30c6db19

Minimizing Tax On Social Security Benefits

Mon, 26 Dec 2022 19:00:00 GMT

Several different aspects go into determining whether or not your Social Security benefits are taxable, and if they are, how much of that income is liable to be taxed. You will better understand the taxable nature of your Social Security income after reading the following information.

For this discussion, the term "Social Security benefits" refers to the total amount of benefits that are paid out to you every month (i.e., the amount before reduction due to payments withheld for Medicare premiums). It does not matter whether a person receives Social Security benefits because of retirement, disability, or because they have reached the age of eligibility; how taxes are applied to those payments remains the same.

The Supplemental Security Income (SSI) benefits are not considered in the computation because these payments are not subject to taxation under any circumstances. This includes both federal and state taxes.

Social Security Tax 101

How much your Social Security benefits are taxed depends on your total taxable income and whether you are married. If Social Security is the only money you have coming in, that money is often not taxed. On the other hand, if you get a large amount of money from sources other than Social Security, up to 85% of your Social Security earnings may be subject to taxation. To further understand this, set up a free YokeTax consultation .

Eighty-five percent of your Social Security benefits, regardless of your income, are taxable if you are married, reside with your spouse at any point during the year, and file a separate tax return from your spouse under the "married filing separately" status. If you are single and use the single filing status to file a separate tax return from your spouse, then only 15% of your Social Security benefits are taxed. This is done to stop married taxpayers who live together from filing separately, which would lower the amount of income reported on each return and the amount of taxable Social Security income.

To figure out if some of your benefits are taxed, you can quickly do the following calculation:

First, add all of your other income, such as your tax-free interest and any other sources of income that are not taxable, to the sum of your Social Security payments, then deduct from this sum any nontaxable income you may have received.

Once you have this sum, you may use it to see how it stacks up against the filing threshold. If the total exceeds the minimum, some of your benefits may be subject to taxation.

The base amounts are:

$32,000 for a tax-filing married couple;
$25,000 for non-married individuals who did not live with their spouse at any point during the year (including singles, heads of household, eligible widows/widowers with dependent children, and married individuals filing separately)

Careful planning of "other" income, like withdrawals from an Individual Retirement Account (IRA) for at least one of the years can help avoid or at least lower the tax on Social Security benefits. But you must consider the minimum distribution rules for your IRA and other retirement plans.

People who have big IRAs but aren't required to withdraw from them, or who withdraw only the required minimum after age 72 but not enough to reach the Social Security taxable threshold, may not be taking advantage of tax-free withdrawals that they are eligible for. Since everyone's circumstances are unique, what works for one person may not work for another.

Gambling Tax Gotcha

An increase in a taxpayer's adjusted gross income (AGI) for the year is likely the result of any gross winnings accrued from gambling activities. This is because winnings from gambling are counted as income in their entirety, whereas losses can be deducted as an itemized expense . Even if you lose more money gambling than you win, your winnings are counted toward your AGI, and your losses are deducted as an itemized deduction. A greater portion of your Social Security payments may be subject to taxation. This is the case regardless of whether or not your losses are greater than your winnings.

Is Income from Social Security Taxed?

The federal government does not often levy taxes on the Social Security benefits of retirees with low incomes or whose main source of income is Social Security. The average monthly Social Security benefit for retired workers was $1,547 in January 2021, which worked out to $18,564 for the entire year. This amount is much lower than the taxable threshold of $25,000 that the federal government has established for an individual.

According to the Social Security Administration, however, around forty percent of people who receive Social Security benefits must pay federal income tax on a portion of their payment. Since Social Security taxes are not being increased annually as a result of income thresholds, a growing number of retirees will be required to pay taxes on their Social Security payouts over their retirement years. This is a consequence of the fact that Social Security taxes are not indexed for inflation.

Here are some strategies for minimizing or evading taxation of your Social Security check:

To minimize your tax liability, keep your income below the applicable limits.
Don't forget about your other retirement income sources.
Before applying for Social Security, you might want to withdraw money from your IRA.
Start saving with a Roth IRA.
Consider the tax structures of different states.
Establish a system to deduct taxes from Social Security payments.

If you have more questions on Social Security taxation and benefits, contact YokeTax for a free consultation .

Getting Married And Related Tax Issues

Mon, 19 Dec 2022 19:00:00 GMT

Due to the COVID outbreak, most weddings planned for 2020 were postponed. As a result, 2021 will be remembered as a pivotal wedding year. Couples should be aware of how this can affect their tax status. They should be extra cautious to stay out of trouble and prevent any tax surprises. Here is a to-do list for the newlyweds.

(Feel free to set up a free one hour consultation with a Yoke Tax professional if you need any help or advice!)

SSA Name Change

If you get married or experience any other life event that results in a change to your legal name, it is your responsibility to inform the Social Security Administration (SSA) of your new identification. The SSA must compare the details reported in return to those already on file. There could be a holdup in processing your tax refund if this doesn't happen. Form SS-5, the application for a Social Security card, must be resubmitted with any changes.

The forms’ submission process is governed by the guidelines provided with the form itself.

If you change your name, you must inform your employer so they may update your W-2 form for you and the SSA accordingly. The required notice must be submitted within 30 days for the name change to take effect. This must be done so that your yearly salary and all applicable payroll taxes are transferred into your Social Security account on time. Only by entering your Social Security number into the appropriate field can this be done.

IRS Address Change

The Internal Revenue Service (IRS) and the United States Postal Service (USPS) must be notified if you get married and relocate within the United States. If the IRS needs to contact you regarding a previously-filed tax return, they must have your current and accurate address on file. You must respond to a notice received by the IRS if you do not want the issue that prompted the IRS investigation to worsen. Be sure to answer immediately to avoid forgetting to inform them that your address has changed.

Your employer must be informed of a name change. This is done to ensure that the information on your W-2 form and with the SSA is accurate. This must occur within 30 days after the official name change. You must do this so that your annual pay and taxes are deposited into your Social Security account. This is only possible if you are logged into your Social Security account.

Postal Service Address Change

The IRS may take a while to change your address after you send in Form 8822. You can have your mail sent to your new address by going to the USPS website or your local post office.

The same is true for your place of work, banks, etc.

Don’t forget about Tax Withholding

When a couple gets married, they ought to consider modifying their withholding. Within 10 days following their wedding, newlyweds must provide their employers a new Form W-4 , Employee's Withholding Allowance. If you and your spouse are employed, you may enter a higher tax bracket or be required to pay more Medicare tax. The Tax Withholding Estimator can assist you in completing a new Form W-4. The IRS document 505 , Tax Withholding and Estimated Tax, contains more information regarding the completion of W-4s and the payment of estimated taxes.

Tax Filing Status

Each year, married couples have the option of filing jointly (on one tax form) or separately (on separate tax forms). Even though it is typically more advantageous to file taxes jointly as a married couple, it is best to calculate the tax both ways to see which is best for you. Remember that for tax purposes, a couple who gets married on December 31 is deemed married for the entire year. If your new spouse is neither a citizen of the United States nor a permanent resident, you must file a "married, filing separately" return.

If you and your foreign spouse agree to submit a joint U.S. return reporting both of your incomes, then you are not required by law to file a separate return. In this instance, you and your spouse can file jointly for tax purposes. If you owe past taxes, you should discuss the possible results with our agency before deciding. Contact YokeTax for a free consultation .

Joint and Several Liability

One of the partners may have outstanding tax debt, child support, or alimony from a prior union. If the newlyweds go on to file their taxes as a married couple, they will each be personally liable for the entire amount owed. When deciding how to file your taxes, you should remember that the government has the right to seize a spouse's share of a joint refund to pay for their share of the debt.

Beware of Tax Scams

Identifying and avoiding tax fraud requires that every taxpayer be able to identify potential scams. The IRS will never initiate contact with a taxpayer via email, phone, social media, or text messaging. The postal service typically conducts initial communication.

Please contact us at YokeTax if you are getting married and need assistance completing new W-4 forms, adjusting your anticipated tax payments, selecting the appropriate filing status, or handling any other tax difficulties.

What Happens When You File a Late Tax Return?

Mon, 12 Dec 2022 19:00:00 GMT

There are three consequences to failing to file your tax return on time, but let’s get something straight: It is not considered late filing if you file your tax return during the extension period . To learn more about that, set up a free one hour consultation with a Yoke Tax professional.

Returns filed late carry a one-year extension after they are filed. As a consequence, three results may occur.

Result 1

The IRS will notify you if you fail to file or file late. Individuals who have not filed their taxes also receive letters from the IRS encouraging them to do so. It is generally not recommended to discuss unfiled tax returns with the IRS in meetings.

Those who file late face IRS audits as a serious problem. In the 3 percent of cases when the IRS audits your tax return, you are late in filing your return. IRS audits have a much higher probability, perhaps up to 50 percent.

Filing late has one downside: you're more likely to meet an IRS examiner.

Result 2

Late filing will result in a penalty of five percent of the amount of the tax due each month, up to a maximum of 25 percent of your tax.

Unfortunately, there will be a 5 percent increase every month. A maximum of 25 percent of the penalty can be avoided if you pay the maximum amount.

Result 3

You may also be liable for a penalty for failure to pay if you owe the failure to file penalty. The penalty for failing to pay is 0.5 percent monthly, up to 25 percent of the tax owed.

For the first five months, the penalty for refusing to pay offsets the failure to file penalty, so that, in total, the penalty for failure to pay is 5 percent.

Failure to pay after five months continues to incur a penalty. The maximum penalty for failing to pay is 25 percent, plus 0.5 percent for each subsequent 45 months until you reach the 25 percent maximum.

Avoid these three consequences. Please feel free to discuss any of them in a free consultation with YokeTax .

What Should I Know?

You may need to amend your tax return if you, for example, need to change your filing status, your income, your deductions, your credits, or the amount of tax due in your return. Or, you may have received a notice from the IRS disputing your claim, informing you that they have adjusted your return. It would be necessary to amend your return if this is the case so that the adjusted amounts are changed by the IRS.

The return may also be amended by claiming a carryback if a loss has occurred or if a credit has been unused. An alternative to Form 1040-X is Form 1045, Request for Tentative Refund, which can provide you with a faster refund.

In general, you need to amend your original tax return three years after filing, including extensions of the date of filing or two years after the date of paying tax, whichever comes later, following the date on which the original tax return was filed. Justifications for late returns might include:

Disability due to financial hardship
Disasters declared by the federal government
Zones of combat
Debts that are bad
Securities of no value
Deduction or credit for foreign taxes
Carryback of losses or credits
Grants for disaster relief

If an amended return is filed within these time limits, the deadline is automatically extended.

The current tax years’ Form 1040-X is filed along with the previous years’ Form 1040-X. Your original return has been updated with new information

The IRS must be notified of tax returns that contain mistakes. In order to correct an error, you must file a corrected return with the IRS. If you do not correct the mistake, you may be subject to penalties and interest. Yourself or a professional can prepare your amended return.

To learn more about this or to speak with a professional, get a consultation with YokeTax .

Can I Refile If I Need to Edit My Taxes?

If you forgot to add something or change something, you can refile your taxes. The IRS website or a local IRS office has Form 1040-X which you can use to make changes to your return. The amended return can also be prepared by a professional.

Will the IRS Catch My Mistake?

The IRS will most likely catch a mistake on a tax return. Additional information, such as that provided by employers, is cross-referenced by the IRS using substantial computer technology. By cross-referencing your tax return with other information, the IRS is almost certain to find any errors you have made.

What is the IRS's Double-Checking Policy?

Tax returns are continuously checked by IRS computer programs. Everything is automated. The computer flags a return when data on the return differs from what the computer has on file.

What to do If You Forgot To File Your Taxes?

When you forget to include a W-2 with your taxes, you should file an amended return immediately. The process involves a few simple steps. It can be filed yourself or by a professional. Just set up a free one hour consultation with a Yoke Tax professional to get started.

Can Incorrect Tax Filing Lead to Jail Time?

A mistake on a tax return or filing an incorrect return cannot result in jail time. You may be held responsible for fraud if you intentionally leave out items from your tax filing. Intent determines whether an action is criminal. It is not illegal to make a mistake and correct it.

Tax Crimes: Can Ignorance or Mistake Be a Defense?

It is not a valid defense to any tax crime to claim you made a mistake or didn't know the law. Appeals based on ignorance will not help you avoid penalties if the IRS believes that you intended to violate the law. There is a presumption that everyone knows the law.

What Should I Do If I Receive a CP-2000 Notice From The IRS After Filing My Taxes?

If you receive a notice of CP-2000 from the IRS, you should not file a form of amended return. If you receive a CP-2000 notice, the IRS should contact you first. If you have under-reported your income, your tax return must be recalculated based on the information they have provided you with. As you begin to complete your calculations, you may notice some forms of income that haven't been taken into account in your calculations, and if that is the case, you will want to contact the IRS and notify them that you agree with their findings. It is therefore not necessary to amend your tax return to be able to make a payment for your tax liabilities.

What Should I Do if the IRS Rejects my Electronic Tax Return?

The IRS may reject your initial e-filing for various reasons. It is possible to correct a technical error and resend. You should consult a professional if the IRS rejects your application.

How Should I Respond to an IRS Audit Notice?

If you receive an audit notice from the IRS, they will explain the reasons for auditing your return. Documentation supporting your position should be gathered immediately if you believe the IRS is wrong. The next step is to identify the error and contact the IRS.

As always, a free one hour consultation with a Yoke Tax professional should be a top priority. Every Yoke Tax employee has 20 years of experience in the field, and is ready to help.

Tax Breaks for Grandparents

Mon, 05 Dec 2022 18:45:00 GMT

Though many of them may have expected their child rearing years to have ended, there is a growing number of grandparents raising their grandchildren. More than half of children without parents are raised by grandparents in the United States. This represents 9% of all children in the country.

During the past ten years, a survey revealed that there has been a 50% increase in grandchildren living in the homes of their grandparents. Financial stress of caring for children can be eased by a variety of benefits for grandparents. The following are among them:

Household Head Filing Status

Grandparents who are unmarried may qualify to file as heads of household. It is generally more favorable to file as a joint applicant than as a single applicant. It is important for the grandparent to keep the house as the primary living space for the grandchild during at least half the year in order for the grandparent to be eligible for the program. A grandchild is generally not considered self-supporting if they are younger than 19 years old (24 if the grandchild is a full-time student) at the end of the tax year, or are totally and permanently disabled.

The Earned Income Tax Credit (EITC)

If the grandparent is 65 years of age or older and lives with a qualifying grandchild, the grandparent may be eligible to claim the (EITC). As a general rule, if you want your grandchild to qualify for the purposes of the EITC, you will need to meet the same requirements as a dependent . However, the child must not have supported themselves more than half of the time.

A taxpayer must have an adjusted gross income (AGI) below the amount of $51,464 in 2021 to qualify for EITCs on behalf of a grandchild or grandchildren. If the taxpayer qualifies for three or more children, then the taxpayer will qualify for the EITC; if the taxpayer has two or more qualifying children, the taxpayer will be entitled to $47,915. If there’s only one qualifying child, the taxpayer will be entitled to a tax benefit if they are married filing their tax returns jointly.

The EITC is not available to taxpayers who file jointly or separately, do not reside in the United States for the entire year, file Form 2555-EZ (pertaining to foreign earned income), don't earn income, or have more than $10,000 of investment income in 2021($3,650 for 2020).

