrolled agent or an EA like myself.

Now what is the difference between an enrolled agent, and say a CPA, or a tax attorney? Well, the difference one of the big difference is, is the fact that an EA is actually licensed by the Internal Revenue Service to do a federal tax return. Now, the other part too, is that my specialty is actually taxes. That’s what I focus on more so than accounting work is I focus on the tax return, getting the best tax return for individuals, that they pay the least amount of tax, making good tax planning, tips, and preparation, helping them to maximize what they’re going to get back.

And so as a enrolled agent, and also think about this tax attorneys, and CPAs as well, all three of these professional areas, have continuing education requirements, which means that we have to get a certain amount of professional education each year from Professional Education Agencies that provide that are approved by the IRS to provide education to help us to get updates on taxes and tax law.

And be able to also have ethics, we’re required to have a certain amount of ethics as well so that basically, we do it right. And we just don’t pawn it off or do anything but we do the tax return correctly. And so this is very important to consider. What are the qualifications of the individual that you’re looking to have your tax returns? What designations do they have? There is also an area that’s called an AFSP, Annual Filings Season Program that the IRS does offer and they don’t charge for but you can go in and get that designation which there are certain tests and you still continuing education requirements.

The test and you have to take a test with that each year. Now, keep in mind that if that’s CPAs, Tax Attorneys and Enrolled Agents like myself, we had to take tests initially to get our designations. Like when I took the test, originally back in 2005, there were four tests that I had to do over a two-day period. And I had to pass all four of those exams to even qualify to get the earn Enrolled Agent designation, as well as passing a background check.

So it’s pretty extensive, what individuals who get these designations have and they’re really the right individuals to go to and so what kind of histories we think about as a preparer have is well something you need to think about and looking for prepared do your, to do your tax return. How long have they been in the business? Do they have any complaints against them? There’s places on the IRS website where you can go look for this prepare perhaps that disciplinary actions against them, and they list CPAs, tax attorneys, Enrolled Agents and AFSPs on these, on the IRS website to do this.

So that you have to once again be able to look and see, and make a good choice. When you try to do the tax return, have someone to do your tax return. Now a big pet peeve that I have with tax preparers or people who claim to be tax preparers, is by law, if you are paid to prepare a tax return. On the 1040, there’s a spot that says for paid preparer use. If that is done on, do-it-yourself software it says self-prepared there, and it says self-prepared there. Even if you paid someone like 25 or 50 bucks to do it. And they send it in on that software.

Then, then you’re stuck, you may have paid somebody but they, their information there. I myself as an enrolled agent I constantly always, whenever I prepare a tax return, be it an individual tax return, or a business style tax return. It is always has my name, Cash Tracks Financial Inc. their, address, it has my name as prepare on there, of course, my business number all of that information is on that part of the tax return in order to be transmitted to the IRS.

Now a key person if they’re a legitimate tax return preparer, they’ll have what’s considered in our business or what’s known in our business as a P10, or a prepare tax identification number, which, if you are being paid to prepare a tax return. You are required to have one of these ID numbers, it’s a PT and number, and you are listed on the tax return. Now, due to identity theft and areas we’re now allowed to mask portions of those out on the tax return for our protection as tax preparers, but yet the tax preparer needs to have that, and they need to use that information needs to be on a tax return that is sent and transmitted to the IRS.

When we look for a tax preparer oftentimes we want to know what kind of service fees that they have and it’s good to ask how do they do their fees, is it perform or is it hourly? Now, you got to watch out for various unscrupulous tax return preparers, especially ones that, well, you get a certain, we get a certain percentage of whatever your refund is so if you get a $5,000 refund we get like, 10%, really that’s not allowed. And you shouldn’t.

There shouldn’t be a fee for that or at least not a fee based on a percentage of the refund that you get that they get for you because that only incentivizes them to get you the highest refund possible. That may not even be legal.

So if you run into someone who says, it’s a percentage of the refund is our fee you run the other way and you run away fast, and you do not look back. But I want to caution one’s on to is a lot of times you’ll see these places advertising do your taxes and buy your car. Now I don’t know anything about the tax preparers at those places.

But I think that’s pretty, pretty, cost, not wise to do better off going to someone like myself who has their own office separate from a car dealership or whatever, so that there’s the only goal is to get it done right. Then to get your refund within the time period that the IRS does get it done. Now this is going to fit in with a few other items I’m going to come up with here in just a couple moments, because one thing is that when you use a prepare. Do they e-file?

Yes, do the e-file because once again if you do 10 or more tax returns, you’re required to e-file unless you’re there’s certain exceptions allowed in there but in general, do they e-file. And if they don’t e-file it, then they’re potentially in violation of the law. Now once again, if once we’re using Do-It-Yourself software usually it does e-file, but yet even at that I’ve had cases where all they said it was e-filed but then the person for whatever reason, down the road realize, you know, I never got my refund.

And then we come out, find out months later that the return was never transmitted to the IRS, because they didn’t actually get the acknowledgement because when I send out a tax return to the IRS I transmitted out of my software through the internet to the IRS. Within minutes, now used to take like overnight but usually now within minutes. I have some type of response from the IRS saying, this red tax return looks good.

Here’s acknowledgement showing that we received it which essentially a receipt that I have that the IRS has this tax return in their system. Do the individuals do this, that’s something that you have to that. I always encourage ones to ask and to check. Do they e-file? Where do they originate? Are they originating it from them or how are they basically, how are they doing? How are they e-filing it? And then also, as you’re selecting preparer, you want to ask them.

You’re going to do my tax return, where are my copies gonna be? My copies of the tax return? Now, as tax professionals, we are required to provide you with a copy of the tax return, that tax return can be either a paper copy, or it can be an electronic copy. My office right now, we actually provide both individuals, will provide you a paper copy, and we provide you with electronic copy through our portal, which makes it really easy for you to be able to have copies for institutions that may require a copy of your tax return.

So again, it’s important to know that because so many times people have had someone do their tax return, then it turns out, they need a copy of their tax return. And guess what, they never got a copy for who knows what reason, all they have are their tax documents, or W-2’s or the 1099’s. So it’s important that you be able to do that as well, as you keep in mind is that even when I provide copies to individuals, they have some need come down later on down the road, to have it or to need it and anymore, pretty much what we do is that if you have it available on our web portal, we make that available for you there and you can download it and print however many copies you need, for whatever purpose you need there to be able to do it.

