Here's How To File Bitcoin Income On Your Tax Return

Rob Wile for Business Insider writes: The IRS has yet to rule on how to report income from Bitcoin.

That has left Bitcoin enthusiasts — assuming they are interested in passing an IRS audit — in a legal no man's land.

So we spoke with Tyson Cross, an attorney in San Diego specializing in IRS compliance who has extensively researched Bitcoin's tax implications since the currency blew up. His company is BitcoinTaxSolutions.com.

The Q&A has been lightly edited for brevity and clarity.

BI: Do you even need to report Bitcoin income in the first place?

TC: Most people who take a sensible approach say it is taxable and reportable, so they need to make sure they're being compliant in their filing.

The question of whether bitcoins are taxable is really not much question at all if you look at the way income defined, and the way courts have applied that definition, it reaches everything. If the guy who caught Barry Bonds' [record-breaking] home run ball had income from that, I'm sure will have something coming for Bitcoin.

BI: Okay, so how should you report it?

TC: We've narrowed it down to two likely categories: as a foreign currency or capital gains item or a capital asset. So when choosing between those two alternatives, there's two considerations I tell people to make. The first is that capital asset has a very broad definition that almost certainly includes bitcoin. So reporting it as a capital gains is probably the safest route as far as meeting requirements of laws. On the other hand, while there's a much more narrow definition of foreign currency — and it'd be much more difficult to do that without taking a risk that the IRS won't agree — the tax you pay is higher. So there's an argument that it's safer to go that route, because if in the future the IRS decides it's a capital asset, then you're entitled to refund, and if they go the other way, then don't have anything to worry about.

But if the IRS decides Bitcoin is a foreign currency, and you were reporting it as capital gains, then you'd be responsible for that difference in tax.

BI: What if your assets are being held overseas?

TC: It doesn't matter where your income is, it's all taxable. If there was any income, it's taxable. But how you report holdings in general depends. Myself and other attorneys say cold wallets, paper wallets, aren't subject to reporting. But an account on a foreign exchange is holding not just Bitcoins in your name, but also fiat. So if you've bought and sold in your name, anytime a foreign institution is holding something in your name it's taxable. So that's a big risk for people who deal in Bitcoin, something few have maybe considered.

BI: What about at that state level? 

TC: Typically most states follow whatever the federal government does, whatever the IRS does. In California, they basically follow every rule the IRS has, they pretty much just copy-pasted. A couple things might change, but you can expect states to go the same way in the future to whatever treatment the IRS applies. I'd be surprised if a state tried to take a different approach.

BI: What should Bitcoin miners do?

TC: There are a couple different schools of thought out there. One group says you receive taxable income when Bitcoin is first mined, once it's agreed on the Blockchain, and then again once you sell it; the other school says it's only taxable on the sale. I have a couple clients who do mining, and addressing the situation is hard — there's no clear answer to that, there's never been anything like bitcoin mining. At the current time, it depends on your exact situation, there is no one clear answer. It depends on which is more favorable to the client, and how risk averse they are.

BI: If the IRS makes a ruling after April 15, what then?

TC: A lot of people are concerned that it could be applied retroactively. An IRS regulation isn't a law, it's the interpretation of a law. And so basically the law is the same, but now the IRS is saying this is how we view it. So if you didn't do it correctly, you need to amend your tax return or pay it according to the new treatment. I don't think it's safe to say that just because the IRS hasn't hasn't given guidance you don't have to file.

As a practical matter you probably can expect to get some leeway if you do file, because it's just so complicated, so difficult to figure out the treatment, I would be surprised if the IRS dropping hammer on people who made an effort to accurately report their income.

BI: Has there been any indication of when the IRS will rule?

TC: The IRS says they're looking into it. If you recall, for a long time there was issue over airline miles, and it was years before they came out with a clear stance. That is very simple compared with bitcoin, so I don't know when they would come out with a response.

You can follow the author Rob Wile on Twitter here.

You can visit BitCoinTaxSolutions Here.

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5 Tips for Medical Expense Tax Deductions in 2013

Zane Benefits writes: With the IRS tax filing deadline approaching, many filers will be asking their tax professionals about medical expense tax deductions for expenses incurred in 2013.

The following are five tips to help maximize your medical expense tax deductions.

1. General Rules for Medical Expense Tax Deduction

Tax filers are able to deduct the amount of unreimbursed medical expenses in excess of 10% of Adjusted Gross Income (AGI). Previously, the law permitted deductions for unreimbursed expenses in excess of 7.5% of AGI.

To quickly calculate the minimum amount of medical expenses that you need to have incurred in order to qualify for the deduction, take your AGI and multiply it by 0.10.

Example: If your AGI was $60,000, [60,000*0.10 = $6,000]. Any expenses incurred beyond $6,000 would be considered tax-deductible medical expenses. 