Set up a free consultation with YokeTax to further understand the EITC.

Tax Credit for Children

Depending on the circumstances, grandparents may be able to reclaim a maximum of $1,400 child tax credit when raising their grandchildren.

It is necessary for the grandchild to be under 17 years old and a U.S. citizen, as well as the grandparent's dependent. A higher income taxpayer receives a reduced credit.

Note: A refundable child tax credit of $3,000 is available to children under 18 years old only in 2021 ($3,600 to children under 6).

Grandchild Care Credit

It is possible for a grandparent to receive a credit for child and dependent care if they pay for someone to take care of a teenage grandchild who requires assistance or a grandchild who cannot support themselves physically or mentally. They can also receive this credit if the grandparent works or looks for work and stays at the same house as the grandchild for at least half of the year.

Taxpayers with an AGI of less than $15,000 can claim a credit of 35% on employment-related expenses. With every $2,000 of AGI over $15,000 (or fraction thereof), the percentage decreases by 1%, but it never falls below 20%. For one qualifying individual, the maximum credit is $3,000, while for two or more individuals, the maximum credit is $6,000. Employers may exclude dependent care assistance programs from gross income by reducing these maximums dollar-for-dollar.

Note: The COVID relief will only apply through 2021, making the maximum credit amount $16,000 for more than one qualified individual instead of $8,000 for one qualified individual. Further, the credit is fully refundable and is 50% of the expenses before the phase-out period for high-income individuals.

Grandchild Education Expenses

Grandparents who pay for their dependent grandchildren's education may qualify for tax benefits. The following are among them:

Education Credits

For dependent grandchildren attending accredited post-secondary schools, the American Opportunity Tax Credit (AOTC) is available up to $2,500 per taxpayer, and the credit for Lifetime Learning is available up to $2,000 per taxpayer. For the undergraduate years, the AOTC applies to qualified expenses. For any student who attends an eligible educational institution after high school, the Lifetime Learning credit is available. Both credits cannot be claimed simultaneously, and they reduce for taxpayers with higher incomes.

If a grandparent has incurred a debt specifically for the purpose of paying qualified higher education expenses for their dependent grandchild who is enrolled at least half-time, they may be entitled to a deduction of up to $2,500 for interest paid on a qualified higher education loan. Higher-income taxpayers are not eligible for the deduction.

When a grandparent claims his or her grandchild as a dependent, the grandchild is eligible for these education tax benefits. However, grandparents do not receive tax breaks for paying these costs for non-dependent grandchildren.

Medical and dental expenses

It is possible for grandparents to deduct some prescriptions and dental expenses during the year for a dependent grandchild if they itemize deductions. The expenses incurred by the grandchild for medical treatment are combined with the expenses incurred by the grandparent for medical treatment, provided that the total of those expenses is greater than 7.5% of the grandparent's gross annual income.

Make use of a free consultation with YokeTax if you have further questions.

Understanding the IRS Identity Protection PIN

Mon, 28 Nov 2022 18:45:00 GMT

To prevent identity thieves from misusing taxpayers' Social Security numbers for fraudulent returns, the IRS assigns IP PINs to eligible taxpayers. As a result of IP PINs, the IRS is able to verify the identity of taxpayers and accepts only valid returns, whether they are filed electronically or on paper.

Identity Protection PIN

For many years, taxpayers with IP PIN access had to meet certain criteria, including residing in a certain state, having their identity stolen, and letting someone file a return with their Social Security number.

A new IP PIN program was introduced by the IRS in January 2021 for taxpayers who can prove their identity and wish to participate in the ID protection program. All taxpayers have access to this protection if their IDs are compromised or suspected of being compromised. IP PIN protects taxpayers from becoming repeat victims of tax-related identity theft, even if a thief already filed a fraudulent return.

A tax professional cannot provide IP PINs to their clients for security reasons. You can obtain an IP PIN online through the IRS' ID PIN service. You will have to undergo a rigorous identity verification process if you wish to request IP PIN. You have a couple of options if you aren't able to validate your identity using “Get IP PIN.”

If you have an adjusted gross income that does not exceed $72,000, you can request the IP PIN from the IRS by filling out and sending the IRS Form 15227 and an identity protection personal identification number.

IRS Taxpayer Assistance Center

It is also possible for you to set up an appointment with an IRS Taxpayer Assistance Center if you do not qualify to apply using Form 15227. TACs can help you find out more about these alternative ways to request an IP PIN in order to get one. Regardless of the method you choose to apply for IP PIN, you will need to wait longer than if you applied online, for the IRS to assign you one.

How to get an IP PIN?

By using the online “Get IP PIN” tool, you can receive an IP PIN in a short period of time. A valid IP PIN can only be obtained if you have already registered on the IRS website. Beginning in mid-January through mid-November, the IP PIN tool will be available for use.

For more information about finances and how the IRS affects you, read the Tax Tips blog .

A Guide To Identity Protection PINs

The IRS assigns IP PINs to individuals in order to prevent misuse of their Social Security number or Individual Taxpayer Identification Number (ITIN) . Taxpayers must have an IP PIN even if they no longer need to file a tax return, as the tax department cannot accept any e-filed tax return without their IP PIN.

In order to obtain an IP PIN:

A person who wants to protect his or her Social Security Number or ITIN should do so with the IRS.
In order to protect their dependent's SSN or ITIN, they must file with the IRS.
It is possible that the victim's Social Security Number, ITIN, or personal information has been stolen or fraudulently obtained.
An individual suspects or confirms that their identity has been stolen.

The IRS offers a comprehensive authentication check at IRS.gov/getanippin . IP PINs will be provided online as soon as authentication is complete. To enhance security, each IP PIN is generated anew every year. A person cannot opt out of the IP PIN program once enrolled.

Tax-related identity theft may result in the IRS automatically assigning an IP PIN to a taxpayer. As soon as the tax-related ID theft incident is confirmed, the taxpayer will receive a notification along with an IP PIN assigned for future tax-return filings.

A notice with your new IP PIN will be mailed to you every January, or you can retrieve your IP PIN by visiting the IRS website. To learn more about the IP PIN, contact a YokeTax professional for a free consultation .

Additional things you to know about IP PIN:

Taxpayers and the IRS have access to this six-digit number.
Program participation is voluntary.
IP PINs are used along with Social Security numbers.
The IP PIN must be entered near the signature block on page 2 of the 1040.
One calendar year is the validity period of the IP PIN.
IP PINs are issued to enrolled participants annually for security reasons.
If their identities can be verified, spouses and dependents may apply for an IP PIN.
Tax prep providers and the IRS should never share IP PIN numbers.
Only scammers will request the IP PIN by phone, email, or text.

IP PINs are currently available for 2021, which can be used for any pending federal tax returns, including those for prior years. January 2022 will mark the beginning of the availability of new IP PINs.

The CP01A notice with your new IP PIN will be mailed to you each year if you have been a confirmed victim of tax-related identity theft.

To protect yourself from tax-related identity theft, you may consider getting an IP PIN if you don't already have one.

Please note the following if you wish to request an IP PIN:

A verification of your identity is required. An IP PIN can be obtained by family members and dependents if their identity can be verified.

Important Information about IP PINs

There is a one-year validity period for IP PINs.
You receive a new IP PIN every year.
Your current IP PIN can be viewed by logging back into the tool.
During the year, including previous years, all federal tax returns must be filed with an IP PIN.

We would be glad to answer any questions you may have concerning this topic. You can contact us for a free YokeTax consultation .

Own Stocks? Learn About NUA

Mon, 21 Nov 2022 18:55:17 GMT

There are many retirement plans that give you the option of owning company stock, including 401(k) , ESOPs, profit sharing plans, and more.

Is its value higher now than when you purchased it? You should start planning what you will do with your stock in case you reach retirement age or leave the company. If you make a decision based on tax implications, it can have a major impact on your finances.

In the event that a person retires or leaves their company, it is common for them to roll over company stock into an IRA. The good thing about doing this is that you will not be liable for any taxes.

But there’s a downside: If you sell the stock later, you will owe normal income taxes (which could rise).

You have an alternative: The stock of your company can be treated as if it had accumulated net unrealized appreciation (NUA). The NUA tax is therefore 15 percent when you sell the stock.

The tradeoff:

The ordinary income tax will be due on the transfer of the stock during the year in which it is made. It is also possible that you will be required to pay a penalty of 10 percent on the cost basis of your shares when you take advantage of your lump-sum distribution before reaching the age of 59.5.

Whenever the stock appreciates more than one year after distribution, you will have to pay long-term capital gains tax on it.

Once a person reaches the age of 59.5, leaves their employer, or dies before NUA treatment becomes effective, all vested assets in their employer's retirement plan must be transferred in a lump-sum distribution.

The stock does not qualify for required minimum distributions since it is not part of a retirement plan. If you die before the money is withdrawn from your account, it will be kept in that account until your death. This will result in your heirs receiving a stepped-up basis for the appreciation in your stock during the period that you held it in a taxable account in addition to your NUA over the period that you held it in a taxable account. To gain a better understanding of this, contact a professional through YokeTax’s free consultations .

Unrealized net appreciation can't be cured with a single solution. The employee will pay the lowest taxes and receive the money as soon as possible if they are older and have substantial appreciation in the company stock.

Net Unrealized Appreciation

When you distribute your 401(k) holdings, you must pay taxes on investment gains. It’s possible to use NUA as a tax strategy to avoid a higher capital gains tax, but be sure to utilize a tax pro to make sure you’re going about things correctly.

NUA may prove to be valuable in income gap years, when people don't receive Medicare, Social Security, or other benefits until a few years after leaving their jobs.

Distributing Assets

There will be a time in every person's life when they must make a decision on how to distribute their assets. This usually occurs during a career change or retirement. If you take distributions from a retirement plan, you may be eligible for a little-known tax break (NUA) that could lower your tax bill if you are aware of the rules.

“The gains you accumulate with appreciated company stock can result in capital gains taxes or regular income taxes, depending on whether you file for capital gains or regular income taxes,” according to Mitch Pomerance, Vice President of Fidelity Investments.

You can distribute company stock under NUA if your retirement plan includes it. Moreover, because the NUA allows taxpayers to defer capital gains on part of their tax-deferred assets throughout their life, they are able to pay a lower capital gains rate on "part" of their tax-deferred assets when they are removed from it, as Pomerance points out.

Expanding on NUA

Stocks are valued at their initial costs minus their current market values, which is their cost basis. Assume you spent $2000 on 100 shares of company stock for $20 per share as part of your plan. If you bought the shares five years ago for $35 each, your cost basis would be $2,000 and your NUA would be $1,500.

NUA: What is the purpose of knowing about it? You have two options if you decide to distribute your company stock or the cash value of your 401(k) plan to your family. The first is to roll over the remaining assets into another 401(k) plan or distribute it into a taxable account and then roll it over into another 401(k) plan. The second option is to distribute the stock into a taxable account and then roll it over to another 401(k) plan. Depending on your state, how the IRS regulates NUAs will determine which option is the most effective for you.

If you transfer assets from your 401(k) plan to a taxable account, you will have to pay income tax on those assets.

In the case of company stock, the only tax you have to pay is on its cost basis. You are not taxed on any gains made since you purchased it. Direct, in-kind transfers of company stock to an IRA will result in the loss of the special benefits of the NUA for company stock. 401(k) plans may have the option of not rolling over or distributing company stock if you are under the age of 59.5 (If you are under this age, you will also be subject to a 10% early withdrawal penalty).

You will be required to pay long-term capital gains tax on the distribution you receive as well as the profit you make on the sale of your shares when you sell them. The tax rate on capital gains is currently at 20%, much lower than the top income tax rate of 37%, so you might be able to save a considerable amount of income on taxes.

“If you have a low cost basis on your 401(k) position, it may make sense to take the tax hit now rather than later on a larger amount of money," says Pomerance.

What is the best time to choose a NUA tax strategy?

If you are wondering whether you should transfer your stocks to your taxable account or invest in an IRA, you should consider the following factors:

Tax rates: The NUA tax treatment of stock is more advantageous when regular income tax rates differ from capital gains tax rates.

Absolute NUA: The higher the dollar value of stock appreciation, the more you can save in taxes under NUA.

Percentage of NUA: As more proceeds are taxable at the lower capital gains tax rate and fewer at the highest income tax rate when a NUA represents a larger percentage of the market value, a greater tax savings is possible.

Time horizon to distribution: IRAs or taxable accounts aren't good candidates for NUA if you plan to hold your assets until liquidation. NUA elections, however, are more appealing if they are limited in time.

Feel free to contact us in a free YokeTax consultation with any further questions you may have.

Disposing Of A Vehicle - Things to Consider

Mon, 14 Nov 2022 18:30:00 GMT

If you're buying a new car, what should you do with your old one? There are a number of options available to you, some of which may have tax implications and some of which may not. A car can be traded in, sold to a third party, donated to a charity, gifted, or even kept as a second vehicle. Below you will find details about each of these options. It is important to note that this will not go into detail about how a vehicle used for business is disposed of.

To discuss details not covered here, contact YokeTax for a free consultation .

Trade-In Your Vehicle

Even though you may be able to sell your car for more if you sell it yourself, trading it in at a dealer eliminates the hassle of selling a car. This is why so many people choose this option when they’re looking for their next car. The 2017 tax reform allowed a gain resulting from the disposition of a partially-used vehicle to be deferred, meaning it was better to trade in the vehicle than to sell it. Trading in or selling to a third party is no longer an option, and it is treated as a sale whether you trade it in or sell it.

In most cases, there is little difference between selling or trading in a car that has been used exclusively for personal purposes since the vehicle will have declined in value. Except in very rare cases, there would be no gain from the sale. Tax law prevents deductions for losses incurred when selling personal-use property. By contrast, the law states that profits on personal-use items such as vehicles are taxable if they are sold for a profit.

If you used the car for business- you must report a gain or loss on your tax return upon the sale of the car. This will be determined based on the “portion” of the vehicle used for business, compared to the “portion” used for personal reasons. To determine this, it is highly recommended that you speak with a tax professional .

Sell the Vehicle

The Internet age has resulted in a variety of websites offering values for used vehicles, such as Kelly Blue Book. You can also sell your car to a used car dealer who will handle the DMV paperwork for you. If you decide to sell it yourself, you can use online websites such as Craigslist, or you can even place a "for sale" sign on the car as long as you ensure that the title is properly transferred. You should also be cautious of potential buyers to avoid being scammed by hot checks or future payments. Vehicles are sold "as is" in most states, provided a material defect is not concealed.

During the COVID-19 pandemic, there have been several reports that auto dealers are experiencing a shortage of inventory, and the result has been that used cars are being valued at a higher price compared to those that were sold earlier, allowing owners to sell their used automobiles at a profit when the inventory is scarce. As a seller, you may not be aware that you will have a taxable gain if you sell your home.

Gift It to Someone

Old cars are often gifted to children, family members, or acquaintances. A vehicle's fair market value (FMV) must be less than $15,000 for gift tax purposes in order to avoid gift tax ramifications. As long as both spouses make the gift jointly, each spouse is entitled to the annual gift tax exclusion; thus, the vehicle can be worth as much as $30,000 without incurring any tax consequences. Gift tax returns are required if the FMV of that vehicle exceeds those limits. Despite the fact that the person to whom the car is given is "needy," direct gifts of a vehicle are not deductible on a beneficiary's tax return as charitable contributions.