So we always have a copy available. So we are there. I take care of you very, very strongly in that. Now we got just a few more of these important points to consider when selecting a tax preparer. So I’m gonna go ahead come back and discuss those a little bit more, and have some other thoughts about reminding of how Cash Tracks Financial, how I do the best job I can for you, and why we do what we do. So we’re going to return in just a couple minutes, discuss a little bit more. This is Marcelino Dodge on The Tax Answers Advisor on The Voice America Business Channel.

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Many people want to build wealth or grow their business faster, but do not know what specific numbers to look at that actually help build monthly cash flow. Hire a tax pro who makes you money and does more than just file your tax return. Marcelino Dodge at Cash Tracks Financial identifies your key numbers, works year-round to improve your numbers, keeps you compliant and helps you achieve goals faster. Schedule your free tax strategy review by calling, 719-336-8739 or visit cashtracksfinancial.com.

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This is The Tax Answers Advisor with host, Marcelino Dodge. To reach our program today, please call in the number is 1-866-472-5790. That’s 1-866-472-5790. You may also send an email to success@cashtracksfinancial.com. Now, back to The Tax Answers Advisor.

Marcelino: Welcome back to The Tax Answers Advisor. I’m Marcelino Dodge, appreciate you listening in today to the importance of being wise and when selecting a tax preparer. They talked about the importance of looking at what’s the qualifications of the individual? Are they a CPA, a Tax Attorney, an Enrolled Agent or an AFSP Annual Filing Season Program? What kind of history do they have? Are they signing the tax return?

Do they have the proper credentials with the IRS? The P10? How do they charge their fees? All of these excellent to consider are they e-filing, then of course, you’re paying someone to do your tax return? Are they giving you proper paper copies? Or perhaps a good electronic copy can be on a CD, can be honest, or soft storage portal, like what we use. So these are some very important considerations to take in mind.

Now a few others just to touch base here to remind us that to think about this question, is the preparer available year around? Many times, on one select a tax preparer for someone is going to do their taxes. All they’re thinking about is I got to do this tax return, I need to have this done by April 15th. They’re not even considering or not even thinking about if they get one of those notices from the IRS which can show up randomly or if for some reason.

You may have unreported income or maybe you forgot to document like a 1099 or if you took money out of a retirement plan, all of these are items which can cause notices from the IRS. Or if you’re in business, and you’re having a really good business which I have some individuals who’ve have even through the COVID-19 this year have had some very good business going on. And you need some advice, or you need to talk to your preparer, or you have one to ask about something. Is this preparer, is this person going to be available year round?

Or is it just something that is seasonal, are they’re just from January through April. That is absolutely vital to keep in mind, because like our goal here as we work with individuals and with businesses is to be available year around to help you to be able to plan properly for your taxes, and to be available so that if you have a major life change. Like, as we go into 2021, you get a new job, or you have unemployment, you’re getting unemployment for the first time, what should you do?

You leave your employer and you have a retirement plan with that employer 401k. And you’re going and you’re thinking. Should I just cash this out? What should I do? By having a year round tax person, like Cash Tracks Financial here, have myself Marcelino Dodge working with you, we can help you to make those wise choices, explain to you what the tax consequences will be of making certain moves. Especially one of the biggest mistakes I see people make.

And why it’s important to have someone available that’s year-round, is if you do leave a job and you have a large amount 50, $100,000 or more in like a 401k. And you cash that baby out, you take the money and run, so to speak, you could be paying a much higher tax bracket than you really need to be in I mean, you could jump up into 22, 24 or 32% tax bracket just for the one year and pay 1000s of dollars more in tax than you need to at the federal level.

And then as well as depending on your state might be at the state level as well as. Not to mention, if there’s a 10% tax penalty involved there. That’s one example of why it’s absolutely essential. If you’re going to choose a tax preparer, you need to have one that is available, year-round. One that you can call and talk to about such items. So that is also very essential in helping you to select a tax preparer. As you look at certain items, and think about also in selecting a tax prepare. Are they asking for your records, or your receipts?

That’s a standard policy, when we talk to ones we want to know what kind of records you have? What kind of receipts do you have for these deductions that you’re going to claim on your tax return? Because, I always essentially look at this because I’m gonna put my name on that, I want to may know that the numbers that you’re putting on there are right. And so I do want to review your records, I do want to review your receipts, I want to know that I’m putting my signature because I have penalties that I could pay for putting wrong information on a tax return not that’s in addition to anything that you as a taxpayer may pay.

So it’s vital that I get that information. And so a tax preparer should ask for this type of information. Now, when people come in, of course, they sign a lot of different forms and they come into my office or we sign them online electronically, whatever the case may be, is that they’re usually items like an Engagement Letter, maybe other Disclosure Letters, but one area that a person never ever signs and you should never ever sign for prepare is a blank tax form.

Yes, never ever do that. If a tax preparer ever asked you to sign a form 1040 or a form 8879 or any other form that requires a signature, but it’s blank. Never sign that. That’s another one of situations, if that preparer asks you to do that you run and go find someone else who will not ask you to do such questionable actions because their action and even asking you to do that is something that is questionable.

And then a last little area is that if you do encounter a situation where there is an abusive preparer. Someone who you find out who is doing stuff wrong. There’s actually a method to report such preparers to the IRS and that is that can be very bad for to preparer. But it can also be very bad for individuals that preparer has done tax returns for. There are numerous instances when the IRS has gone in and they’ve gotten some complaints about it preparer who did some reporting, such as incoming inflating, inflating the amount of expenses on tax return.

And what they decided to do, well, let’s see this tax return is off and it was prepared by this person. Let’s go ahead and look at more returns at this tax that this tax preparer did and they can do that because through the P10 they can pick up and look and see to this tax preparer do this one Oh good. Look at this tax return right here is this information, correct? Well, if it isn’t, guess what?

That tax preparer can get a penalty as well as you as a taxpayer, even though he did what he did. You’re ultimately responsible as a tax payer for what was put on that return. So thus having the correct information using the correct preparer can avoid 1000s of dollars in penalties for you as an individual. That’s where it comes in to you as a tax payer to carefully select someone to do your tax return who will do it right and will not be abusive. And will do things according to the law all the way down the line. So yes, it is vital.