Age 65 or Older? There is a temporary exemption for individuals age 65 and older until December 31, 2016. If you are 65 years or older, you may continue to deduct total medical expenses that exceed 7.5% of your AGI through 2016. If you are married and only one of you is age 65 or older, you may still deduct total medical expenses that exceed 7.5% of AGI. This exemption is temporary. Beginning January 1, 2017, the 10% threshold will apply to all taxpayers, including those over 65.

2. Whose Medical Expenses May be Deducted?

Medical expenses may be deducted for yourself, spouse, dependent, qualifying child, qualifying relative, and/or decedent. Medical expenses are deductible as long as the person was considered a spouse or dependent at the time services were performed or when payment was rendered. 

3. Medical Expenses That Qualify for Deduction

IRS Publication 502 provides guidance on the types of medical expenses that qualify for medical expense deduction. 

For each medical expense, you should keep a record of the name and address of each medical care provider you paid and the amount and date of each payment. You should also keep a statement or itemized invoice showing a description of the medical care received, who received the care, and the nature and purpose of the medical expenses.

4. Overlooked Expenses That Qualify for Medical Expense Deduction

1. Travel expenses to and from medical treatments (see IRS standard mileage rates)
2. Insurance payments from already-taxed income (includes long-term care insurance)
3. Uninsured medical treatments (e.g. false teeth, contact lenses, etc.)

5. Medical Reimbursement Plans as Vehicles for Medical Expense Tax Deductions

Many business owners and employers set up a tax-advantaged medical reimbursement plan as a vehicle for medical expense tax deductions. There are different types of medical reimbursement plans, inlcuding:

• Health Reimbursement Arrangement (HRA) - An HRA is an employer-funded plan that reimburses employees tax-free for HRA-qualified medical expenses. HRA reimbursement dollars received by an employee are not included as income and therefore do not affect their AGI. 
• Healthcare Reimbursement Plan (HRP) - An HRP is an employer-funded, limited-purpose Section 105 Plan designed for premium reimbursement. An HRP can be used to reimburse qualified individual and family health insurance premiums. HRP reimbursement dollars received by an employee are not included as income and therefore do not affect their AGI. 
• Health Savings Account (HSA) - An HSA is a financial account established by an individual to pay for qualified medical expenses tax-free. HSAs must be linked with a qualified high-deductible health insurance plan and anyone can contribute to it.
• Flexible Spending Account (FSA) - An FSA is a tax-advantaged account that allows an employee to pay for future qualified medical expenses through payroll deduction.

How to deal with Common Foreign Tax Noncompliance Mistakes

Jeffrey S Freeman writes: As FATCA takes effect in 2014 the IRS will have more data available on U.S. Citizens that have foreign income. It is important to review your tax history and your current filings to ensure that you have not committed a noncompliance blunder.

1. Always report Global Income –U.S. citizens, resident aliens, and select others are required to report their global income on their U.S. income tax returns.  If you have a foreign account of any amount you must check “yes” on Schedule B. You may be entitled to tax credits or exclusions for income earned abroad, but it must be reported. If you foreign assets exceed $50,000 you must additionally file Form 8938.

Failing to report your global income by not checking the foreign account box can potentially be considered tax evasion or fraud. In addition, you could be given a 20% negligence penalty or a 75% civil fraud penalty on the tax due for failure to report this income.

1. File FBARs annually – If the sum of your foreign accounts exceeds $10,000 at any point during the year you must also file a FBAR (Report of Foreign Bank and Financial Accounts). This has been a law since 1970, but enforcement is increasing and FATCA will aid in the enforcement.

Not filing an FBAR has a civil penalty for each non-willful violation. If deemed willful, the penalty is the greater of $100,000 or 50% of the account balance for each year you failed to file an FBAR. This can also be considered a criminal offense with fines up to $500,000 and up to ten years in prison.

1. Take Advantage of IRS amnesty program – The IRS amnesty program is underway allowing you to submit up to eight amended tax returns and eight FBARs. You will be required to pay taxes, interest and a 20% penalty on your unreported income. You will also pay a penalty equal to 27.5% of the highest balance in your foreign accounts over the past eight years. Bottom line – you aren’t prosecuted.

If you were to amend tax returns and file FBARs outside of the IRS amnesty program and are caught the IRS could deal harshly with you. It is better than doing nothing, but it’s not an easy solution to a past omission. Failing to file FBARs has civil and criminal penalties that are worse than regular tax penalties.

1. Correct the past and the present – If you start filing accurate tax returns and corresponding FBARs the IRS is bound to ask about the lack of previous records disclosing a foreign account. Closing an account is not the solution – As tempting as it may seem to just close your foreign account it can appear that you are concealing your previous offshore activities.