Donate the Vehicle to Charity

You've probably seen ads encouraging you to donate your car to charity. It is possible that donating a vehicle does not result in a significant tax deduction, or no deduction at all. Several years ago, many charities promoted this kind of donation. Congress had to step in because taxpayers abused vehicle donations by claiming values higher than their actual value. In some cases, charitable deductions are limited to $500 due to a number of rules.

By requiring higher substantiation requirements and making the deduction contingent on the charity's use of the vehicle, the deduction is limited for motor vehicles (as well as boats and airplanes) contributed to charity that claim a value over $500.

Understanding Charitable Deductions

The charitable deduction cannot exceed the gross proceeds the charity receives from the sale, unless there is any specific and significant use in support of the organization’s regular activities. A significant intervening use could be delivering meals every day for a year to the needy or elderly or driving 10,000 miles to deliver meals over a year.

Donors' auto contribution deductions are not limited when the charity sells the item for a significant discount (or gives it away) to a needy person. Vehicles may be provided to needy individuals if they are directly used to further the charitable purposes of the donor, such as providing transportation aid to the poor. The amount of the contribution is determined by the fair market value of the vehicle.

There is a further restriction on the deduction of a vehicle donation whose value is greater than $500. It is not permitted unless a contemporaneous written acknowledgement of the contribution is provided by the beneficiary. In order for the acknowledgement to be contemporaneous, either a contribution must be made within 30 days of the contribution being made, or a vehicle must have been disposed of by the organization that makes the contribution. It is required that the donor includes a copy of the acknowledgment with their tax return in order to claim the deduction.

Final Thoughts

It is important for the donee organization to acknowledge whether it provided the vehicle in exchange for goods or other services, as well as providing a description and a reasonable estimate of its value, or, if it consists only of intangible religious benefits, stating such. The donee (charitable organization) must complete Form 1098-C, which incorporates all the acknowledgement elements required. Donors claiming a deduction for contributions of a motor vehicle, boat, or airplane must attach copy B of the 1098-C to their federal tax returns.

Please let us know if you have any further questions in a free YokeTax consultation .

Business Owners Have Until 2024 to Claim the Employee Retention Tax Credit Retroactively

Wed, 02 Nov 2022 22:50:33 GMT

The Employee Retention Tax Credit program has come and gone almost too soon, but that doesn’t mean your business can’t still benefit from it. In fact, it’s possible for business owners to retroactively claim the ERTC up to three years from the end of the program. For most businesses, that date was September 30, 2021, but a few businesses had an extension to December 31, 2021.

To add to the confusion, several laws have been passed which impact how the ARTC can be claimed. For this reason, it is highly encouraged that you speak with a YokeTax professional to make sure you stay on the right side of the law.

What is the Employee Retention Tax Credit?

The ERTC was implemented by the 2020 CARES Act as a response to the COVID-19 pandemic. It was created to incentivize employers of all sizes to keep people on the payroll during the economic hardship caused by the pandemic.

Put simply, it gave qualifying businesses a tax refund on certain wages paid to employees, such as health insurance costs.

How things have changed

Beginning with the 2020 CARES Act , the ERTC could be claimed against 50% of qualified wages paid between March 13 and December 31, 2020. The limit was $10,000 per employee, per year.

The 2021 Consolidated Appropriations Act allowed qualifying employers to claim a credit against 70% of qualified wages paid. The limit was adjusted to $10,000 per employee, per quarter .

Finally, the American Rescue Plan Act of 2021 kept the credit claim at 70% of qualified wages. However, it also changed the limit to $7,000 per employee, per quarter.

In case you’re wondering: Yes, PPP loan recipients can also claim the Employee Retention Tax Credit

A bit confusing where you stand? That’s why we encourage readers to walk through this with a tax professional. Set up a free one hour consultation today.

Qualified Employers Under the ERTC

Qualification for the Employee Retention Tax Credit rests on a variety of factors, but we’ll take some time to go over a few common ones.

Business Hours

The business had to partially reduce or fully suspend business hours due to a government order during the pandemic. The credit does not apply for the entire quarter, but rather just the portion in which the business was suspended.

Two ways some businesses may not qualify due to business hours:

They were deemed “Essential Businesses.” Unless the business’s supply chain (critical materials and goods necessary to conduct business) was critically disrupted, these businesses should have been able to continue with relatively normal operations
The businesses were largely able to continue operations through telework

Even if your business does not qualify under the business hour stipulation, it might still qualify under gross revenue.

Gross Revenue

If an employer experienced a significant decline in gross receipts, it must apply for a safe harbor as explained under IRS Revenue Procedure 2021-33 . The employer may exclude the amount of forgiveness from its definition of gross receipts if it received any of the following:

A PPP loan
Shuttered Venue Operations Grant
Restaurant Revitalization Fund Grant

PLEASE NOTE: These exclusions to gross receipt calculation apply only for application to the ERTC.

Alternative Qualification Stipulations

As mentioned earlier, there are many ways that a business can qualify for the ERTC. Something as simple as a disruption in the normal ways of doing business caused by the pandemic can allow your business to qualify. For example, if your business depended on being physically at a client’s location to operate but was stopped by pandemic rulings, your business qualifies for the Employee Retention Tax Credit.

You’ll notice that there are a lot of “ifs” in these conditions. The IRS is aware of the possibility of ERTC fraud, and so it is critical to carefully and thoroughly lay out the impacts the pandemic had on your business. It is highly recommended that you connect with a YokeTax professional for further insights.

Qualified Wages Under the ERTC

The American Rescue Plan Act specified that wages paid after June 30, 2021 can be claimed for an ERTC against Medicare taxes paid on an employee. ERTC claims for before that date are put against Social Security taxes as they were in the 2020 tax year.

Qualified wages do not include sick leave wages and family leave wages.

Tips are included as qualified wages for an employee (for the purpose of the ERTC) if they exceed $20 per calendar month.

To determine the total qualified wages which can be included under the ERTC, businesses must first determine the number of full-time employees. For the ERTC, a “full time employee” is one who, in any month of 2019, worked 30 hours or more per week.

How things have changed

2020 : Under the CARES Act, employers with over 100 full-time employees who were not providing services due to suspension or decline of business qualified. Any wages paid for vacation, sick leave, or family under the employer’s policy don’t qualify.

Employers with less than 100 full-time employees can utilize all employee wages- those who worked and those who didn’t. The only exception is paid leave provided under the Families First Coronavirus Response Act (sick and family leave).

2021 : The Consolidated Appropriations Act increased the employee limit to 500 for determining applicable wages for the Employee Retention Tax Credit.

2021 : The American Rescue Plan Act allowed the most financially distressed employers to claim credit against ALL employees’ qualified wages. To qualify as a “financially distressed employer,” the business must have had gross receipts for a quarter at less than 10% of what they had been during a comparable quarter in 2019 or 2020, pre-pandemic.

If the credit given exceeds the employer’s total liability for Social Security or Medicare, then the excess is refunded to the employer. This money will be reconciled in the employer’s Form 941 .

How Can a Business Retroactively Claim the Employee Retention Tax Credit?

The IRS has shared Notice 2021-20 . While it shares information similar to what has been highlighted in this article, it also gives further insight on how to claim the credit for past quarters.

Form 941-X must be filed for applicable quarters in which qualified wages were paid. While this process is more straightforward to determine for businesses which didn’t take out PPP loans, businesses who did must deal with some further complications.

Pages 73-81 of the notice go into detail on the stipulations for PPP loan employers, but it’s far simpler to determine where you stand by having a free one hour consultation with a YokeTax professional.

Contemplating Refinancing Your Home Mortgage? Things You Should Consider

Mon, 31 Oct 2022 14:30:03 GMT

Since mortgage rates are still near record lows, now might be a good time to think about getting a new loan to pay off your old one. Even if mortgage rates are low and your friends, family, and coworkers are bragging about the low-interest rates they got when refinanced, it's not always a good idea to refinance .

This is because many factors must be considered before committing to a refinancing.

Cost to Refinance

The savings from a lower interest rate could be canceled out by the closing costs of a refinance, which could include title insurance, points, and other fees. Still, many loan companies offer ways to refinance with no fees, so it's important to look around. Some loan companies may advertise 0% interest rates but have very high fees.

Interest Rates

Obtaining a mortgage with a reduced interest rate is one of the primary advantages that may be gained from refinancing an existing mortgage. Your ability to reduce both your interest rate and your monthly mortgage payments as a result of the refinancing will determine whether or not you should go through with it. Some believe that your interest rate must drop by at least two percentage points before you should consider refinancing. In contrast, others maintain that reducing just one point in your rate is sufficient to justify the move.

However, you need to consider how much it will cost you to refinance as well as the impact that it will have on your taxes. To discuss these issues, set up a YokeTax consultation for free .

Credit Score

Some homeowners are concerned that the act of refinancing may harm their credit score. Your credit score will naturally decrease whenever you take on additional debt, which every lender must do, and all lenders will check your credit score. Refinancing, on the other hand, involves replacing an existing loan with a new loan for approximately the same amount. As a result, it does not significantly impact your credit score. Conversely, increasing the loan amount will harm your credit score.

Borrowing Additional Cash

Some lenders push the idea that you should take out more cash when refinancing. They suggest doing activities such as taking trips and shopping in your free time. Many borrowers have already forgotten the hard lessons they learned during 2004-2008, when home prices fell sharply, and people who used their home equity as a piggy bank ended up owing more on their home than it was worth. For good financial planning, you should pay off your house as soon as possible and avoid taking out loans against their value.

If you wish to borrow further funds, you should be aware that the interest you pay on equity-based debt is not tax-deductible. This means that if the amount of the replacement loan exceeds the amount paid off on the original loan, the interest on the equity debt (cash out) will not be tax deductible.

Example:

The first debt you took on was $300,000, which you used to buy your home. You've already paid off $100,000 of the loan, so you still owe $200,000. You refinance it for $300,000, and you get $100,000 in cash. So, two-thirds of the new loan is debt for the purchase, and one-third is debt for the equity. Because the loan is 1/3 equity debt, you can only deduct 66.67% of the interest you pay on it.

If the $100,000 loan were used to buy a house, the interest on the whole loan would be tax-deductible because it would be a loan used to buy the house.

Loan Term

A 30-year mortgage is often chosen by people who want to buy a home because it is the longest it can get. Most low-interest loans today have terms of 15 years. So, the shorter-term loan might not lower your mortgage payments, but depending on your situation, it might pay off your mortgage faster.

In 2018, the Tax Cuts and Jobs Act (TCJA) was passed by Congress and signed into law by President Trump. This law made it harder to extend the term of initial acquisition debt . Here's a good example of this:

On January 1, 2010, a taxpayer bought a house with the help of a 20-year mortgage. The date to pay back the loan would be January 1, 2030. However, if the taxpayer refinanced the loan's amortized balance on July 1, 2021 into a 15-year loan with the same interest rate, 6.5 years would be added to the loan's original term. On July 1, 2036, the new loan would be paid off. But under the law as it is now, the interest on the refinanced loan will only be deductible for the length of the original acquisition debt. After January 1, 2030, the interest on the refinanced loan will no longer be deductible, so the interest on the loan will not be deductible for the next 6.5 years.

Itemizing Deductions

People who itemize their deductions instead of taking the standard deduction can write off mortgage interest payments. In 2021, a married couple who files taxes together can deduct a standard amount of $25,100. Whether you file as a single person or a head of household, you can take a standard deduction of either $12,550 or $18,800. People who are blind or older than 65 get these amounts, plus a small boost.

Paid-off mortgage interest, donations to charity, state, and local taxes (up to $10,000) can all be deducted as itemized deductions for most filers. After refinancing at a lower interest rate, you may find that your total itemized deductions are less than the standard deduction, even if they were just marginally more than the previous deduction. To put it another way, you can't deduct mortgage interest payments from your federal income taxes. You should be aware of the strategy of "bunching" deductions, which allows you to itemize one year and convert to the standard deduction the following.

If you have any further questions about refinancing your mortgage, set up a free consultation with YokeTax .

Tax Benefits for Disabled Individuals

Mon, 24 Oct 2022 17:45:00 GMT

You may have heard about tax benefits for disabled individuals. At times, the IRS can waive your penalties or taxes if you prove you are disabled. If you have been diagnosed with a disability, you should know what to expect from your tax position and how it will improve your financial status.

Let's explore the types of tax benefits you can receive as a person with disabilities.

1. Increased Standard Deduction

One of the biggest changes for people when it comes to tax benefits for disabled individuals occurs with the standard deduction. The amount of your standard deduction is determined by the amount of adjusted gross income you have, so more income means more deductions. If you have no other source of income, such as social security benefits or a pension, then your standard deduction will be higher than it would be if you were to have another source of income.

Besides that, if you or your spouse is legally blind, you can add an extra $1350 to your standard deduction and get a tax deduction benefit.

2. Exclusions from Gross Income

Income from sources other than employment or self-employment, including alimony and social security benefits, is excluded from gross income to the extent a disabled individual receives it.

If you qualify, the amount of money you can exclude from your gross income is based on a calculation using your gross income in the year you receive social security disability insurance (SSDI) benefits.

3. Impairment-related Work Expenses

A taxpayer who has been disabled for a long time and can no longer work in their regular occupation can deduct impairment-related work expenses. The expenses must be incurred because of the taxpayer's physical or mental impairment and cannot be related to another impairment. This includes medical and out-of-pocket expenses for transportation and lodging when traveling to medical appointments.

The IRS has provided some examples of what qualifies as impairment-related work expenses:

A qualified transportation expense (QTNE) is the amount you spend on transportation between your home, place of employment, or other work location and your doctor's office.
A qualified medical expense (QME) is any necessary medical care due to your physical or mental condition.
A disabled person who uses a scooter or electric wheelchair to move around the home or place of employment- so long as the cost is over $20 a month.

4. Financially Disabled

If you are disabled, you may be eligible for special tax benefits. The IRS offers a number of tax breaks that can help make your disability more manageable financially. For example, if you have limited income and resources, you may qualify for the earned income credit or the additional child tax credit. These credits reduce your taxes dollar-for-dollar.

This is because the Internal Revenue Code does not allow an individual with a physical or mental disability to suffer financially. The disabled can get substantial tax relief if they have a limited income.

5. Earned Income Tax Credit (EITC)

The earned income tax credit is a refundable credit for low-income disabled working individuals. It helps offset the tax liability of people with little or no income taxes withheld from their paychecks.

The credit is based on the number of qualifying children, your adjusted gross income, and other factors such as age and marital status. The amount of the EITC depends on how many qualifying children you have and your income level.

If you want to know more about the EITC, book a free 1-hour consultation session .

6. Child or Dependent Care Credit

This tax credit may be of particular interest to disabled individuals who have children or dependents they are supporting. The credit is worth up to 35% of your qualifying expenses, which must be for childcare or dependent care services.

To qualify, you must have been otherwise eligible for such expenses as of the end of the year immediately preceding the year in which you claim this credit. You could take a prorated amount of this credit if you paid for childcare or dependent care expenses during that tax year which totaled to less than your net income from self-employment or other sources during that year.

7. Special Medical Deductions

You may be able to claim deductions for some of your medical expenses if you have a mental or physical disability. The amount of your deduction depends on the nature of your disability and whether you have any other dependents. The following deductions are generally available:

The costs of utilizing the services of hospitals, nursing homes, and similar institutions.
Costs related to maintaining a special home or vehicle used by the disabled individual.
Costs related to maintaining a device that allows the disabled individual to perform their job.