As we look going into January, people are going to start looking to be able to do their tax returns. Who are you going to go to? These are some excellent suggestions of what you can do and how you can help to select one, and we consider as I work together with individuals finding intelligent solutions being available year-round. Being an enrolled agent with the IRS to help you to do it. Now, an important matter is that an Attorney, a CPA, or an Enrolled Agent, are all able to represent you before the IRS?

That’s important consideration of whoever you do your tax returns. That’s why it’s vital to use, at least in my opinion, one of the three either an Attorney, a CPA, or an Enrolled Agent like myself because we can represent you before the IRS in various matters, related to tax, and even help with the appeals as well. Now there are areas, of course, the idea is, if it’s done right in the first place, and you’re very timely, then we avoid all those situations in the first place.

Which is why when I work with individuals through our Intelligent Solutions Program, we find solutions for you based on goals that we establish together, sit down in a meeting, we have a meeting here, over the Internet, I get to know you, get to know me, we gather these key indicators. We gather and analyze data, on personal finances, on business finances, we put all that together, we come to an action plan, the items, whatever items you have that need to be addressed, we prioritize those items, we start at the top.

And we work that way down. And as we work through those items, we’re also working with you to get all of your compliance needs done. It could be individuals or individual tax returns, we’re talking businesses, we’re talking corporate tax return, your partnership tax return, and also include as we do your payroll getting all your payroll tax returns, all of that is covered through one simple monthly fee.

Now, depending on how much maybe accounting work we do, will also affect what the fee is but yet, we help you to get all of that in getting all wrapped up very neat. So that you can have the best possible solution for you and to be able to reach and see what exactly what you need to do. Yes, all you have to do to learn about these programs to set up an exploratory meeting, a free mutual exploration session, be happy to do it, like say online through our online conferencing system.

We can do that exploration system, you can visit cashtracksfinancial.com, you can email me it’s success@cashtracksfinancial.com. You can give me a call, 844-394-4287 be happy to have that no cost, no obligation, exploratory mutual exploration meeting so that we can get to know each other. Certainly really appreciate all today, as we look forward to next week, can have a slight change on The Tax Answers Advisor as we’re going to move this live broadcast from our current time to Thursday mornings at 9am Pacific.

So we’re going to look forward to speaking to you all then on next week, and also next week we’re going to start our 14th show. It doesn’t seem like much because this is our 13th show been really great and exciting. Next week we start number 14, going to start a very well as we look at deductions that you can take for 2020 after January 1st 2021. I can already kind of get gathered you’re like thinking what?

Yeah, there are some deductions that we can still backdate so to speak and be able to take them for 2021. Let me take it for 2020.So you’re thinking about that we’ll look forward to talking to you all again next week. That’ll be on Thursday 9am Pacific and I really appreciate and I thank you for listening to The Tax Answers Advisor. Again I’m Marcelino Dodge, Enrolled Agent on The Voice America Business Channel.

Thank you for listening to the tax answers advisor with host Marcelino dodge. We’ll be back again next Wednesday at 6pm Eastern Time and 3pm pacific time on The Voice America business channel. We’ll have more to share next week.

Cash Tracks Financial Inc.
117 W Beech St
Lamar, CO 81052
Office:(719) 336-8739
Toll Free: (844) 394-4287
Fax: (719) 336-8799
Email: success@cashtracksfinancial.com

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When you need a financial or tax advisor, tax prep, insurance, or business guidance contact Cash Tracks Financial Inc., serving Lamar Colorado.

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Thursday, 22 December 2022

Taxes In The Internet Economy From Cash Tracks Financial Inc

Taxes On The Internet Impact of E-Commerce and Virtual Currency

Get information about Internet Taxes from Marcelino Dodge at Cash Tracks Financial Inc

Is My Internet Business Taxable?

The Tax Answers Advisor Transcript

12/23/2021
Marcelino:
Hello, hello, I hope you’re having a wonderful day today. This is The Tax Answers Advisor with Marcelino Dodge, enrolled agent on show number 52. Having a great ride here sharing this valuable, valuable information with you all, certainly appreciate having a worldwide audience throughout the United States, Canada, across Europe and Asia as well. It’s interesting that so many would be interested in about guess what United States tax returns for both individuals and businesses and how it can how you can use the law to pay as little tax as possible. Yes, we do have this across like areas like I Heart Radio and Apple podcasts. So you can find us on a variety of platforms. We broadcast this live now across the Cash Tracks Financial Facebook page. And then of course, this video is also posted later onto the Cash Tracks Financial YouTube channel, along with many of our past shows are there as well. So please subscribe and because we do post something new from time to time, and certainly want to appreciate, help you to learn more about taxes, how to do them best.

Also, keep in mind that we do have mutual exploration sessions available for individuals with me, Marcelino Dodge personally through video meetings where we get to know a little bit about you, you get to know a little bit about me. And what we do is we just kind of get to know Hey, is the plaque tax planning services, the tax services in general that is offered through Cash Tracks Financial along with the other financial services that we offer, do these have value for me and that’s what I really want to help you to do is have value be able to pay as little tax as possible and help you all with your overall financial picture? Yes, please give me a call 844-394-4287 and then contact me it’s through success@cashtracksfinancial.com you can also check out our newly redesigned website which is cashtracksfinancial.com. And right through the website there, you can schedule your mutual exploration session just to be able to once again sit down through video conference or, or live if you want to. It’s up to you.

But we can do it. However, whatever works for you because we are a totally virtual tax preparation office which allows you to be able to converse with me, as well as do all of our documents, do all of the signatures everything without even having to come to the office. And that’s why as an enrolled agent, I’m able to help you nationwide with your taxes no matter which of the 50 states where you live. Today’s topic touching on a very important subject because we see cryptocurrency and virtual currencies just growing in use across the country. Many businesses are accepting them for services and products. But yet how does the IRS look at these I’ve discussed this on prior shows want to discuss it again, because it’s still a growing area. And it’s so many individuals just really need to have this information because it can affect them on their taxes. Which is why I titled this show using Bitcoin to make purchases is a tax reportable event. Hmm.

