Will 2020 be the first time you time you file your income tax return without checking the "someone else can claim you as a dependent" checkbox? If so, don't forget to collect your 2020 stimulus payments on 1040 line 30! Economic stimulus payments were calculated from 2019-2018 tax returns already filed. Payments were not available to those who were claimed as dependents during those years. This excluded those adults who may have been college students during those years, even though they were independent, employed and no longer "dependents" of their parents in 2020. These newly emancipated taxpayers can still collect both 2020 stimulus payments through filing a 2020 income tax return. If all other stimulus payment qualifiying requirements are met, the missed stimulus payments can pay down any income tax owed and then be collected in an income tax refund. No need to miss out !
The first thing we will see after entering a taxpayer's name and address on the 2020 1040 U.S. Individual Income Tax Return form is a question that requires us to attest yes, or no as to our involvement with any virtual currency. While the definition of virtual suggests that the currency is not physically real, the IRS now considers virtual or "crypto" currency as an asset. That asset can be exchanged for other assets, used as payment for services or even gifted. So by asking the question, the IRS is now working to make sure income, gains and losses from transactions using virtual currency are reported to them. Virtual currency exchanges are already required to report transactions to the IRS after a certain value threshold has been reached
As I become familiar with cryptocurrency transactions, it appears to me the most difficult task (other than paying tax on any income or gains resulting from the transactions) will be to determine exactly what the value of the income, gain or loss is in US dollars. Accounting firms are now equipping themselves with software programs that can calculate digital currency gains and losses. However, the result is only as good as the data entered into the software. For this reason, when you are ready to start using cryptocurrency be prepared to keep good records. Similar to stock investments, real estate assets and business income records, the first questions your accountant will ask you is when did you get it and how much did you pay for it.
It's important to answer the IRS's inquiry honestly. And even more important to realize crypocurrency is real, is not hidden and needs to be reported as transactions of these types become more and more mainstream.
November 15, 2020
Even before the pandemic, accounting firms were making a mad dash to move their tools and processes to the digital clouds. This year's challenges made the use of "client portals" even more mainstream. More secure than emailing, a client portal provides a safe way for you and your accountant to send and receive personal documents. Once you are "invited" into a portal website by your accountant, you can set up log in credentials to start delivering your scanned documents without physically traveling to her office. Don't have a printer or scanner? There are numerous cell phone apps that convert a picture taken with your device to a digital scan. Finished reports and tax returns can then be placed in the portal for you to retrieve, save to your personal files and many times even sign digitally.