8. Exclusion of Qualified Medicaid Waiver Payments

Medicaid waiver payments are considered to be income under federal tax law. However, a qualified Medicaid waiver payment is excluded from gross income if received by an individual deemed disabled under Social Security Administration (SSA) rules and regulations.

If you are eligible for Medicaid and receive a qualified Medicaid waiver payment, the IRS allows you to exclude this amount from your income on your federal return.

The Social Security Administration considers only one year's worth of information when determining whether someone is disabled, so if you were receiving Medicaid for that entire year, you can't count on getting your SSDI benefits retroactively.

9. ABLE Accounts

ABLE accounts are a tax-advantaged way to save for qualified disability expenses. Individuals with qualifying disabilities can contribute to an ABLE account annually, which will be matched at least dollar-for-dollar by the U.S. Treasury. The money can then be used in various ways, including to pay for tuition at an accredited post-secondary institution, or to purchase a home designed especially for wheelchair use.

If you are interested in opening an ABLE account and want to learn more about eligibility requirements, how much you can contribute, or how much the government matches your contributions, please book a free 1-hour tax consultation with the country's top-notch professionals.

Conclusion

These are various tax benefits that a disabled individual can get while living in the United States. All the tax benefits mentioned above are subjected to be availed by different disabilities. For a better understanding, please consult a Yoke Tax professional .

Tax Basis 101 Guide

Mon, 17 Oct 2022 17:45:00 GMT

Tax basis is a concept that most people have to deal with at some point. Unfortunately, very few people know exactly what a tax basis is, or how it applies to their situation. In this article, we will be breaking down the concept of tax basis and how it can be used to your benefit.

Let's get started.

What is Tax Basis?

The tax basis of property is the amount you paid for it. This includes any interest you paid on money borrowed to buy the property and the cost of any improvements made to the property.

It is important to know your tax basis when you're selling a home or other real estate, because it can impact how much money you get from the sale. The difference will be subject to sales taxes if your tax basis is less than what you sell for.

A tax basis is a way to determine the amount of your tax liability and is calculated by applying a percentage to the fair market value (FMV) of an asset.

The tax basis of an asset is determined by multiplying its fair market value by the percentage that reflects its taxable value to you. For example, if your property has an FMV of $100,000 and you are required to pay taxes on $80,000 of that property, then you would have a tax basis of 80%.

Cost Basis

Cost basis is the amount of your investment you can claim as a tax deduction.

The cost basis of an investment is the original price you paid for it, not including any cash that has been added to it since then. If you bought stock in Google for $500 per share and sold it at $1,000 per share two years later, your cost basis would be $500. However, if your broker gives you a loan to buy a stock at $1,000 per share, your cost basis will be reduced by the amount of money borrowed from your broker, $500, to calculate how much of your gains are taxable.

Cost Basis Example

Cost basis is the amount of money you have invested in a particular asset or investment. For example, if you buy stock for $100 which goes up in value to be worth $150, your cost basis is your initial investment- the $100.

If you sell that same stock for $100 per share and then reinvest the profits, your cost basis will be adjusted; accordingly, it's like closing out an old account.

Similarly, if you buy a stock at a price of $100 and then sell it after some time for $120, then your cost basis for the investment would be $100, and you will be paying taxes on the income or profit of $20.

To better understand the concept of tax basis, you need to consult a tax professional. Set up a free one hour meeting today.

Gift Tax Basis

A gift tax basis is the amount of money you can include in your taxable income when you receive a gift. A gift is an item you give someone else or a set of items that have been given to you by the same person.

If you're a sole proprietor, there's no gift tax basis. If your business has a partner, however, you should add up what your gifts are worth and calculate your gift tax basis using the percentage of ownership interest in the partnership.

When you give someone a gift, it's considered taxable income at the time of the gift. This means that you have to pay taxes on the money that was given to them and on any appreciation in value over time.

Gift Basis Example

The gift basis of property is the amount you can deduct from the cost of the property you gave or received.

Whether or not you have given something depends on what the property was worth at the time of your giving it and how long ago it was given. If you give someone $10 worth of merchandise, that's a gift. If you give them $200 worth of merchandise, that's a gift.

The amount of your deduction for a gift depends on its fair market value at the time you gave it, plus any improvements made to it since then. If a person gives an item to another person but does not disclose its fair market value, this item will be considered "imputed." The amount of imputed value is added to the basis of the item for tax purposes.

Inherited Basis

The inherited basis is the value a parent company transfers to its subsidiary when it acquires a business. It is also known as the "split-up" value.

When a parent company acquires a subsidiary, the acquired subsidiary's assets and liabilities are added to the parent company's books and records. The resulting increase in both equity and debt of the parent over what was originally recorded reflects the acquisition price paid for the subsidiary.

It's important to know how much of an asset you were given when it was passed on to you because this determines how much of that asset is subject to capital gains taxes. If you were given a large amount of property, you might save money on taxes by selling some of it and keeping the rest.

Inherited Basis Example

The inherited basis is the amount of a property's value attributed to the individual owners rather than being shared equally among all of them.

For example, if two people own $100 worth of property and contribute $50 each, their combined interest in the property would be $150. If one person died and left his share to his child, the child would own half of the original property. And the worth of that half would be the child's inherited basis.

Conclusion

Now you should understand the concept of tax basis and everything related to it. Contact a professional tax advisor if you are wondering what the tax, gift, or inheritance basis of your property is.

Book a Free 1 Hour Consulting Session with Yoke Tax.

Section 199A Reduction Methods

Mon, 10 Oct 2022 17:45:00 GMT

Section 199A was created to help manufacturers or businesses who have a product development expense offset their overhead and maintain the growth of their business. It allows businesses to deduct some percentage of their net income from selling their products and services.

Let's get to know everything about Section 199A.

Section 199A Reduction

Section 199A of the U.S. Internal Revenue Code, enacted in 2017, created a special tax deduction for certain businesses and individuals. By providing a tax break for companies, this act encouraged investment in research and development.

The law is intended to encourage investment in R&D by allowing companies to deduct up to 20% of their qualified expenses from taxable income. Qualified research expenses include expenditures for acquiring or improving tangible property used in conducting qualified R&D activities.

Additionally, costs associated with an employee's performance of qualifying R&D activities are eligible for deduction if such activities are performed on behalf of a company at an office or plant located within the United States or any possession thereof during the taxable year.

Some Benefits of Section 199A Reduction Methods

Section 199A deduction is a tax credit that reduces the tax you have to pay on your income or net profit. The credit amount depends on how long you have owned the business or income, but it can be up to 20% of that passive income. You get this credit if you own an interest in a qualified business or investment property that meets certain requirements.

Following are some benefits that you can enjoy with Section 199A tax reduction.

Harvest Capital Losses

Section 199A allows certain taxpayers to use capital losses sustained in earlier years to offset gains from other investments they have made during those years. This is called harvesting a capital loss.

If you have a stock portfolio with losses from previous years, you may want to consider harvesting them against gains from later investments. This strategy can help you lower your tax bill and increase the money available for retirement savings, home ownership, and other purposes.

Harvesting capital losses is a great way to reduce the tax you owe and increase your tax refund. It can be done in a few different ways, but one of the most common is to sell an investment within 2 years of being sold at a loss and then claim a deduction for all the remaining basis.

It is a safe way to invest. Whether starting a business or investing in one already established, harvesting capital losses can help to keep more of your money in your pocket.

Make Charitable Contributions

Section 199A allows you to make charitable contributions. When you deduct an itemized deduction for charitable contributions on your tax returns, you can claim an additional deduction for the fair market value of the donated property. This is called a qualified charitable contribution deduction, and is worth up to some percentage of your adjusted gross income (AGI) .

If you are interested in making charitable contributions, you must check all of your available options. Some organizations offer their donors a 100% match on their donations. Others offer scholarships or grants in exchange for donations.

If you choose to make charitable contributions with this method, there are a few things to keep in mind:

First, you must itemize your deductions to take advantage of this law.

You also cannot claim a deduction for any capital gains made when making these contributions. But if you sell an asset after contributing, any capital gains accrued at that time will still be deductible.

If you are already into making charities and helping NGOs bear their expenses, you can take full benefit of Section 199A. For this, you should consult a professional tax advisor.

Book a Free 1 Hour Consulting Session with Yoke Tax.

Buy Business Assets

The Section 199A deduction is also a great way to buy business assets because it allows for the deductibility of all capital expenses incurred in acquiring such assets. This includes costs associated with hiring consultants, attorneys, accountants, engineers, and architects, and the list goes on.

For example, if you want to buy your business's main asset, its building, you will be able to deduct all of your costs associated with the purchase from your income taxes. Even if you don't use those funds for anything else, you can still claim them as deductions on your taxes.

This is an especially helpful tax break if you want to buy a building that is in disrepair or is dilapidated. You may be able to get it at a much lower price than what similar buildings would sell for, and those savings will help pay off some of your loans.

Section 199A is available to any business that meets all of the following criteria:

The business must be organized as a corporation or partnership.
The business must have gross receipts of at least a million from all sources during the tax year.
The business must not be engaged in the trade or business of making a sale or exchange.

Conclusion

This is how you can reduce your taxes while taking benefits from IRS Section 199A. The tax reduction methods written above are great for saving money for retirement.

If you want to take full advantage of Section 199A's reduction methods, you should consult a professional tax advisor. Set up a free one hour consultation today.

Intimidated by Accounting? Three Simple Steps Are All You Need

Mon, 03 Oct 2022 17:45:00 GMT

When you decided to launch your own company, you most likely focused your attention on the goods or services you planned to sell, in addition to your remarkable capacity to provide excellent customer service and engage in business promotion . When you run your own small business, you are responsible for every aspect of its operations, even those that you believe are beyond your capabilities, or just boring. While this presents several advantages, it also places you in the position of being accountable for every aspect of the business.

The tasks associated with accounting often fall under both categories. Nevertheless, this does not detract from the fact that managing them effectively is of the utmost significance. The positive side is that to do what must be accomplished, you need not require a degree in accounting, nor do you even need to be competent in mathematics.

The five suggestions that are presented here are simple to implement. If you make them a part of your routine and frame of mind, you'll not only be able to take care of the fundamentals, but you'll also have a better understanding of how your firm's finances are holding up.

YokeTax is a great resource if you need help with finances. Set up a free one hour consultation .

Avoid conflating business costs with your personal expenditures.

It might seem simpler to take the same credit card or use the same bank account to pay for everything, but from the point of view of the accounting of the firm, this is a recipe for disaster.

You will find that paying for your company expenses separately will make it a lot easier to optimize your taxes and make smarter choices based on a good understanding of your income and cash flow. This is true whether you are a sole owner or an LLC (in which case separating these expenses is a requirement), but if you are a sole owner, you are required to do so.

Keep a record of your daily expenditures and payments.

Procrastination is something we are all guilty of, particularly when it comes to things we would rather avoid performing; yet, maintaining a current log of spending and revenue is crucial. Make it a habit to do it every day, just like you would make yourself a cup of coffee or brush your teeth. It will become second nature to you.

If you don't do this, you're going to end up with a mountain of records that either need to be added to your accounting system or are going to be completely forgotten. The fact that several apps make the work easier is one of the few bright spots in this situation.

Mark your calendar for a checkup every three months (or every month if you would like).

You are obligated to do a comprehensive review of the state of your firm after each quarter; hence, you should treat this examination of the status of your enterprise as if it were an important appointment. If you have been keeping your records up to date, this will allow you to gain a practical picture of how your firm is performing and what patterns you can follow and react to. If you have not kept your records up to date, this will not give you this opportunity.

Ask an Accounting Professional

If you cannot handle the accounting tasks at hand, and are looking for more information, please don’t hesitate to get in touch with Yoke Tax for a free one hour consultation .

Get help if you find that you are unable to handle the accounting tasks at hand. We offer bookkeeping and accounting services to assist you in maintaining order in your business. You may be able to handle things on your own for a time, but eventually, the growth of your business will require you to bring on assistance.

It is up to you to decide whether this should be a part-time or full-time employee or an outside service such as ours. Just make sure that you recognize when you're in over your head or when you don't have the time you need to complete it alone before you seek outside assistance.

You can steer your company in the correct direction by arming yourself with the essential financial facts you need to make intelligent decisions. Get in touch with us to discuss how we might help your organization prosper.

The Smart Money Techniques That Gig Workers Require

Mon, 26 Sep 2022 23:45:00 GMT

"Gig work" is the hottest new activity in the free market. Anybody who isn't doing it wishes they were, and those lucky enough to be freelancing know precisely how amazing it truly is. However, being a successful freelancer takes more than choosing your hours and getting as much work as you need to support yourself and your lifestyle.

It also means you need to be wise with your money. It's easy to utilize your revenues as soon as they come in. However, because you do not even have a regular income or have your taxes regularly withdrawn, you must be responsible and methodical in your approach to your money.

Otherwise, you'll suffer a significant blow at tax time, when Uncle Sam comes knocking for his cut of your earnings. You may find yourself without funds when you inevitably require them. To avoid this, we’ll go over some clever money management techniques that will make freelancing a lot more manageable.

As always, consider setting up a free one hour consultation with a Yoke Tax professional.

Be ready for a roller coaster.

Among the first things every freelancer realizes is that there are days when you can't remain up to date with all business coming your way and other days when you worry whether you'll ever work again. The rollercoaster is part of the enjoyment, and you will need to handle it on a psychological and economic level.

Saving money each time you obtain it is crucial because you will not be getting a regular income, yet you are getting regular costs that require to be paid. If you know what your normal expenditures are and verify that you have covered them now and, in the future, you'll be much less worried on those days or weeks when a business doesn't appear.

Calculate Your Taxes with Each Paycheck You Get

Put aside money for your taxes from each payment you get. If you have ever had a job that required you to file a W-2, then you are aware that your employer withheld a significant amount of money from your paycheck each week. When you got your first paycheck and realized how much went to Uncle Sam, it was a terrible feeling. However, it was extremely nice that your taxes had already been paid when April 15 rolled around, and it was even better when you got a refund.

You are responsible for paying your taxes as a gig worker. The easiest way to do so is to determine the percentage of your earnings subject to taxation and then set up your finances so that a predetermined amount of each payment you receive is automatically deducted and deposited into a separate bank account designated solely for your taxes.

If you do this, by the time you need to pay your quarter income taxes, you will already have the money set aside, and the task will be one that you can cross off your list of things to do.

Pay anticipated taxes on your income once every three months.

Although it could be tempting to put off paying your taxes until April 15 each year, you should know that doing so will result in interest and penalties being assessed against you. You are deemed to be self-employed if you operate as a gig worker, which means that you are responsible for making anticipated quarterly income taxes payments to the federal government and the state where you live.

This specifically applies to gig workers who have registered as individual businesses with their local government. A tax professional can aid you with this, and also point out different opportunities for deductions on your tax bill. Set up a free one hour consultation with a Yoke Tax professional as soon as possible.

Stay within your financial means.

Never spend more money than you have. Making a practical spending plan and sticking to it, regardless of whether you are an employee who receives a W-2 or a self-employed person, is one of the most financially astute things you can do for yourself.

It is a lot easier to ensure that you are allocating your funds wisely if you are aware of the minimum sum of money you require for fundamental spending and of just how much money you are making. This includes setting aside a specific amount of money for savings and paying a specific amount in taxes.