Did you know that? Did you realize that, that when you have been using Bitcoin or virtual currency to go and make a purchase, like at Starbucks for your coffee, that, that is actually a tax reportable event? Why is that? Why do you need to know this? Well, that’s what we’re gonna get into in just a little bit because it is so important in this new economy, because we’re doing business across the internet, it has just been changing exponentially, especially through the pandemic, through the use of the Internet. And the other idea, of course, that has makes this an issue or brings us up is because people are doing touchless payments as well. All of that is part of what is happening here. And virtual currency is playing a part in that along with other ways that people of course are using the sharing economy and renting vehicles, or driving, there’s a number of areas. So across the Internet and across our mobile devices, there are many areas that people just need to be aware of tax wise. And, frankly, whether you’re looking at a regular brick and mortar business, or you’re looking at one of the possibilities of one of these apps on your phone that used to do business, it’s really, at least what I highly recommend. It’s at the point where before you really get going on any of these, guess what, just like anything, financially, I always recommend you get with a good tax professional that knows about these so that you can make a wise decision as well as once again, pay as little tax as possible, because many of these cases, there’s going to be taxes due.

Because you think, Well, I’m just gonna do this to make a little extra money. But guess what, you could end up paying some income tax on that. And also, other definitions we’re going to talk about is will you actually be in business and maybe be subject to self-employment tax? Yes, business over the internet has certainly opened up a lot of possibilities for individuals over the years. And certainly we see if people are not just going doing business in their local areas, or going across state lines, and in some cases, crossing international lines to do business. Now, of course, in what I do, in helping people to pay as little tax as possible through the tax planning, I’m really working out in my local area, working out through the state of Colorado that I’m in and then Mike says, I’m doing this I’m reaching out throughout across the country. Because of the wonders of the internet, the wonders of video conferencing, all of these allow me and even some recent rulings and changes by the IRS allows me to accept electronic signatures for tax returns, for this signature on the 8879, which is the authorization to electronically file the return, I have to have that signed before I can transmit it, but I can get it electronically.

And by doing so, boy, that just opens up a whole area of where I can personally help you no matter where you’re located to do business. Of course, there’s also some pride in getting an electronic signature, there are certain safety measures, security measures that I take when I do that. Especially it’s a knowledge based authorization. So there’s, there’s like a few knowledge questions which you’ve probably encountered those on some other electronic signatures you’ve been doing. So certainly, it’s very nice when you can do those, and I can offer that service to you. And I’m just one example of how that can be done. Of course people are may be selling products through, through online, which is since allows them across these estate lines as well. So this new economy really opens up a lot of areas so that for myself as a tax professional, I’m not just limited to this general area. And I’m not just relying upon the US mail for, for clients that live out of the out of the area. Now the steaks I do people that that don’t live in my little area.

And I do some people who already who don’t live in Colorado, but yet we’re getting where we do a lot of it through electronics, we used to mail stuff, but we don’t do that really very much a few people do. But we’ve gone electronically secure web port, all of these, in my particular line of work has really opened it up. And there’s a lot of software that I use, that really makes it easy for clients to be able to do business with me. And so whatever line of work you’re doing, or whatever you’re selling, there’s probably some tool that you can use, it’s allowing you to cross these lines because of the new economy. There’s also a lot of businesses and individuals that are using freelancers to go and do work as a result of this economy. Of course, a little one of the areas that we see is up is the fiverr.com, which not just gives you people throughout the United States, but people throughout the world. And people are using these web sites such as this to get certain like logos or maybe transcription work done, whatever it is, there’s a lot of different areas you can do. I mean, I have to admit, I’ve used Fiverr myself at times to maybe get some little bit of work done for my business.

So yeah, we see that individual business are turning to these areas. And then some people, of course, are being the Freelancers on these sites, to earn a little bit of extra money in whatever specialty that they do, and maybe in addition to their work. And why people do this is because while they set their own hours, there’s a lot of flexibility that you can have with it. You can set your rates, and then also supplement your income. And then of course, if you have something that you’re trying to monetize, to make that a little extra money for the jobs, and I’m sure a lot of people have done that. Hear through the pandemic, they have done these things to be able to earn a little extra money because maybe some have been forced to stay home or maybe others choose to stay home, it just really depends on the situation. But you got to keep in mind, if you’re using these guess what, there are going to be some tax implications on these, which is why I’m talking about this, and which is why I always talked so many times through my program here is that you just cannot rely upon software that says it’s free.

If you do if you use us, because the free is just a marketing, and certainly they’re going to start using this, or marketing this freeness out again, here and just in just a few weeks, but is it really free? That’s all that’s all. That’s what I always ask, is it really free? And, and you don’t really get a person that really sits down and gets to know you and asks questions, and makes you think about different deductions you can take, because when you’re working like a freelancer and setting your hours monetizing, a question comes up and is developing in some of these cases. Is this freelancer, an independent contractor or an employee? Well, it really depends on what state of the union here in here throughout the United States, you’re in some states, in some of these cases have been fighting and been passing laws trying to say, while some of these freelancers, yes, are employees and should be classified as such? Well, depending on what department of labor and what state you’re in, the variation of that can vary.

But the only one I’m really concerned about I’m talking about is what the IRS definition is. That’s what I’m gonna go with. Hmm. So what we see, though, is the fact that we got to get this clarified, and I like, I just look at it from the IRS standpoint. Now. I’ve mentioned this just a moment ago, about the tax considerations, you’re getting involved in one of these Freelancer, freelancing areas, or maybe one of these other apps that allow you to maybe do dog walking or running out of room in your home, whatever the case may be. There’s tax implications, there’s tax considerations with these. And reason I’m bringing this up I’m gonna talk about a little bit more later, is that earlier in 2021, a law was changed, where so many more people are going to be getting another tax form, they’ve been using various websites. And what that tax form is, is a
1099k. And for many taxpayers, it’s going to be a first time transact, first time seeing this form, they’re gonna be like, What in the world is this? What should I do with this? Well, that’s why I’m talking about this is that if you’re doing these type of businesses, it’s absolutely essential. And I recommend you’d get with a tax professional if you’ve been working with one of these online applications or an application on your phone, selling services, or selling products, because you’re going to need to get some good tax advice, and you need to talk to a tax professional, of course, I’m always open for that, as well for you. Now. As I mentioned, it’s important if you’re thinking about one of these, talk to a tax professional, find out what is what, what’s happening here, what do you need to look at? What do you need to consider? What is an expense? One of the other areas? Is that is, are you really going to be in business? Or is it a hobby? Those are other definitions that come in that are just absolutely vitally important? Because that affects is what you’re doing? Or is what you’re selling going to be subject to self-employment tax? Or is it not going to be subject to self-employment tax? Are you going to be able to take some expenses? All of these are factors to know.