Foreign income taxation is complex and equally challenging to clean up a previous mistake. Always seek experienced professional legal advice to correct your tax noncompliance issues. [end]   Jeffrey Freeman founded Freeman Tax Law, a boutique tax law firm with national exposure equipped to handle all domestic and international tax law matters. info@freemantaxlaw.com & www.freemantaxlaw.com

DocuSign Lauds IRS Extension of eSignature Acceptance / Forms 8878 and 8879 To Accelerate Filing Returns for EROs

 DocuSign Inc. (DocuSign) joins tax preparers everywhere in applauding the IRS’s announcement earlier this week that it will be accepting electronic signatures on Forms 8878 and 8879, which was published in a revision of Publication 1345 earlier this week. The IRS’s increased acceptance of eSignatures will expedite processing of tax returns by Electronic Return Originators (EROs), making the filing process easier, faster, more convenient and secure while minimizing paperwork and opportunities to make errors on returns.

“DocuSign’s technology already far exceeds the standards set forth by the IRS for legally executing Forms 8878 and 8879, so our customers and accountants everywhere should be happy to see the IRS extend eSignature acceptance in time for this tax season,” said Ken Moyle, chief legal officer, DocuSign. “Tax preparers should move with complete confidence that DocuSign can be a critical tool in meeting every requirement of the new standards.”

Form 8879 is the declaration document and signature authorization for an e-filed return filed by an Electronic Return Originator (ERO). The new guidance replaces guidance from 2007, which limited the ways in which the forms could be signed.

DocuSign leads the industry in compliance and enforceability, providing the most authentication options, a comprehensive digital audit trail, and bank-grade security. The company warrants that its products comply with the U.S. ESIGN Act and state laws modeled after 1999 UETA and certain key aspects of the UK Electronic Communication Act (2000). DocuSign meets specialized rules from the FDA, FTC, FHA, IRS, FINRA, among many others, and provides extensive, configurable authentication options to verify the identities of signers.

Current customers can DocuSign IRS Forms 8878 and 8879 immediately for filing returns. Individuals and organizations interested in learning more about DocuSign may visithttp://www.docusign.com.

About DocuSign Inc.

DocuSign® is The Global Standard for Digital Transaction Management™. Global enterprises, business departments, individual professionals, and consumers have standardized on DocuSign, with more than 40,000 new users joining the DocuSign Global Network every day. Today, that network includes millions of users in 188 countries. DocuSign's DTM platform supports legally compliant electronic and digital signature processes tailored to meet requirements globally with localization in 43 languages. Companies and individuals DocuSign to accelerate transaction times to increase speed to results, reduce costs, increase security and compliance, and delight customers across nearly every industry – from financial services, insurance, technology, healthcare, manufacturing, communications, real estate, retail, and consumer goods to higher education, non-profit and others – as well as every business department, including sales, finance, operations, procurement, HR/staffing, legal, and customer support. For more information, visitwww.docusign.com or call 877.720.2040. Visit the DocuSign blog at www.docusign.com/blog and follow DocuSign on Twitter, LinkedIn, and Facebook.

The Forgotten Retirement Account

Hal Bundrick for MainStreet.com writes: It's the forgotten – or at least neglected – retirement savings account, under utilized by Americans. As the 2013 income tax filing deadline looms, only a few investors will rush to claim a tax deduction by making a contribution to an individual retirement account (IRA). In fact, only 8.4% of traditional IRA investors aged 25 to 69 made a contribution during the last tax year of 2012.

IRAs don't appear to be as much a savings vehicle as a rollover account. A new study by the Investment Company Institute (ICI) reveals that nearly nine out of ten traditional IRAs opened in 2012 were created to accept a rollover from a 401(k) or other qualified employer-sponsored retirement plan.

"IRAs are a key component of the retirement landscape with a total of $6.2 trillion held in all forms of IRAs as of September 2013," says Sarah Holden, senior director of retirement and investor research at ICI. "And while in recent years most traditional IRAs are created through rollovers, traditional IRAs represent an important contributory savings vehicle, especially for workers without retirement plans through their employers."

But with such a low contribution rate to IRAs, Americans may be missing an important component to their retirement savings strategy. And missing an important tax benefit.

Workers and their spouses, with or without an employer-sponsored retirement plan like a 401(k), can make deductible or non-deductible traditional IRA contributions. And for those that qualify for the deduction, there is still time to take that tax break for 2013. Contributions to IRAs can be made until the due date for tax returns: April 15.

For the small group of investors who do make contributions to their IRAs, they do so with regularity. The ICI research found that more than two-thirds of traditional IRA investors contributing at the highest-allowed limit in 2011 did so again in 2012.

And those 5.5 million consistent IRA investors weathered the financial crisis well, even thoughaccount balances fell sharply after the 2008 market decline. The average traditional IRA balance for investors who maintained account balances in all years between 2007 and 2012 was higher at year-end 2012 than at year-end 2007. That increase reflects a total of contributions, rollovers, conversions, withdrawals, and investment returns.

You can read Main Street Here.