Do not give up looking for commercial opportunities.

Even when you feel that you can hardly keep up with your job, it is a fantastic idea to keep your ears open and talk up your business to those in your network. This can be done by joining your local Chamber of Commerce. You may take pleasure in the clients or the tasks that are keeping you busy right now, but there is always a chance that they may disappear tomorrow, and you do not want to be forced to begin from the very beginning.

Always maintain a steady stream of work in progress.

If you are a freelancer who needs assistance with financial management, consulting an experienced tax professional may have a significant positive effect on your level of self-confidence as well as your understanding of financial matters.

Get in touch with Yoke Tax immediately to position yourself to save the most money once tax season rolls around. Set up a free one hour consultation today.

Education Credits are for Children? Think Again!

Mon, 19 Sep 2022 23:45:00 GMT

You are mistaken if you believe that education credit only applies to the cost of sending your children to college. You, your spouse, and any dependents you support are eligible for education credits. You or your spouse can still be eligible for a tax credit, even if only one of you is enrolled in school part-time.

The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC)

The American Opportunity Tax Credit ( AOTC ) and the Lifetime Learning Credit ( LLC ) are both options for tax deductions that may be claimed for educational expenses. To qualify for either credit, the student must be enrolled in an accredited educational establishment for a minimum of one academic period (a semester, trimester, or quarter) during the calendar year.

An eligible educational institution is any recognized public, nonprofit, or proprietary postsecondary school in the United States that can participate in the student aid programs administered by the United States Department of Education.

The credits are reduced or eliminated for taxpayers with higher incomes who are married and filing jointly or single and filing jointly. Individuals who are married but file their taxes separately are not eligible for any credits.

How are AOTCs and LLCs Qualified?

The following table provides the qualifications and details for both credits:

There are a great number of people who can maintain their eligibility for the LLC even though they work full-time and attend school part-time. To learn which is right for you, connect with a Yoke Tax professional for a free one hour consultation .

The Fine Print of Education Credits

A further intriguing aspect of education credits is that the credit is awarded to the taxpayer who is eligible for and claims the student's exemption for the year, even if that taxpayer is not the one who pays the expenditures for the student.

Therefore, even if a child's noncustodial parent pays for the child's college expenditures, the credit is still awarded to the custodial parent, provided that the custodial parent is otherwise qualified. The same rule applies when grandparents assist pay for their grandchildren's education. For the grandparents to be eligible for the credit, they must be the ones who claim the student as a dependent rather than the child's parents.

How AOTCs and LLCs Are Applied

Form 1098-T is the tax form often sent to the taxpayer by the educational institution (or dependent). This covers all the information required to fill out the IRS form and make a claim for the credit.

There are instances in which the 1098-T must be retrieved electronically from the educational institution. If a taxpayer wants to claim any of these credits, they must have this 1098-T form by law. However, a credit can be claimed for other eligible costs.

In many situations, the AOTC and LLC have their unique set of qualifying expenditures. Refer to the following table to see which expenditures are eligible for the credits.

You’ll notice that some of these sections are labeled as “varies.” This is because they apply under very specific situations. We describe them in the “Notes” column.

In the end, though, it is best to connect with a tax professional before moving forward with the LLC or AOTC. A competent CPA can be the difference between saving hundreds and saving thousands. Set up a free one hour consultation today.

Saving on Tax Tips for Holiday Charity Donations

Mon, 12 Sep 2022 23:45:00 GMT

In the run-up to Christmas, many charitable organizations seek donations in cash or property. To help you claim a tax deduction for your charitable donations, we've included examples of how to document them. Charity donations are a great way to reduce your tax bill.

We also go over this in our Crypto Gift Tax article, so be sure to check that out if you’re donating with Bitcoin, Ethereum, or other cryptocurrencies.

A Quick Note

Charity donations are wonderful things to engage in, but on the tax front, they affect taxpayers differently. This comes down to how you look at your deductions.

Itemizing your deductions is often required to get a charitable deduction. Even so, non-itemizers who file a combined tax return in 2021 can deduct up to $600 in cash donations from their taxable income.

Other filing statuses have a $300 restriction. Tax-deductible contributions to donor-advised funds and private foundations are not allowed. Taxpayers who claim deductions below the line must do so after determining their adjusted gross income (AGI).

As always, it’s best to consult with a tax professional before making any big financial moves. You can set up a free one hour consultation with Yoke Tax anytime.

How deductions affect holiday charity donations

In the case of Mr. Claus, a 45-year-old single man, the single filing status is used. Regarding his standard Individual Retirement Account (IRA), he'll be contributing $1,000 each for the entire year of 2021. In 2021, he will have a standard deduction of $12,550 since he does not itemize his deductions.

On October 1, 2021, Mr. Claus sent a check for $200 to the Humane Society of the United States. This was his sole act of altruism for the whole year. After deducting $1,000 from $50,000, his AGI will be $49,000 . It's estimated that he'll make $36,250 each year ($49,000 x $200 x $12,550 = $36,250).

Who Can You Donate To?

To be eligible for a charitable contribution deduction, you must meet certain documentation criteria and make sure your donation goes to an officially recognized charity. There is no doubt that reputable charities like the Red Cross, Salvation Army, and Cancer Society exist. But what about smaller, more localized organizations? Use the IRS’s Tax Exempt Organization Search tool to verify if a charity is registered.

However, even if the TEOS tool does not include these organizations in its database, you can still deduct gifts to religious organizations, including churches, synagogues, temples, mosques, and federal government agencies.

Record Your Holiday Charity Donations

To deduct money given to charity, a donor must preserve some record, such as a bank record (such as a canceled check), or official communication from the charity (such as an invoice or a letter), that reveals the name of the organization and when and how much money was given. A donation of $250 or more necessitates an acknowledgment from the organization, which must be provided to the donor.

If payroll deductions are used, a pay stub, a W-2, or other proof of the donation must be retained as a transaction record. Charity donations should be made clear in this section. In addition, preserve the pledge card with the charity's name on it so you may refer to it later.

What of Non-Cash Contributions?

If you're itemizing your deductions, non-cash contributions are also deductible (i.e., utilizing Form 1040 ).

Contributions in this category are generally expected to be in good condition, but they might include everything from fine art and jewelry to clothing and furnishings.

Undergarments and socks are typically not deductible because of their low value. To claim a deduction, you must preserve an acknowledgment from the organization for every deductible contribution of $250 or more, exactly like with cash donations.

It is important that you understand that many organizations leave door hangers after receiving a gift; in one case, taxpayers were denied a charitable deduction because they only provided door hangers as appreciation. Typically, the IRS requires Form 8283 when a non-cash donation is valued at $500 or more, and a professional appraiser is required when the donation is $5,000 or more.

What Else Can You Donate for Tax Benefits?

Most people think of donations as consisting of money, food, or clothes- as described above. However, there’s a lot more flexibility involved in gift giving than one might think! Here are a few:

Donate your vehicle

When the claimed deduction for a used car gift exceeds $500, additional rules must be followed. The charity's car usage determines the deduction amount, and Form 8283 is required. Donations of used autos to a charity must be documented using a Form 1098-C .

Properly valuing a vehicle can make this complex, and that’s why it’s really important to have a tax professional at your side to make sure you stay within the bounds of the law, while minimizing your taxes on April 15th. Set up a free one hour consultation today.

Donate your sick days and vacation time

IRS personnel can give their unused paid vacation, sick leave, and personal leave time to disaster relief efforts, including those of COVID-affiliated NGOs, as a form of disaster assistance that has been extended through 2021.

Employees can give excess vacation time, sick leave, and personal leave if their business participates. To help those affected by natural disasters, the corporation will convert the gift into cash and distribute it to charity organizations. In other words, the corporation may write off the donation as a business expenditure instead of paying the employee's salary. Payroll taxes on the gift will be avoided by both the employee and the company.

An employee will not be able to claim a charitable deduction on their income tax return since the income is not taxable to the employee. To be sure, employees who take the standard deduction or are subject to AGI-based limits would save more money by not reporting their income than they would have if they did report it.

Other Approved Gifts

Special rules apply to acquiring capital belongings for a charity, charitable organization—related travel, private vehicle use, entertainment, and the placement of students in residence. Please schedule a free one hour call with Yoke Tax if you need more information about these issues.

Limitations of the AGI

Additionally, a taxpayer's AGI limits charitable gifts. For example, a person's AGI can only be 60 percent of their philanthropic donations. Contributions of real estate sold at a reasonable market value are limited to 30% of AGI. Other, less common limitations apply.

Donors can suspend the 60 percent AGI cap on financial donations in 2021. Cash donations are allowed above the 60 percent, 50 percent, 30 percent, or 20 percent of AGI maximum if the taxpayer has elected to do so, and then up to 100 percent of AGI if the election is not made. Excess AGI will be subject to the standard 5-year carryover. As a result, AGI limits will apply if an election is not made.

Donations to charitable organizations are tax-deductible in the year they are made. Before the year's end, you can charge a gift to a credit card, which will be considered for tax purposes in 2021. It doesn't matter if you don't pay the credit card bill until 2022 because this is still true. In addition, if you mailed a cheque in 2021, it will be considered received in that year.

The Dreadful Dozen

The IRS also issues its annual list of the " dirty dozen " tax cheats each year. Organizations on the list of the "dirty dozen" pose as charities to solicit funds from unsuspecting people. Beware of requests from fictitious charities from scammers before you send in your money.

Set up a Yoke Tax free hour consultation if you have concerns regarding claiming charity gift deductions.

Understanding Crypto Debit And Credit Cards

Mon, 05 Sep 2022 23:30:00 GMT

Crypto debit cards and credit cards are new forms of payment that allow consumers to spend cryptocurrencies without converting them into fiat. On the other hand, crypto credit cards do not offer instant access to your crypto balance but instead let you spend cryptocurrencies at any store or retail location, but you will have to pay it later, just like a regular credit card.

Let's get to know everything about crypto cards in detail.

What is a 529 College Saving Account?

529 College Saving Account is a special investment account designed for parents to save for their children's future education. The account works like a savings account, but it grows tax-free and can be used for any qualified higher education expenses.

The money in the account is exempt from income taxes as long as it is used only for qualified higher education expenses. Qualified expenses include:

Tuition, room, and board at an eligible postsecondary institution.
Certain books, supplies, and equipment.
Computers and their software

A 529 plan offers a way to help your child pay for college without taking on debt or putting your retirement at risk.

For more insights on retirement and college savings, set up a free one hour consultation with a YokeTax professional.

Dipping Into Taxation

If you are currently studying at a university, your college savings account is probably one of the greatest financial assets you own.

But before you start blowing through your nest egg, be aware that withdrawing money from your 529 plan can be subject to taxation if the money is remitted by someone other than the custodian. This is true even if you use the proceeds for qualified higher education expenses .

Withdrawals from a 539 college savings account are taxable unless they are made according to the terms of the agreement with the savings institution. If this is not specified in an agreement, then withdrawals are usually taxed when they are made. You will want to check with your financial institution about how withdrawals will be taxed in your particular situation.

529 Multiple Payment and Withdrawal Options

The most common way to access your 539 College Saving Account is by making a withdrawal. You can also choose to make a transfer between accounts or to deposit money into your account.

You usually have several payment options: cheque, direct deposit, electronic transfer, pre-authorized debits (from a credit card), or online banking. If you choose electronic transfers, the funds will be transferred within 24 hours of your request.

But, the most important thing for you to know in a 529 Saving Account is that both the owner and the beneficiary can easily withdraw funds from the account.

The account holder or the owner can easily cut a check and withdraw money at any time, but if the beneficiary wants to withdraw funds, the owner will name them for withdrawal.

Things to Consider

Withdrawals from 529 supported with the custodial fund cannot be taxed as a distribution, depending on the type of 529 plan you're using.

If your withdrawal is from a 529 plan that uses the "contribution method," the amount withdrawn will not be subject to federal income tax. If your withdrawal is from a 529 plan that uses the "income-based method," the amount withdrawn may be subject to federal income tax plus state and local income taxes, if applicable.

Even if you are not subject to federal income tax, you still need to pay state and local taxes on withdrawals from 529 plans.

If you are concerned about paying taxes on withdrawals from 529 plans, it might be better to consult a tax professional on this matter and get detailed guidance.

The IRS Is Watching You During Withdrawals

The IRS is watching you during withdrawals from 529 college savings accounts. So, if you are trying to decide between withdrawing funds from a 529 college savings account and an IRA, the IRS might be able to help you out.

The IRS says you can withdraw money from your 529 college savings account without paying any taxes or penalties, but only if that amount represents your original contributions . So, for example, if your mother placed $5,000 initially, and the 529 grew to $7,500, you can withdraw that first $5,000.

You want to keep track of your expenses and ensure you don't exceed the amount of money in your account, but the IRS won't come after you for taking money out.

If you take any amount out of your 529 college savings account during the year when you are not enrolled in the college, it's considered a taxable event and requires paying income tax on it or giving it back. The IRS gives more guidance on 529s in this news release .

When the IRS Can Trigger Taxes

What happens if you take out more than the allowed amount? You will owe the IRS additional taxes on that money.

Continuing with our example, the initial deposit is $5,000. If you take out, say $6,000, then that extra $1,000 you took from your 529 is considered a distribution. This makes it subject to a 10% penalty tax on top of the regular income taxes .

Other Withdrawals May Be Taxable

One of the most common questions college savers have is whether or not their withdrawals are taxable. While there are some circumstances in which it might be, most people's primary assumption is that their withdrawals will be tax-free. This isn't always true.

There are a few instances where withdrawals from 529 accounts can be taxable even in times when college fees are incurred, even if you are using the money for qualified higher education expenses. For example:

Using your withdrawals to pay for kindergarten through grade 12 education expenses (or higher education expenses). They may still be taxable if they exceed the adjustable account limit during the year, which doesn't include any interest earned on those funds.

Withdrawals for Non-Educational Purposes

When you withdraw money from your 539 College Savings Account, you can take out only what you need. However, there is a catch; if you do not use the withdrawal for education, it will be taxed at 10 percent.

To avoid this penalty tax, make sure you spend all your withdrawals from your 539 College Savings Account on qualified educational expenses like tuition payments and books.

Conclusion

If you are looking for ways to save for college without paying taxes on the money you have saved, consider opening up a 529 plan. This type of account allows parents to save for their kids' future education without paying unnecessary taxes on the money they have saved up over time.

Set up a free one hour consultation with a YokeTax professional to learn how to maximize your benefit.

529 College Savings Account Withdrawals And Taxation

Mon, 29 Aug 2022 12:30:00 GMT

529 college savings account withdrawals are a common practice for many college graduates. While this is true, it may not be the best method to save for school. Withdrawing from a 529 plan early may cause problems when you need to sort out your finances after a student’s undergraduate years.

So, let's discuss 529 college saving account withdrawals and the taxation process.

What is a 529 College Saving Account?

The money in the account is exempt from income taxes as long as it is used only for qualified higher education expenses. Qualified expenses include:

Tuition, room, and board at an eligible postsecondary institution.
Certain books, supplies, and equipment.
Computers and their software

A 529 plan offers a way to help your child pay for college without taking on debt or putting your retirement at risk.

For more insights on retirement and college savings, set up a free one hour consultation with a YokeTax professional.

Dipping Into Taxation

If you are currently studying at a university, your college savings account is probably one of the greatest financial assets you own.