So just don’t think of it as making quick and easy money. Yes, it’s true. But if you’re running through one of these apps, it’s going to be reported and how it gets reported on tax return is going to be absolutely essential. And so you may end up falling under IRS business rules and not even realize it and, and finding this out, like when you’re trying to prepare your tax return, or even six months down the road after you filed your tax return. That can be very costly. Because if for some reason you get this 1099k and you’re like well, I don’t need to use that and you don’t put it on your tax return. Well guess what? Six months a year later, the IRS is going to send you a notice saying oh guess what? You didn’t report this income. Now we’re going to charge you tax. We’re gonna charge you failure to pay penalties. We’re gonna charge you underpayment penalties. And on top of that, we’re gonna add some interest. And so that’s what I’m talking about this is that you need to make sure you get that 1099k. And when you get that, you need to talk to a tax professional even do it now I would do it even before the year is over or right in January, so you know how to prepare for these.

And watching try to get organized to be able to pay as little tax as possible. And then in other areas that you may not realize that there may be local and state regulations that fall into these as well. Now, because there’s so many jurisdictions, I really can’t get into those. But I just got to make you aware that you may need to take those into consideration as well. Along with the new economy, virtual currencies have come into play, yes, your bitcoins, your light coins, your Aetherium, all of that has come into play. And why is that? Well, we think about 2008, all the instability that occurred with the banks during the Great Recession. Virtual currencies have become a way to invest, they’ve become popular to buy, they become a way to spend money and buy things. Now, one of the misconceptions out there that many people still have is the fact that, oh, it’s virtual currency. It’s not being reported to the IRS. It’s anonymous, and it’s outside of taxation. That’s what some people think.

And, and which is another misconception of so many other areas, and admist, that I’ve covered on this program, is that there’s a good chance you think it may not be, it may not be taxed, but guess what, it probably is taxed in some way. So you need to make sure that you get to know the rules, and you get to work with a tax professional that’s going to help you with this, which is why I personally have really worked on learning about these myself as a tax professional to be able to help those dealing with this, because this is going to be a growing area of help of virtual currency, people using these transactions. In fact, I’m even going to the extent that as a business, for tax preparation purposes, Cash Tracks Financial is going to start accepting virtual currency. Because it’s just the way it’s what’s happening. So I’m going to be ready for it. Now we keep on mind that virtual currencies. They’re a type of a digital currency. There’s other types of digital currency. But we’re gonna focus on to just virtual currencies, which is a type of digital currency, it’s often on regulated, which is a key point to keep in mind with it. And as I mentioned, that includes things like your lite coin, your Aetherium, your Bitcoin cash, and so on all of these, and there’s various others that are out there that are available.

But you just need to be aware that these are there, and that these do have tax ramifications when you buy and sell them. Now, we keep in mind that there’s the virtual wallets, we take the wallet out of our pants, and we put, put cash in. That’s our physical wallet. When we have virtual currency, those exist in what’s known as virtual wallets, which really fits in with various other means I to me, it’s kind of like because I got so much software that I’m using that that’s not actually based on my computer, it’s actually in the cloud. So I’m using like virtual software out there, at least from my standpoint, that’s kind of how I look at it. Same thing with this, with the virtual currencies. It’s not existing in my physical wallet, it’s existing out there in, in a virtual wallet, which is essentially stored on like my smartphone or some other electronic device. So it’s out there, it’s basically it’s a whole bunch of code is what it is to sit in there. And we see as I mentioned, many today, we got a lot of advertising going out because of like touch free payments, being able to not have to turn your credit card over touch anything because they’re wanting to keep people safe.

While mobile payments are really becoming popular throughout the world. And they’ve been they had been growing anyway slowly but then just got accelerated through the pandemic. So ones have been paying through their smartphone to be able to use ease and of course with your virtual currency, you do the same you don’t have to use a debit card or cash you just do it and many people pay like through the apps like to go buy their coffee. Maybe they’ll just have the, the coffee place just, just scan a QR code on their phone to make the payment. And so a lot of people are doing that. In some cases. It’s an actual credit card that may be linked to that. But in other cases it could be virtual currency that’s linked to that transaction. And certainly there’s a difference between a credit card and if it’s virtual currency, which we’re going to talk about those differences here even more, because once again, you got to understand if you’ve been using virtual currency to buy coffee or other products and services, that is a tax reportable event.

Why has, another reason why has virtual currency become more and more popular? Well, people can transfer money, or transfer the virtual currency, free of monthly fees, or merchant service charges. So that’s one of the advantages of, of using the virtual currency and why that is growing up. With me, it is growing up frankly, and also consider virtual currency is not covered to any government currency, which kind of which is kind of does make it a little risky, because it’s not tied to anything like, like the United States dollar. It’s not tied to that. It’s not, they’re not tied to various forms of currency in other countries, so that it does not have borders, which is very interesting, because as you look at that, you can go from the United States into Canada with your virtual currency, and be able to take your, your Bitcoin or your litecoin, or whatever and go over and if Whoever accepts it over there, you can be able to pay for it without having to deal with exchange rates, from the US dollar to the Canadian dollar. So that helps people that’s why some people love it, they don’t have to deal with those kinds of things. And as long as you don’t have those, you’re good. And that’s why people were really flocking to virtual currency. Now, we got other areas that are companies, which is why I bring this up. There’s companies that are accepting virtual currency. I mentioned earlier, Starbucks.

Now think about some others like Microsoft, overstock.com, Expedia, even the state of Ohio, is accepting bitcoin to pay taxes. So it’s like Ohio is a little bit ahead of the ballgame here, because they’re being willing to accept virtual currencies. And see each of these, these are just some of the businesses, there’s probably hundreds and thousands of businesses that are accepting these. And through various virtual wallets, you can, myself as a small business owner, I can accept them as well, which is why I am making that move as a tax professional, because it’s important, and we need to be there we need to be ready to go. So think about this Bitcoin itself is getting gradually more and more accepted. Consider Japan in 2017, is accepting book Bitcoin as a legal form of payment. Now, the United States hasn’t quite gotten there yet. But who knows, when it when it could happen? I don’t think it’s a matter of if I think it’s a matter of when the United States is going to accept it. Now, as we look back at what the IRS is viewpoint is in regards to a crypto or virtual currency. It actually has been determined in 2014.

