Year: 2016

Many retailers and online businesses now accept virtual currency for sales transactions. Despite IRS issuing a set of FAQs last year regarding virtual currency, the U.S. federal tax implications remain relatively unknown to many retailers. If you’re a retailer who accepts virtual currency such as bitcoins for transactions, here’s what you need to know.

Sometimes, virtual currency such as bitcoins operate like “real” currency, i.e. the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance.

But bitcoins do not have legal tender status in any jurisdiction. If you’ve been paid in virtual currency, you should be aware that virtual currency is treated as property for U.S. federal tax purposes. In other words, general tax principles that apply to property transactions also apply to transactions using virtual currency. Among other things, this means that:

• Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
• Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
• The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
• A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

If you’re a business or individual with questions about virtual currency such as bitcoins, don’t hesitate to call the office for assistance.

• By Leon Clinton
• September 24, 2016

If you gave money or property to someone as a gift, you may wonder about the federal gift tax. Many gifts are not subject to the gift tax. Here are seven tax tips about gifts and the gift tax.

1. Nontaxable Gifts. The general rule is that any gift is a taxable gift. However, there are exceptions to this rule. The following are not taxable gifts:

• Gifts that do not exceed the annual exclusion for the calendar year,
• Tuition or medical expenses you paid directly to a medical or educational institution for someone,
• Gifts to your spouse (for federal tax purposes, the term “spouse” includes individuals of the same sex who are lawfully married),
• Gifts to a political organization for its use, and
• Gifts to charities.

2. Annual Exclusion. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you give a gift to someone else, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion for the year. For 2016, the annual exclusion is $14,000 (same as 2015).

3. No Tax on Recipient. Generally, the person who receives your gift will not have to pay a federal gift tax. That person also does not pay income tax on the value of the gift received.

4. Gifts Not Deductible. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).

5. Forgiven and Certain Loans. The gift tax may also apply when you forgive a debt or make a loan that is interest-free or below the market interest rate.

6. Gift-Splitting. In 2016, you and your spouse can give a gift up to $28,000 ($14,000 each) to a third party without making it a taxable gift. You can consider that one-half of the gift be given by you and one-half by your spouse.

7. Filing Requirement. You must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return if any of the following apply:

• You gave gifts to at least one person (other than your spouse) that amount to more than the annual exclusion for the year.
• You and your spouse are splitting a gift. This is true even if half of the split gift is less than the annual exclusion.
• You gave someone (other than your spouse) a gift of a future interest that they can’t actually possess, enjoy, or from which they’ll receive income later.
• You gave your spouse an interest in property that will terminate due to a future event.

Still confused about the gift tax? Please call for assistance.

• By Leon Clinton
• September 21, 2016