529 Multiple Payment and Withdrawal Options

The most common way to access your 539 College Saving Account is by making a withdrawal. You can also choose to make a transfer between accounts or to deposit money into your account.

But, the most important thing for you to know in a 529 Saving Account is that both the owner and the beneficiary can easily withdraw funds from the account.

The account holder or the owner can easily cut a check and withdraw money at any time, but if the beneficiary wants to withdraw funds, the owner will name them for withdrawal.

Things to Consider

Withdrawals from 529 supported with the custodial fund cannot be taxed as a distribution, depending on the type of 529 plan you're using.

Even if you are not subject to federal income tax, you still need to pay state and local taxes on withdrawals from 529 plans.

If you are concerned about paying taxes on withdrawals from 529 plans, it might be better to consult a tax professional on this matter and get detailed guidance.

The IRS Is Watching You During Withdrawals

You want to keep track of your expenses and ensure you don't exceed the amount of money in your account, but the IRS won't come after you for taking money out.

When the IRS Can Trigger Taxes

What happens if you take out more than the allowed amount? You will owe the IRS additional taxes on that money.

Other Withdrawals May Be Taxable

Withdrawals for Non-Educational Purposes

To avoid this penalty tax, make sure you spend all your withdrawals from your 539 College Savings Account on qualified educational expenses like tuition payments and books.

Conclusion

Set up a free one hour consultation with a YokeTax professional to learn how to maximize your benefit.

10 Simple Strategies to Reduce Your Crypto Tax Bill

Mon, 22 Aug 2022 12:30:00 GMT

Avoiding crypto taxes is out of the question. It is important to keep in mind that tax fraud and tax evasion can have serious repercussions. We wrote an entire article about it, and it still applies.

However, investors can legitimately reduce their tax burden by using certain measures. Here, we'll cover the basics of cryptocurrency taxes and provide you with ten easy tips to help you save money on your tax bill.

Of course, talking with a professional helps a lot more! Get a free one hour consultation today.

What is the process of cryptocurrency taxation?

Let's review the foundations of bitcoin taxation before moving on to tax minimization options.

Like stocks and real estate, cryptocurrency is classified as property by the Internal Revenue Service (IRS). As a result, both capital gains and ordinary income taxes apply.

If you sell your bitcoin, you'll have to pay capital gains tax on the profit. When it comes to getting rid of your cryptocurrency, you may sell it for fiat, trade it for another, or use it to purchase products and services. If the value of your tokens has increased since you received them, you'll owe taxes on the appreciation.

If you're making money in cryptocurrency, you'll have to pay regular income taxes. It is possible to make money by staking or mining, referral incentives from crypto applications, or paying for your labor in crypto.

Let's look at ways to lower your cryptocurrency tax burden.

Harvest your losses

To lower your tax cost, you can use tax-loss harvesting to reduce the value of part of your bitcoin assets.

When someone sells cryptocurrencies at a loss in order to claim tax savings, this practice is referred to as " tax-loss harvesting .”

Cryptocurrency has an advantage over other asset classes regarding tax-loss harvesting. The 'wash sale rule,' which specifies that investors cannot claim capital losses if they purchase the identical stock 30 days before or after the sale, applies to stocks.

Cryptocurrency is now exempt from the 'wash sale rule' since it does not exist. Investors may now sell cryptocurrencies like Bitcoin, claim a capital loss, and then repurchase their tokens.

Make long-term financial commitments.

To reduce your tax burden, you should wait until you have long-term assets before selling them. Remember that if you've kept your crypto for more than a year, you'll pay less in capital gains tax.

In the long term vs. in the short term

It's vital to keep in mind that the value of cryptocurrencies fluctuates. If you think the price of your home will fall over the next several months, you could be better off selling now rather than waiting. When making trading selections, you should consider the preferred long-term capital gains rate.

Take advantage of a low-income year to make money.

Be aware that your bitcoin disposal tax rate depends on your income bracket for the year you made the transaction.

Investors may opt to profit from bitcoin gains while their income is modest.

This might have a significant impact on your tax bill in some cases. Those who make less than $40,000 a year are exempt from paying taxes on the sale of cryptocurrencies. We go over why in this article .

Give cryptocurrency presents

Gifts of cryptocurrency have their tax advantages. Giving Bitcoin away as a gift is tax-free, so long as you don't use it yourself. A gift tax return is required for presents with a fair market value of more than $15,000. However, this form is largely for informative purposes.

This can appear to be an extreme measure. For those who wish to share their money with loved ones, crypto gifts are an excellent method. Note, however, that they include a crypto gift tax !

Tax benefits are also available to recipients. Getting a cryptocurrency as a gift is not a taxable event.

But the receiver must maintain track of the cryptocurrency's value at the time of their donation. The recipient must record any gain or loss based on these numbers when the cryptocurrency is sold.

Use Your IRA or 401k to Buy and Sell Cryptocurrencies

The goal of a retirement account is to provide a tax-free way for investors to accumulate money. Consider that you won't be able to cash out until you reach a specific age.

However, all profits and withdrawals from traditional retirement funds are taxed. Taxed income can finance a Roth retirement account, but all profits and withdrawals are tax-exempt.

Selling assets in a Roth IRA, for example, will not trigger capital gains tax until the proceeds are taken out of the account.

Most IRA providers, even some of the most well-known, do not directly allow users to invest in cryptocurrencies. Fortunately, other options exist .

With self-directed IRAs, you may put your retirement funds into other assets, including real estate, gold, and cryptocurrency. All IRAs, including self-directed IRAs, can be contributed $6,000 a year if you are under 50.

Self-directed IRAs can invest in cryptocurrencies through a variety of means. iTrust Shares, Bitcoin IRA, and Coin IRA are among the most popular options.

Hire a CPA that specializes in cryptocurrency (Certified Public Accountant)

When you're on your own, figuring out the tax law may be daunting. As a result, you may want to consider working with a specialist.

For many investors, the cost of hiring an accountant is well worth the investment. A cryptocurrency-savvy accountant can illuminate tax-saving methods for you. Set up a free one hour consultation now.

Make a monetary donation

Donating cryptocurrency to worthy charities may be a rewarding experience. Additionally, the IRS permits crypto investors to take advantage of a "double-dipping" tax benefit when donating in the form of cryptocurrency.

Donating bitcoin is one of the few times when cryptocurrency disposal is not taxed. It is also possible to deduct the fair market value of bitcoin contributed after a year of holding it. Read our article on the crypto gift tax to learn more.

Take out a bitcoin loan

Let us know how we can help you with your bitcoin withdrawal needs. Use your cryptocurrencies as collateral instead of cashing out. We’re always open for a free one hour consultation .

Borrowing money to buy bitcoin, on the other hand, does not constitute a taxable event like selling your bitcoin. Based on the interest rate and the circumstances of your financial status, getting a loan might wind up saving you money over the long run.

Relocate to a low-tax jurisdiction

It may seem a drastic move, but some investors prefer to migrate to locations with lower tax rates to save money on their investments.

Little to no income taxes are imposed on residents of the following states : Alaska, Florida; Nevada; New Hampshire; South Dakota; Tennessee; Texas, Washington, and Wyoming (though New Hampshire taxes interest and dividends).

In certain cases, investors migrate their entire families to a new country. For the time being, bitcoin sales are not taxed in Portugal. El Salvador, on the other hand, has stated that all Bitcoin profits would be tax-exempt.

Avoid Tax Crypto Tax Pitfalls

With the 2020 tax year coming to a close, more and more people are realizing that their crypto investments are going to be an issue. Since the federal government has set its laser sights on documenting and taxing crypto assets, many retail investors are simply finding that they haven’t properly prepared to pay their dues. Crypto tax pitfalls seem inevitable, but there are many solutions available if one knows where to look… or who to ask .

Learn more about crypto tax pitfalls here.

The Beginner’s Guide to Crypto Mining Taxes

Mon, 15 Aug 2022 12:30:00 GMT

Mining cryptocurrencies results in revenue that must be disclosed to the government as part of your tax filing obligations.

When you sell or trade your incentives, reporting and paying your taxes becomes far more difficult. When you acquire new assets and dispose of old ones, you are expected to meticulously document the current worth of such assets according to the fair market.

The taxation system for crypto mining may appear complicated at first glance; thus, let's go through each step of the reporting procedure. In this piece, we will discuss how you may correctly report revenue from mining, lower the amount of money you owe in taxes, and yet remain in compliance with the regulations set forth by the IRS.

Feel free to connect with a tax professional. A good CPA can be the difference between keeping all your mining gains and losing them all. Set up a free one hour consultation today.

What exactly is mining for cryptocurrency?

Evidence of Work Done Mining is the process of adding new blocks to a blockchain. Cryptocurrencies like Bitcoin rely on miners to keep the network safe and validate transactions. Miners use very advanced computers to solve difficult mathematical puzzles in exchange for bitcoin. Miners are paid for their efforts.

How are the rewards from mining taxed?

Mining bitcoin makes you vulnerable to several distinct tax events, including the following:

Paying income taxes when obtaining dividends from mining rewards
When you sell your payoff at some point in the future, you will be subject to capital gains taxes.

Income taxes

Your mining profits are subject to ordinary income taxation, with the rate determined by the value of your coins at the time they were delivered to you, adjusted for inflation.

For instance, if you were successful in mining 0.25 ETH on February 15th, 2022, you will be required to pay income tax depending on the price of Ethereum expressed in terms of dollars on that day.

Your current income level will determine the percentage of tax you must pay on the profit you make from mining.

Capital gains taxes

When an asset is sold, either a gain or a loss in the form of capital is recorded on the owner's tax return. Exchanging your cryptocurrency for fiat cash, trading your cryptocurrency for other cryptocurrencies, or trading your cryptocurrency for goods and services are all examples of disposal events.

In this scenario, the amount of capital gains or losses you sustain is determined by the degree to which the price of your tokens has changed from the time you mined them.

Either way, the smart move is to connect with a tax advisor. Set up a free one hour consultation today.

Is there a double tax on revenue from mining?

A gain or loss incurred from the sale or exchange of a token acquired through mining must also be reported, just like any other gain or loss incurred from the sale or exchange of a token. On the other hand, you will not be subject to double taxation on the same income.

Tokens obtained through mining are subject to regular income taxation, with the amount of taxation determined by the tokens' worth in the open market now they are acquired. You will only be responsible for any capital gains or losses that result from disposal if it is determined that the price of your tokens has increased or decreased since the time you first got them.

How to properly classify your mining of cryptocurrencies as either a business or a hobby when filing your taxes

If you mine cryptocurrencies as a hobby, you will need to report the value of the coins you mine as "Other Income" on line 2z of Form 1040 Schedule 1 , which is in the "Other Income." On the line that's supplied, write down the sort of revenue you received, such as "crypto mining."

When mining as a hobby, you are not permitted to use deductions to offset certain of your expenses, such as the cost of energy or the cost of gear.

On the other hand, if you manage your mining activity as a corporate organization, you will report your revenue on Schedule C. This is the case regardless of whether you own any mining equipment. If this is the case, you won't be able to deduct any costs related to running your firm. If your expenditures are audited, it is highly recommended that you keep detailed records of them.

Are you unsure if your activities should be classified as a business or a hobby?

What kinds of tax breaks are offered to mining companies?

You are eligible for a tax deduction for any costs involved with running your business if you mine cryptocurrencies through a legal business organization. Mine owners who mine for fun are not eligible for these deductions.

The following is a list of some of the expenditures that mining companies can deduct.

Mining cryptocurrencies might result in significant increases in one's monthly power use . Fortunately, mining companies can deduct these charges as legitimate business expenses.

It is crucial to keep a record of the total quantity of power used just for mining if you want to deduct the cost of electricity from your tax bill. Suppose you have a home office or another property that consumes energy for reasons unrelated to mining. In that case, you might want to think about installing a second electricity meter to monitor how much power is being consumed there.

If an audit occurs, it is probable that these mixed-use costs, including corporate and personal uses, will be investigated. The significance of maintaining accurate records is brought into focus by this.

Learn more about IRS Audit Triggers , and set up a free one hour consultation with a YokeTax pro.

Equipment

Most of the time, the cost of your mining equipment may be deducted as an expense in the same year it was bought, according to Section 179 of the Internal Revenue Code . Suppose the cost of your mining equipment that you are deducting under Section 179 is greater than $2.6 million. In that case, you are eligible to deduct the cost of your equipment annually using the depreciation method.

Maintenance And Repairs

If you've performed any maintenance or repairs on your mining equipment, you should be entitled to deduct the cost of such services from your taxable income. Be careful to retain a record of the total cost of these repairs if the IRS decides to conduct an audit.

Rented Quarters

You may be able to write off the cost of renting out premises to operate a bitcoin mining operation as legitimate business expenditure.

If you mine bitcoin in a home office, you may be eligible for a deduction depending on the percentage of your house solely devoted to your mining activities. This percentage is determined by measuring how much your home is used for mining. If you are looking for more information, get in touch with Yoke Tax for a free one hour consultation .

Coinbase Stopped Issuing Form 1099-K: What To Do?

Mon, 08 Aug 2022 12:30:00 GMT

Coinbase has stopped issuing Form 1099-K to its customers and government. This was a surprise for many cryptocurrency traders and investors. Essentially, a 1099-K form is used by companies like Coinbase to ensure that their clients get proper tax breaks and employment reporting.

This caused a delay in reporting income while Coinbase worked on updating and upgrading its systems. But now, Coinbase is saying they cannot meet these new requirements and will no longer be issuing these forms.

So, what should you do now? Let's discuss everything related to Form 1099-K in detail.

(Note, be sure not to confuse this with Form 1099-B , which serves a different purpose. Read about it here .)

How Do I Report Crypto Income on My Taxes?

This is a question that we have all been asking ourselves. There is an increasing interest in cryptocurrencies, and it seems everyone wants to know how to report crypto income on their taxes.

Unfortunately, there isn't a simple answer. You need to consider a number of factors when deciding whether or not to include crypto income in your taxes.

First, you have to determine if you have any taxable income from trading or investing in cryptocurrencies. If so, you need to determine how much of that income will be considered taxable.

If you don't currently have taxable income from trading or investing in cryptocurrencies, then you can exclude any of your gains from those investments from being included as part of your taxable income for the year.

Next, you need to determine whether or not any losses incurred during the year are deductible against other types of income. Most commonly, this will be labeled as a capital loss . If so, those losses can also be used against other types of deductions, such as property taxes or casualty losses.

Finally, you will specify all the details in your tax returns and submit them to the IRS with transaction proofs. You should consult a professional tax consultant and take advice on the whole matter. Yoke Tax offers free one hour consultations with tax pros who have over 20 years of experience.

What is Form 1099-K?

Form 1099-K is a form that is used to report the payments made to you from your employer or investor. It's similar to a W-2, except it includes only payments made during the year rather than including all of the income and deductions for that year. This means that Form 1099-K will include any information about non-employee compensation or other income you received during the year.

Unlike a W-2, Form 1099-K does not require you to report your Social Security number on it. However, if you have ever had an SSN assigned to you by the Internal Revenue Service (IRS), then all your wages will be reported on Form W-2 regardless of whether an employer or another person pays them.

Form 1099-K is a good way to keep track of your income and help you avoid trouble with the IRS.

Does Coinbase Issue 1099-K Forms?

Coinbase does not issue 1099-K forms. However, Coinbase regularly provides tax information to the IRS and other government agencies.