That cryptocurrency is considered as property for tax purposes, not as legal tender as property. Now, the IRS has been slowly catching up with this because they recognize that there’s a lot of people that are dealing with it, they’re buying, they’re selling these virtual currencies and the IRS recognized they need to catch up and the IRS is getting there. You just need to be aware that it’s happening because just in this year 2021. The IRS started applying tax principles, existing ones, they haven’t quite adjusted yet but existing tax principles to virtual currencies. And they’re terming it as a convertible. Now, what is a convertible? Nope, it’s not a car that the roof comes on and off of? No, it’s actually an area that has an equivalent value in real dollars. So basically, how many dollars is like one bitcoin worth? That’s basically what they’re, they’re looking at it as some type of convertible. And so, they further, further defined virtual currency as property which basically then makes it the same as like buying land. So as that because when you buy a Bitcoin for the value of a Bitcoin or another virtual currency for whatever the value is, your, its like buying land.

And so with that, what you pay for it plus whatever the acquisition costs are, you get a basis in that and seen I talked about basis a few weeks ago in this program of how important it is to know your basis well, when it comes to your virtual currency, you may not be, be buying it. In fact, if you’re buying it, like through Coinbase, or PayPal, or some other service, that allows you to buy not necessarily a full coin, like a full Bitcoin or a full lite coin, or whatever they may be, you may be buying it in dollars, like say, Okay, I’m gonna buy $100 of this virtual currency, while you just the $100, they give you point 2578, whatever that is, whatever the equivalent of that virtual currency is. And so that number then, and that $100 is your basis, in that particular amount of virtual currency that you are buying, then, of course, if you paid like $1, to pay pal or whatever for that, then that would also actually add to your basis. Now, it’s important to track that and to keep, keep that and to know that and to keep those because if you’re using you’re in virtual currency to buy a lot of little things like coffee, for example, each time you go, and you pay for that coffee. And using a portion of your virtual currency to do that, you’re actually selling some of your virtual currency or whatever the value of that currency is, on that day, whenever that market value, and that is your selling price. And so thus, you have a taxable transaction. So actually, on that cup of coffee, you may have either a capital gain, or you may have a capital loss, depending on what the value of the currency is at the time you do it. And the reason I say that is because that’s essentially what it falls under.

Now, for many, many people, because they use virtual currency on a regular basis, they’re buying and they’re selling, it’s kind of like, it’s almost similar to day trading on the stock market, that’s similar to what they’re doing when you do that. So some may buy virtual currency, give virtual currency and use it for several things throughout the year, they could have thousands of transactions. And the majority of those would probably be short term. Capital gains, which basically means they did not hold it for 365 days or less. And thus, it’s basically if they have a gain on and it’s basically ordinary income. Now, some individuals look at their virtual currency, and they’re just buying it like for the long run. And so because of that, what they’re doing is their holding it, which then if they hold it for more than the 365 days, their virtual currency, actually, their sale would be considered a long term gain, which would fall actually under a better tax rate.

So if you’re going to look at buying virtual currency, you got to consider what am I doing with this? Am I using it to invest? Am I using it for, for to purchase items? What am I going to do with it? It’s, there’s a little bit of tax planning, actually, that I would recommend that you do, just don’t jump into it, like so many people have. But if you’re considering it, I suggest talking to a tax professional who knows about virtual currencies, which is why I’m talking about this now. Because I want to help you. If you’re looking at these, if you’re considering these, if you’re already into them. That’s why I talk about it, because it’s so important to recognize the tax ramifications of, of that. Now consider is virtual currency, capital asset, personal property, investment or inventory? Well, for most for most individuals, it’s probably going to, it’s probably going to be similar to like an investment or capital asset, at least that’s what I think. Because when you buy them, you hold them for a period of time, whatever that period of time is. And if you hold it for 365 days or less, it’s short term, if you hold it for over 365 days, its long term, but then when you go and sell it, that’s reported on a tax form Schedule D through the form 8949, which is where it shows up now.

But most people don’t realize that say you have $140 in Bitcoin and you go to the local coffee store, and each day you spend $14 on coffee and donuts for 10 days. Guess what you have just created? You’ve created 10 days of transactions or actually 10 transactions that are required to be reported to the IRS. Because each of those sales of the crypto currency or the virtual currency there, each of those sales is basically a report reportable transaction, which, basically, you may have had a little bit of a gain on each of those, especially if the currency as it converted to dollars, it increased in value in dollars. It could have, you could have had a little gain, or you may have a loss on some either way, each of those transactions are reported. So just very important to keep in mind if you’re using virtual currency, because you need to be aware that this needs to be done. And you may need to actually have some special software used to track all these transactions. And most of your providers will, that do these like Coinbase have means that can help you with this plus, you may need to get some additional assistance in getting these onto the form. Because as a tax professional myself, I would probably seek some help in helping you to take care of this, because of the number of transactions that would be recorded on to the tax return. Some individuals are mining for Bitcoin mining, well, no, you’re not going down to a dark shaft with some heavy equipment.

No, not that kind of mining. It’s mining, we’re using a program where you program a computer going and solve various algorithms that gets very technical, when you set this up, the records attracts various block chains. In solving these. Now, as these are done, when individuals are doing this mining, they have the computer equipment set up to do this. They get compensated as these things, as these algorithms get solved, they get compensated through virtual currency rewards, which is the mining that they’re actually doing. Now they get a service for this, and they receive a payment back. Which is basically you get that payment back. It’s taxable income. And its taxable income, the value, whatever the value is, or whatever that exchange rate is between like the one Bitcoin and the dollar value of that Bitcoin when you receive it. So if you’re doing mining, you got to keep that in mind. But if you’re mining and you’re in business, and you got not just one rig that you’ve set up, but maybe you’ve got a few that you set up three or four, whatever you’ve been looking at, it can cost because it can cost thousands of dollars to set up one of these mining rigs. Plus, then in addition to that, you have the cost of electricity to do it.