Taxes are often due by the end of April for many people. If you have been paid with cryptocurrency, you may be able to claim a tax deduction for the value of your cryptocurrency loss this year.

The IRS requires that Coinbase issue 1099-K forms for all U.S.-based customers who:

Receive more than $20,000 in net income or gross revenue from the exchange of virtual currency during a calendar year (and at least 300 days of service)
Receive more than $20,000 in investment income during a calendar year and at least 300 days of service.
Received an equal amount in 200 transactions during a calendar year.

Does Coinbase issue 1099 forms today?

Coinbase no longer issues 1099 forms.

The IRS requires that Coinbase and other digital currency exchanges report income earned through the sale of virtual currency. Coinbase doesn't have an automated procedure to provide a 1099 form system in place.

The company does, however, offer an information portal where you can find out how much money you have made selling bitcoin or cryptocurrencies for yourself or others, and it would be helpful if you are paying taxes.

The IRS has said that it's working on implementing a new system that will enable digital currency exchanges to report income earned from selling cryptocurrency. This has been ironed out in our 2022 Crypto Tax Guide .

What is Coinbase's Tax Reporting Threshold?

Coinbase's tax reporting threshold is $600.

Coinbase will only report transactions above this amount to the customer.

The amount of money you can spend in a single day before Coinbase starts reporting to the IRS depends on your country's tax code. Some states have a higher tax ratio, while others have a lower one. So, it all depends on your geographical location.

(Note that payment apps like Venmo also have a $600 tax reporting threshold. Read more here .)

File Your Coinbase Taxes Today

If you are looking to file taxes on your crypto earnings, you will need a professional tax consultant to help you smoothly through the process. Book a free one hour consultation with Yoke Tax today.

10 Common Tax Penalties to Watch Out For

Fri, 05 Aug 2022 12:16:35 GMT

While most taxpayers don't want to incur tax penalties, many of those who do are unaware of the penalties or the harm they may do. Let's look at nine of the most common fines and how they might be avoided before the next tax season.

Amounts Due and Penalty for Failure to Pay Estimated Taxes

Payments are made on a pro-rata basis, meaning taxpayers must withhold or make anticipated tax payments throughout the year to meet their tax obligations. Generally, projected tax payments are paid in four equal installments , payable on the following dates: April 15, June 15, September 15, and January 15.

Currently, the penalty for underpayment of anticipated tax is 3 percent of the underpayment if a taxpayer owes more than $1,000 when they file their return for the year. A "safe harbor" payment of 90% of the current year's tax liability or 100% (for high-income taxpayers) of the prior year's tax liability can protect you from this penalty. To avoid a fine, those in the agricultural and fishing industries only need to prepay 66-2/3 percent or 100 percent of their previous year's liabilities.

When the taxpayer's tax is higher than the year before, the safe harbor of 100 percent / 110 percent is useful. On the other hand, estimated tax payments might have a significant influence when a taxpayer predicts a significant decline in earnings from last year. Taxpayers will likely pay 90 percent of the current year's tax due rather than 100 percent or 110 percent of the prior year's tax liability as a safe harbor for estimated tax in the lower-income year. Set up a free one hour consultation with a YokeTax professional so we can evaluate if and how much you need to pay.

The Penalty for Failure to Meet the Required Minimum Distributions

Retirees should take an Required Minimum Distributions ( RMD ) each year after reaching the mandatory RMD age. This is to prevent an individual from investing in tax-deferred retirement plans, such as traditional Individual retirement accounts, but never withdrawing funds from the plans (which would indicate that the federal government would never collect taxes on the retirement funds). The current age of distribution is 72.

Excess accumulation (under-withdrawal or under-distribution) is punished by a penalty of 50% of the difference between what was withheld and what was withheld. However, in most cases, the Internal Revenue Service is extremely lenient in abating penalties when adopting remedial measures.

Late-filing tax penalties
A penalty for failing to pay taxes on time
Penalties for late payment of taxes

A penalty of 4.5 percent each month (up to 22.5%) will be levied if a return is filed beyond the due date, including after extensions. Returns are typically due on April 15 of the following year. The initial deadline for 2020 returns was moved to May 17, 2021, due to COVID-19. A further extension until October 15, 2021 is available to anybody who failed to file by that deadline.

The IRS strongly recommends filing your tax return as soon as possible to avoid late-filing penalties. A YokeTax professional can help you pay as little tax to Uncle Sam as possible, and all it takes is a free one hour consultation .

If a return is filed over 60 days late, the penalty is 100% of tax due plus $435. If you can show that there was reasonable cause and no deliberate disregard, the IRS may be willing to relax the penalty for late filing. The obvious way to avoid the penalty is to file on time.

Tax penalties for late payment

Suppose the tax owed on a return is paid after the expended due date of the income tax return (normally April 15 but is May 17 for 2020 returns filed in 2021). In that case, the taxpayer will undergo a penalty of 1/2% each month (maximum 25%) of the unsettled balance. Taxpayers are regularly caught by this penalty when they require an extension to file their income tax return; plenty fail to recognize that the extension does not include an extension on paying.

The only method to prevent or lessen this penalty is to have little or no balance due on the return when it is finally filed. The extension form includes a provision to pay the predicted balance owed when filing the extension.

The only way to guarantee you don’t deal with the penalty at all is to connect with a qualified tax professional. Set up a free one hour consultation now.

Negligence penalties for taxes

Taxpayers who fail to pay taxes because of their negligence or inaccuracies in tax evaluations are subject to a 20% penalty. Due to under reporting or overstating deductions, the Internal Revenue Service might impose a penalty on a previously filed tax return.

Amounts due to taxpayers who commit tax fraud
Fraud penalties in the tax code
The penalty for tax fraud is 75% of the unpaid tax.

Penalties for a Returned Unclaimed Funds Check

Two percent of the check amount is the penalty for dishonored checks of more than $1,250. There is a $25 fine if the check amount is less than $1,250, whichever is lower. An installment payment plan can be set up with the Internal Revenue Service if you don't have enough money to pay your taxes when you file for your return. If you're on a payment plan, you may still be hit with late fees, but the penalty rate will be lower.

Tax penalties for Missing ID Numbers

Anyone who fails to include their Social Security number on their tax return will be subject to a $50 penalty for each omitted digit. If the taxpayer fails to provide their SSN to another person or organization when requested, they will be penalized.

Penalty for Early Withdrawal : Individual retirement accounts (IRAs) have an early withdrawal penalty of 10% if the account owner is under the age of 59 1/2 and takes money (or other property) out of the plan before that age. It is 10% of the portion of the payout that had to be included in gross income for the year in which it was distributed. This punishment has a wide range of exceptions.

In 2020, this penalty was removed for distributions of up to $100,000 from registered retirement plans and conventional Individual Retirement Accounts. Unless one of the several exceptions applies, early withdrawals in 2021 and later years are subject to a penalty.

Those who fail to submit tips to their employer will be fined. If you don't record your tips, you'll owe the Social Security Administration 50% of the tax. Again, situations like these are why it’s important to connect with a tax pro before tax season. Minimize the chances of these penalties sneaking up on you!

Taxes for failing to disclose foreign accounts and assets can be costly.

Failure to register a wide variety of foreign accounts and properties can result in hefty fines or even excessive penalties. If you have a foreign financial account, a foreign trust, ownership in a foreign firm, or were given foreign gifts, please schedule an appointment with this office.

Excessive Claim Penalty

A penalty of 20% of the overpayment is imposed on the person who files a claim for a refund or credit for unreimbursed federal income tax. When a taxpayer's claim for any given tax year exceeds the maximum amount that may be claimed for that year, it is considered "excessive."

If there is evidence that the excessive amount claimed was justified, there will be no punishment. The penalty does not apply if any component of the excessive amount of credit is penalized for being inaccurate.

Non-Itemizers face an accuracy penalty.

To qualify for the deduction in 2021, taxpayers can donate up to $300 (or $600 for married couples filing joint taxes) in cash to approved charity organizations. Only those who itemize their deductions can deduct charitable contributions. If a non-itemizing taxpayer overstates their charitable gift, they might face a penalty equal to 50% of the tax attributable to the overstatement, rather than the usual 20%.

Penalties for a Refund that is Too Vague

There are additional penalties for filing frivolous returns that do not include information necessary to determine the correct tax, reveal a significantly incorrect tax due to the taxpayer's frivolous position, or display an interest in delaying or hindering the tax laws, such as a $5,000 fine—changing or erasing the preprinted text above the area where the taxpayer signs are included in this. The IRS may be able to decrease the penalty from $5,000 to $500 in some cases.

Tax penalties for Failure to File Information Returns

If a taxpayer fails to file a necessary information return by the due date or in the manner specified by law, fails to include all required information, or contains incorrect information without good reason, they will be subject to a $280 penalty for each return due in 2021 or 2022. To avoid a $150, the infraction must be repaired within 30 days of the deadline or by August 1 for a fine of $50.

Remember! The only way to guarantee you don’t deal with any penalties is to connect with a qualified tax professional. Set up a free one hour consultation now.

South Korea Tax Haven Laws - How to Take Advantage of Them?

Mon, 25 Jul 2022 22:45:00 GMT

If you are a business running in South Korea, it may be time for you to take advantage of some tax haven laws. There are many benefits that come with setting up a company in one of these countries, so it's definitely worth looking into if your business is based overseas.

South Korea is a country that's very strict when it comes to taxes. If you are operating a business in South Korea, you should familiarize yourself with your country's tax laws and devise a plan for meeting them. But, some tax laws can benefit you if you are running a business outside of South Korea while residing in the country.

So, let's learn about South Korea Tax Haven Laws and how you can take advantage of them. We highly recommend that you set up a free one hour consultation with one of our tax professionals before making such a major financial decision. Tax haven laws can get complex very quickly.

Is South Korea Tax Haven?

In the past, many have considered South Korea a tax haven. However, this is not completely true. The country's current tax policy has changed in such a way that it is no longer considered to be a complete tax haven.

A tax haven is an area where no taxes apply to foreign individuals or companies. Many of these countries have very low taxes and deductions , meaning that individuals and companies do not pay much for their income.

South Korea has been a tax haven for many years because of its low taxes and deductions. However, this has changed recently with the new tax policy that came into effect in the past few years.

But, this does not mean you can't get any tax benefits while residing in South Korea. There are still some tax benefits that you can enjoy. So, let's get to know more about them.

What Are South Korea Tax Haven Laws? And How to Take Advantage?

There are a few tax benefits laws or tax haven laws that you can enjoy while doing business outside of South Korea. But, the most beneficial ones are here:

Offshore Accounts Law

The Offshore Accounts Law has been active in South Korea for the past few years and has been a major factor in the country's recent economic growth. This law allows companies to establish offshore accounts for tax purposes and provides great flexibility concerning how such accounts should be structured.

The Offshore Accounts Law is extremely beneficial to companies investing in South Korea, allowing them to take advantage of the country's low corporate tax rate and favorable business environment. It also makes it easier for foreign businesses operating within South Korea to comply with their tax obligations.

However, this law does not apply solely to foreign corporations; domestic companies can also benefit from its provisions. The Offshore Accounts Law provides much-needed help for all businesses looking to expand or relocate within South Korea. However, it can be especially helpful for those planning to establish an offshore company or investment vehicle as part of their business strategy.

Trust Accounts Law

Trust accounts are a popular way to save money in South Korea. They are also called "trust funds."

You can create a trust account with a bank or other financial institution and deposit your savings into the account. After that, you can use the money from the account as you wish, like to pay bills, buy groceries, or whatever else. The main benefit of having a trust account is that it's not subject to inheritance taxes. Your tax bracket does not matter regarding how much you save in your trust account, only how much profit you make on that savings.

If you want to take advantage of South Korea's trust account laws, you need an account at a local bank or credit union. Then, just keep earning interest on the money in there.

Insurance Accounts Law

Another popular tax haven law in South Korea is the Insurance Accounts Law. This law allows you to open an insurance account with a local insurance company and then use those funds as a means of tax evasion.

All you have to do is open up an account with a local insurance company, deposit funds into it, and use them for your own personal gain. You can then claim that you are using these funds for personal reasons, like buying a house or starting a business.

Please note that this sounds a lot easier than it actually is. We highly recommend that you set up a free one hour consultation with one of our tax professionals before making such a major financial decision. Tax haven laws can get complex very quickly.

Offshore Shell Companies Law

An offshore company is registered with the Korean Tax Administration (KTA) as an offshore company. It can have any number of shareholders or shareholders-directors who are not residents of South Korea, including foreigners.

An investment made to these offshore companies will be free from all types of taxes, while only the profits that came into your account in South Korea are taxed. By creating an offshore company in South Korea, you can save yourself from taxes and save money.

Do I need a Corporate Entity to set up an Offshore Company in South Korea?

Yes, you will need a corporate entity to set up an offshore company in South Korea. The corporate entity is required because it acts as the offshore company's legal owner and must be registered with the Korean government.

How Much it will Cost to use South Korea as a Tax Haven?

As with most countries, setting up a company in South Korea is not necessarily expensive . However, it does require some fees from your end.

If you are planning on doing it yourself, you will have to pay around $3500 for the first year of setting up the company in South Korea. In the next 2 years, you will have to pay around $1000 per year, and after that, you will be charged according to the company's profits.

All things considered, don’t fall into the trap of thinking this is easy to do! Having a tax professional at your side is paramount to avoiding hidden fees, and accidentally breaking international tax law. Set up a free one hour consultation with our seasoned Yoke Tax pros today.

How Long it will take to Register a company in South Korea?

According to the South Korean government, it takes approximately 2 weeks to register a new company in South Korea.

The process of registering a new company is simple and straightforward. Your first step is to fill out an Application Form for Establishing a Company. This form can be found on the Ministry of Strategy and Finance website.

You will need to submit a copy of your business plan and other documents that may be required by the Government.

Final Thoughts on South Korea Tax Havens

Millions of people all around the world are looking to take advantage of tax haven laws in South Korea, and South Korea isn't a great choice for this. But, plenty of laws can help you get tax benefits while residing in the country.

Alternative tax havens to South Korea include the Bahamas and Ireland .

We hope this article will help you understand the tax benefits of the above-mentioned laws. Understanding them will be very helpful for you to save money through South Korea. As always, it’s a safe move to connect with a tax pro before making such a major decision. Set up a free one hour consultation today.

Ireland Tax Haven Laws – How to Take Advantage of Them

Wed, 20 Jul 2022 22:31:24 GMT

It is a fact that Ireland has some of the best tax haven laws in the world. If you are looking for a place to put your money and prevent yourself from paying booming taxes, you can consider Ireland a tax haven. There are multiple Ireland Tax haven laws that you can take advantage of.

So, here we will be discussing the laws and how you can take advantage of them while not making any illegal mistakes. Besides, we will also discuss Ireland's tax haven laws that you should understand in order to take full advantage of them.

As with all things, it’s safer to speak to a tax professional before making big financial moves like this one. Set up a free one hour consultation with a YokeTax pro to get started.

Is Ireland a Tax Haven?

The short answer is yes. Ireland is a tax haven because it has a low corporate tax rate, and it allows companies to avoid paying taxes or allow them to pay low taxes on profits earned in the country.

To take advantage, set up a free one hour consultation with a tax pro.

The long answer is that Ireland has a low corporate tax rate and along with many other taxes.