So my suggestion is you’re considering do this, figure out a way to maybe set up these rigs through some type of renewable energy, like perhaps have some solar panels that you’re using to power them. That way, you can have that electrical cost basically down at zero and even making more money. Now, if depending on what you’re doing on the mining, the reporting is, is gonna be depending Are you kind of in a hobby or you just kind of doing it or you’re actually in business to do it, that’s going to affect your reporting with it. And so that’s once again, consulting with a tax professional getting an idea of your plans. And the way I look, I just look at this the way you look at anything, especially taxes. Are you looking at conducting business? What kind of business are you trying to do if this is what you’re looking at doing? What’s the investment? What’s going to be the potential expenses, importance of having a tax professional available all the time? And which is why I have my monthly programs available.

That way, you’re not just being charged, charged for each visit, but you get complete access to me throughout the year with one of our success programs, because we all need to pay as little tax as possible. And you want to make sure you go into these and you do them right. Why does people need to be concerned with virtual currency? Because there’s so many people out there doing it, and maybe some haven’t had tax ramifications yet. But I can tell you, I warn you, it’s going to start happening because it’s on the 1040 form it was on the 2020 form. And the 2021 form asks the following question at any time during 2021 Did you receive sell, exchange or otherwise dispose of any financial interest in any virtual currency? That question has to be entered correctly. Now, how do you answer that question? Well, this is essentially a question I’m going to be asking each of my tax clients as they come in, each while each of they come in and drop off their information, or I’m discussing with it over the phone or, or through a virtual meeting. However we do it because answering that question is absolutely vital. Now if you have only purchased cryptocurrency but haven’t sold any, then you’re probably going to answer that question. No. But if you have sold any, like, buy in that cup of coffee, you have to answer that question. Yes. If you answer that question, yes. Then there is going to be additional forms on your tax return. Yes, be aware of it. The IRS is out there, aware of the growth happening with cryptocurrency. And so with that in mind, you have to be have to be very well aware. Now coin base is a US based company that handles virtual wallets for individuals.

For people who are wanting to deal with cryptocurrency and businesses who are wanting to accept cryptocurrency they assist them with their virtual wallets. There’s a there’s a, a type of summons that the IRS uses in certain cases. In this case with Coinbase, there were John Doe summons issued out now what is this? Well, this is a way that the IRS gets data on US citizens who may not be reporting their virtual currency transactions on their tax return. I mean, from 2014, there was only a few 100 that had reported these transactions on their tax return and the IRS is, is now looking for everyone who is not reporting these transactions on their tax returns, because there could very soon be reporting from areas like Coinbase directly on virtual currency transactions. So just be aware that if you’re not reporting them, it would be a good idea. I would even suggest if you had some in 2020, or even 2019, my suggestion would be would be to get with your tax professional, get that information and get an amended return filed. Now, another reason to think about that is maybe you had a loss on them. That could benefit you, but you’d be better off filing it and then paying any tax that way you avoid the letters that the IRS is sending out.

Or if you get when you’re waiting, I already took care of that. Because there’s actual letter that the IRS is sending out regarding virtual currency, reminding taxpayers of their reporting requirement in regards to virtual currency. And it could not just be a few $100, It could be a few $1,000 or more than that that could cost you if you’re not reporting these transactions. Now, there are a lot of changes that happened with virtual currencies. Over the years, there has been software adaptions and depending on the software adaption it’s either called a soft fork or a hard fork. Now those occasions, those do happen. Now, when those happen, they’re not necessarily a taxable event because they’re making adjustments in the software not really affecting what’s happening with your value or what’s happening with what’s or giving you more virtual currency may just devalues but actually giving you more virtual currency. It’s usually not going to be or they’re not selling anything what can cause you an issue though, is airdrops if you’ve had an airdrop when virtual currency has been granted to you as a holder, well, these airdrops are a taxable event.

And thus, you or, its ordinary income, at whatever value once again, the value or whatever that Bitcoin is that you received, whatever the value of that is that you received, that’s taxed as ordinary income. And so once again, a reportable event. Now, this is some excellent information that I have shared with you up to this point, just in regards to cryptocurrencies and the virtual currencies, because it’s happening, and it is going to happen. And I certainly recommend that if you have any, any questions about this, you can always call me its 844-394-4287, or, or visit cashtracksfinancial.com to schedule your mutual exploration session. So we can get in delve into this, and really be able to help you to pay as little tax as possible in these areas. Now, these principles of, of getting this assistance and help also applies to other parts of the new economy. And an area I’m going to focus on for just last few moments of the show here is going to be on transportation, networking, which the Ubers and the lyfts, those are been really great. I mean, I’ve taken some of these rides myself, and most of the drivers I’ve worked with have been very friendly, very helpful, some have been very educational, learning about their areas.

Now, if you’re using if you’re actually used our Uber or Lyft driver, or if you’re considering doing this, keep in mind that you will probably receive a 1099k. And you may also get a 1099 NEC, which may actually could be trouble for you because you could have double reporting there. And so if you don’t, if that’s not done correctly, on a tax return, once again, you could get one of those notices from the IRS. So I’m saying, don’t try to do this on your own. Now, when it comes the actual income you made, you got your dashboard that you use with the companies there. Now, of course, some people do both Lyft and Uber, or something, use views. Some individuals use both companies, and that’s great, which is which can cause some reporting issues and some expense issues for you. Now, in your dashboard, though, we come back that’s going to show your gross income, incentive income shows Commission’s be subtracted and a record of miles driven, we’re going to set the record for miles driven aside for just a moment here, because we’re just focusing on the income.

So you want to make sure the income is reported correctly. And usually on the 1099k, that’s going to show the gross amount before any deductions. And so that’s why this dashboard is going to be very important for you to have it to be so he can make sure that your fees or commissions that you have are properly subtracted there. Now as a driver, your largest expense is going to be auto expenses, obviously. Now what are you going to expense? Well, you’re going to have either a standard mileage rate or actual expenses. Now, there are some exceptions when you cannot take the standard mileage, but I’m not going to cover those here. Now, think about this. As I mentioned earlier, the dashboard shows the record of miles driven. Now that may not necessarily be accurate for tax purposes. Because that dashboard does not track while it only tracks mileage available for the app doesn’t actually track your business mileage. So for tax purposes, even with that dashboard, you still as a driver for Uber or Lyft. Need to keep track of your odometer. A log of your odometer is going to be the best evidence in the event of an audit as regards if you as regards.

Yeah, an audit is going to be the best defense for you is having that odometer as well as having third party verifications. What I mean by that is you take your vehicle in once a month or however many however you take it when you’re doing a driving, you take anything you get it serviced, and that service shop will take down your mileage. Well those are those are vitally important as well in verification of mileage. So yes, keep a good accurate record of what you actually drive. When transporting individuals as either an Uber or Lyft driver that is going to be absolutely essential. Now, if you are taking a standard mileage rate Keeping this in mind, you can still take up a percentage of the interest, personal property taxes, parking, and tolls, which I’m sure in many of the metro areas, you’re going to have you have parking fees, and you have tolls. So yes, you can definitely still take those even if you’re using mileage. And if you’re using actual expenses, everything’s gonna be based on a percentage of the mileage. So you still got to keep a mileage log, no matter what type of expense, you take actual expense, or standard mileage rate, still got to keep a mileage log, absolutely essential and necessary to show the business use of the vehicle, once again, and then supported by third party verification. Basically, once again, those oil changes you get on a regular basis, or maybe you put new tires on, or other service work done on your vehicle.

Usually, they always take the mileage down. Those receipts are absolutely essential in proving that. Now, if you’re using a cell phone, which you probably are, they’re using cell phone, in their business, it is deductible. What I recommend, though, is that you have a separate phone that is only used for your transportation business. That way, it’s the easiest to track, it’s easiest to document. And that’s all that phone is used for. That way. Once again, you take that whatever portion of that particular phone is, and you’re good to go. Now, as with any of these other e commerce areas, I’ve been talking about are in the new economy, if you’re driving for an Uber or Lyft, is it really a business? Or is it a hobby. For some individuals, it is a business and they take it very seriously. And they do a very fine job at it and you’re to be commended. But you do have a few individuals who maybe only do it a few weekends out of the year. And it could very well just be a hobby because they’re not they’re not looking to make a lot of money at it or, but they’re just looking at as a side gig to be able to maybe get money for a trip or something.

In that case, it could just very well be a hobby. Now, once again, that distinction comes whether its business or a hobby is where the taxes come in. If it’s just a hobby, expenses are very limited. But you do not pay self-employment tax. That’s the humongous difference there. If you’re not in if you are in business, and of course you got a lot more flexibility and expenses, especially as many of that I just discussed that you can take, but you can. But you’re also going to be subject to self-employment tax. So just keep those points in mind as to why it’s so important to think about these areas, once again, talking to a tax professional and getting it in the information you need to be able to do these businesses correctly. Couple other areas we’re going to mention on here real quick, as I talked, mentioned, others, if you’ve been selling on like Etsy, or eBay or other e commerce websites, and guess what, if you have sold more than $600 in products, you’re going to get a 1099k.

Now, if you’re in business, the 1099k is only going to show the gross sales. So if you’re conducting business here, you got to subtract the site’s commissions as expense against that, because you’re going to need to track those yourself, because those will not be subtracted from the 1099k. Also, if perhaps a capital asset, like a larger like, like larger item, because some on some of these sites, you can sell homes, cars, Arby’s, these kinds of deals, you may receive a 1099k. You got to report that, but you don’t get to take the loss if you lost money on it. But you still have to at least put it on for reporting purposes. There are other areas. It’s touching on some of these where you got to once again, where I recommend you always talk to a tax professional is rentals of personal property. There’s various apps you can do that sharing businesses, pets, house sitting and so on. Be very careful there. I talked about Fiverr and other service sites. Those are some that are out there that you could end up with 1099ks from, expenses are going to be important. Are you actually in business dining sites? That was kind of a new concept for me, but there’s some of those out there. Now another area that’s hitting is social media influences or influencers, which basically we see some of these are used to promote products on their social media for various businesses they get paid to do so.

Well. That is too taxable income. And once again, is it a hobby? Are you actually in business? What expenses are you taking? Because if you are falling into the social media influence category, then guess what? You could have a tax problem. And so your tax professional needs to be up on this and ready. And as I mentioned, with all of these, it all relates to, is it going to be a hobby? Or is it a business? Because the taxes all are affected by which way you are? And which is why as I always stayed, and they stayed pretty firmly, that you need to be with a good tax professional, not relying upon software to get this right for you, in these times, because you’re not always going to get the best answers from just software. It doesn’t look at you very personally, you individually. And thus, as I look to help you to pay as little tax as possible, that tax liability is there, you’re going to have it if you’re involved somewhere in the new economy, especially with a 1099Ks, it’s going to be issued out.

What are you going to do about it? Well, I suggest let’s review. Sit down, have a mutual exploration session, you can schedule an appointment at cashtracksfinancial.com, you can give me a call and set one up, which is 844-394-4287. Keep in mind, we do video meetings because I as an enrolled agent, I service individual taxpayers, business tax payers, across the country, we review we set you up, but not just meeting just once. But we meet throughout the year to help you to meet your goals, help establish financial goals, not just looking at tax, but we take a look at the whole big picture for you. Help you set up, we can help you set up the accounting system, the payroll system, all of that. So we can take a full approach the whole big picture, look at it year round, establish goals help you to reach those goals. Now in some cases, individuals have a W2 job and also they’re doing some self-employment income or conducting a business just depends.

That’s where Okay, on the individual that’s working the W2 income, do we need to adjust that withholding maybe to help compensate? We might need to or maybe we can take less? Or reduce it? What’s, what’s the case? Do we have children involved in there, all of these areas are going to be vitally important there. So let’s set up a virtual tax preparation in a video interview. Because we can be completely virtual to help you out here we have a secure portal, send your documents securely. I, we do not accept email documents because it’s risk for you as a taxpayer. It’s too much risky for me. So we only do through media port through and through a portal, a secure portal, or of course you can always mail them to us as well. We’ll take your electronic signature with knowledge base assessment to be able to help you to securely sign your documents. Yes, you can always contact us its cashtracksfinancial.com. Marcelino Dodge, an enrolled agent always willing to hear from you at 844-394-4287. And yes, I work for you to make tax time, less taxing. I thank you for your attention today. In listening to The Tax Answers Advisor with Marcelino Dodge, enrolled agent on The Voice America Business Channel.

Cash Tracks Financial Inc.
117 W Beech St
Lamar, CO 81052
Office:(719) 336-8739
Toll Free: (844) 394-4287
Fax: (719) 336-8799
Email: success@cashtracksfinancial.com

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