This means that if you own a company in Ireland, you can earn money without paying an arm and a leg in taxes. And since most of your business will be done there, it's easy to keep an eye on where your money is coming from and going to without having to worry about reporting what you are doing.

Besides, the Irish government also has many other programs that make it easier for multinational corporations to move their headquarters to Ireland, including an income tax treaty with the U.S. That treaty means that multinationals don't have to pay U.S. taxes on profits from intellectual property located in Ireland but not elsewhere.

That is why Ireland is considered a tax haven , and it is undoubtedly one of Europe's most important tax havens.

How to Take Advantage of the Irish Tax Haven

Here are some of Ireland's tax havens you can take advantage of. This will make it easier for you to understand the situation and help you take full advantage of Ireland's tax havens.

General Taxation:

The government in Ireland has a strong system of corporate tax, which is the main reason that it is considered a tax haven. This corporate tax can be reduced or eliminated through various methods, such as the use of foreign subsidiaries, establishing Irish companies as holding companies, and transferring assets to Ireland.

So, Ireland's corporate tax rate is 12.5%, which is below the global average of 28%. The Irish government also offers incentives to companies that choose to relocate to the country, including an exemption from all local property taxes and reduced rates on energy usage.

That is why Ireland is considered one of the best tax havens in Europe. But, as with all big moves like connecting with a tax haven, it's important to have a tax professional on your side. Set up a free one hour consultation today!

Economic Policies:

The Irish government has made some changes to its tax policies in recent years, but they are still considered a tax haven. The Irish government has removed the interest deduction limit on interest payments, allowing individuals to receive up to 30% of their income in interest deductions. They also have reduced taxes on small businesses, encouraging entrepreneurship and economic growth.

Ireland's economic policies encourage certain industries, especially those that help create jobs for low-income and lower-skilled workers.

So, the Irish government offers generous incentives to foreign companies located in Ireland, including reduced corporate and personal income tax rates. In addition, the government has established several special economic zones, which offer even more favorable tax policies.

Ireland's Tax Residency Rules:

There are two types of residents in Ireland: non-residents and residents. A non-resident does not reside in the country for an extended period, while a resident has been living in Ireland for at least 183 days over one year. Tax residency rules apply differently to each type of resident based on their circumstances.

If you live in Ireland and earn income from abroad, you must pay tax on that income in Ireland. If you are a non-resident in Ireland and earn income abroad, you can claim certain tax credits on your foreign tax paid. These tax credits are not capped or limited to any amount.

The country's favorable tax climate provides advantages to foreign investors who want to take advantage of lower rates and more generous tax incentives than they would receive in other countries.

This means that if you are earning money outside of Ireland, then you are effectively paying no taxes in Ireland because of their tax residency rules .

So, if you are running a successful business anywhere in the world, you can make your business' headquarter in Ireland, and this will help you save lots of money by preventing taxes.

Ireland's Capital Gains Tax Exemption:

Capital gains tax is the amount you pay when you sell property, stocks, and other assets you have owned for less than a year. In Ireland, capital gains tax exemption means that if you own an asset for less than 12 months, you don't have to pay any capital gains tax on it.

So if you're looking to get rich quick and sell your shares in Apple Inc., for example, it would be worth your while to consider moving to Ireland, where this facility will apply to your stock market investments as well as all other types of assets including real estate and other types of property ownership.

This exemption allows citizens to save money on their taxes by investing in assets like stocks, bonds, or real estate in Ireland. However, this exemption also means that Ireland has become a popular destination for companies looking to set up offshore offices or subsidiaries.

Final Thoughts on Ireland as a Tax Haven

In sum, these taxes and laws are the reasons which make Ireland a perfect tax haven country. Hopefully, we were able to educate you a bit on how to maximize your assets by making the most of Ireland's tax laws. The best part is that they apply not only to the Irish but to everyone.

So, if you want to save money on taxes, you should consider shifting your business's head office to Ireland. When people or companies set up bases in Ireland, they have access to numerous incentives that could help reduce their tax payments considerably. Another tax haven you may want to consider are the Bahamas .

As always, it’s a safe move to connect with a tax pro before making such a major decision. Set up a free one hour consultation to get started.

How to Do Your Robinhood Taxes

Sun, 17 Jul 2022 17:15:00 GMT

Robinhood has become a popular investing platform for folks who want to play around with stocks and cryptocurrency without having to put down a large amount of money. The IRS, on the other hand, does not operate on the same model of no-cost service as the platform. Taxes will still be due on stock sales even if you are able to trade for free on Robinhood .

Beyond the usual stocks and bonds, many Robinhood users purchase cryptocurrency like Bitcoin and Ethereum on the platform. The process of filing your taxes if you’re one of these investors is going to get a lot more complicated. The younger generation is increasingly turning to Robinhood to buy, sell, and invest in a wide range of assets. Investing in cryptocurrency is one of the options available through these services.

We'll go through the specifics of how to submit your Robinhood crypto tax returns in this article.

Cryptocurrency Tax 101

Most governments recognize cryptocurrencies such as Bitcoin as property rather than cash for tax reasons. A tax reporting obligation is imposed on you when you sell or otherwise dispose of your Bitcoin for a higher or lower price than you paid when you bought it.

To learn more, check out our Crypto Tax Guide 2022 .

For tax reasons, cryptocurrency trading is very much like stock trading. And just like stock traders need tax pros to help them keep more of their earnings out of the hands of the IRS, so do crypto traders. Drop in for a free one hour consultation with a Yoke Tax professional.

Taxes on Robinhood

If you’ve been investing for a long time, you presumably already know how and where to record your Robinhood income. If you’re putting your toe in the financial waters for the first time, though, there are a few things you should know. When filing a Form 1040, interest or dividend income are reported on a Schedule B. The directions on this form will explain to you how to complete it or where to submit your final figures on your 1040.

Stocks and cryptocurrencies that you sell via Robinhood get recorded on the Form 1040 Schedule D . Depending as to how many trades you make over the year; your Schedule D might get extensive. You may make your life considerably simpler at tax time if you deal with a CPA or a tax software vendor that allows you to submit any Forms 1099 you get. Robinhood expressly works with TurboTax to make inputting your tax information easier, but you may be able to utilize other tax software as well.

(Or, better yet, a tax pro. Nudge nudge . Free one hour consultation .)

Why Is Robinhood Different?

Because Robinhood is not a native crypto firm, all "crypto transactions" presently occur within the Robinhood platform. You can't now transmit the BTC you purchase from Robinhood to an external wallet of your choosing. Additionally, you cannot transfer BTC from an external wallet to a Robinhood account.

Even though many consider this "anti-crypto," Robinhood can supply its consumers with the proper tax documents at the end of the year.

Coinbase and Gemini are "native" cryptocurrency exchanges. Still, Robinhood is the only one that keeps track of all your crypto gains and losses since every transaction—buy, sell, or any other kind—took place within its boundaries.

There are only a few crypto exchanges that can achieve this. You have complete control over when and where your cryptocurrency is sent and received. Coinbase will no longer be able to provide you with comprehensive wins and losses reports if this occurs. In our blog article, we detail this issue: Why users can't get correct tax returns from Bitcoin exchanges.

Eventually, Robinhood will have to deal with the same tax reporting issues as other crypto exchanges. A new cryptocurrency wallet from Robinhood has just been revealed. Transaction data from Robinhood users will now be scattered over other crypto platforms, making it more difficult for them to file taxes.

Robinhood 1099-B

A comprehensive form (1099-B) indicating investors' capital gains and losses for the year is currently available to Robinhood members.

It's as simple as logging into your Robinhood account and grabbing a copy of your 1099-B. Your Robinhood 1099-B may be imported into TurboTax or given straight to your tax professional so they can file it for you, much like other tax records received at year-end (W2, etc.).

This 1099-B does not require import into a crypto tax program at this moment. Again, this is because Robinhood provides you with a 1099-B, which lists your profits, losses, cost basis, and earnings. Including this information twice on your tax return is unnecessary.

What If I Use Other Exchanges in Addition to Robinhood?

For tax purposes, if you utilize Robinhood and other traditional cryptocurrency exchanges, you will need to aggregate those transactions from those other exchanges.

When distributing this paperwork, native cryptocurrency exchanges have a difficult time. Fortunately, there is a more straightforward method. Tax reports may be generated at the push of a button using Bitcoin software.

You shouldn't include any Robinhood trades in these aggregated data now, unfortunately. Robinhood is a crypto-only trading platform, and it should be treated as such.

If you are looking for more information, please don’t hesitate to get in touch with Yoke tax free one hour consultation .

A New Line of Robinhood Wallets Is on The Way.

Users will soon be able to send and receive cryptocurrencies outside the Robinhood platform, which was revealed on September 22, 2021.

Users of Robinhood will undoubtedly find tax reporting more complex when wallets are implemented. If you sell cryptocurrency on Robinhood that was obtained elsewhere, Robinhood will not be able to compute your capital gains since it doesn't know your initial cost basis.

Are You in Need of Expert Guidance?

Basic investment is easy to learn on the Robinhood platform, but its main aim is to ease trading. To ensure that the tax effects of your transactions are properly understood, they do not offer this service. It's a good thing that Yoke tax free one hour consultation exists! We're ready and eager to fill in the gaps left by Robinhood in terms of assistance and tax guidance. Contact one of our experienced CPAs now, and we'll make sure you don't run afoul of the Internal Revenue Service.

10 Common Tax Penalties to Watch Out For

Sat, 16 Jul 2022 17:15:00 GMT

While most taxpayers don't want to incur tax penalties, many of those who do are unaware of the penalties or the harm they may do. Let's look at some of the most common fines and how they might be avoided as tax season approaches.

Amounts Due and Penalty for Failure to Pay Estimated Taxes

Payments are made on a pro-rata basis, meaning taxpayers must withhold or make anticipated tax payments throughout the year to meet their tax obligations. Generally, projected tax payments are paid in four equal installments, payable on the following dates: April 15, June 15, September 15, and January 15.

When the taxpayer's tax is higher than the year before, the safe harbor of 100 percent / 110 percent is useful. On the other hand, estimated tax payments might have a significant influence when a taxpayer predicts a significant decline in earnings from last year. Taxpayers will likely pay 90 percent of the current year's tax due rather than 100 percent or 110 percent of the prior year's tax liability as a safe harbor for estimated tax in the lower-income year. Make an appointment with a YokeTax professional so we can evaluate if and how much you need to pay.

The Penalty for Failure to Meet the RMD

Retirees should take an RMD each year after reaching the mandatory RMD age to prevent an individual from investing in tax-deferred retirement plans, such as traditional Individual retirement accounts, but never withdrawing funds from the plans (which would indicate that the federal government would never collect taxes on the retirement funds). The current age of distribution is 72.

Late-filing tax penalties
The penalty for failing to pay taxes on time
penalty for late payment of taxes

A penalty of 4.5 percent each month (up to 22.5 percent) will be levied if a return is filed beyond the due date, including after extensions. Returns are typically due on April 15 of the following year. The initial deadline for 2020 returns was moved to May 17, 2021, due to COVID-19. A further extension until October 15, 2021, was available to anybody who failed to file by that deadline. The IRS strongly recommends filing your 2019 or 2020 tax return as soon as possible to avoid late-filing penalties.

It is the lowest of $435 ($450 in 2022) or 100% of the tax due if a return is filed more than 60 days late, whichever is greater. If you can show that there was reasonable cause and no deliberate disregard, the IRS may be willing to relax the penalty for late filing. The obvious way to avoid the penalty is to file on time.

Tax penalties for late payment

Suppose the tax owed on a return is paid after the unexpended due date of the income tax return (normally April 15 but is May 17 for 2020 returns filed in 2021). In that case, the taxpayer will undergo a penalty of 1/2% each month (maximum 25%) of the unsettled balance.

Taxpayers are regularly caught by this penalty when they require an extension to file their income tax return; plenty fail to recognize that the extension does not include an extension on paying. The only method to prevent or lessen this penalty is to have little or no balance due on the return when it is finally filed. The extension form includes a provision to pay the predicted balance owed when filing the extension.

Negligence penalties for taxes

Taxpayers who fail to pay taxes because of their negligence or inaccuracies in tax evaluations are subject to a 20% penalty. Due to underreporting or overstating deductions, the Internal Revenue Service might impose a penalty on a previously filed tax return.

Amounts due to taxpayers who commit tax fraud
Fraud penalties in the tax code
The penalty for tax fraud is 75% of the unpaid tax.

Penalties for a Returned Unclaimed Funds Check

Tax penalties for Missing ID Number

Anyone who fails to include their or another person's Social Security number on their tax return will be subject to a $50 penalty for each omitted digit. If the taxpayer fails to provide their SSN to another person or organization when requested, they will be penalized.

Penalty for Early Withdrawal

Individual retirement accounts (IRAs) have an early withdrawal penalty of 10% if the account owner is under the age of 59 1/2 and takes money (or other property) out of the plan before that age. It is 10% of the portion of the payout that had to be included in gross income for the year in which it was distributed. This punishment has a wide range of exceptions.

Taxes for failing to disclose foreign accounts and assets can be costly.

Excessive Claim Penalty

Non-Itemizers face an accuracy penalty.

Penalties for a Refund that is Too Vague

Tax penalties for Failure to File Information Returns

Preventing IRS Underpayment Penalties

Fri, 15 Jul 2022 17:15:00 GMT

Our tax structure is called a "pay-as-you-earn" system by congress. As a result, the federal government has established various programs to assist citizens in achieving the "pay as you earn" obligation. These are some examples:

Withholdings from employees' paychecks.
Retirees' pensions are subject to withholding; and
Calculated tax payments for self-employed persons or with additional income sources that are not subject to withholding.

How does this change by quarter?

To avoid the underpayment penalty, taxpayers must prepay a safe harbor (minimum). There is a greater nondeductible interest penalty than a bank might charge. Since the penalty is calculated every quarter, making an anticipated payment for the fourth quarter will only lessen the penalty for that quarter.

While this is the case, withholding is viewed as paid in installments over the year; thus, boosting withholding at the year's end can lower penalties for earlier quarters. Taking an unqualified distribution from a pension plan and then repaying the gross amount within the 60-day statutory rollover restriction might accomplish this goal (but consult this office before utilizing the latter strategy).

If you stick to the regulations, you won't be fined by the law in most states and federal jurisdictions. Two federal safe harbor levels apply when payments are received evenly throughout the year.

This year's tax liability is your first and only safety net. You can avoid the penalty if your payments equal to or exceed 90% of your tax due for the current year.

Taxpayers typically rely on the second safe harbor, which is based on your tax from the year prior. Even though you owe a lot of money in taxes this year, you can avoid a penalty if your current year's payments equal or exceed the amount of your prior year's tax. Your current year's tax payments must be at least 110 percent of the previous year's tax if your prior year's adjusted gross income was more than $150,000 (or $75,000 if you file as a married couple).

Difficulty ensues when a taxpayer's income or tax withholding decreases from one year to the next. When financial investments are cashed in, for example, the increase in income is substantial, but there is no matching withholding or projected payments.

Pension and Social Security income are frequently replaced by payroll income without the required withholdings when a taxpayer retires. Unaware taxpayers sometimes find themselves with considerable underpayments and the underpayment penalty at tax time when they fail to recognize these sorts of conditions. (In order to avoid this, we highly recommend setting up a free one hour YokeTax consultation ).

There is no other way to ensure your current year's tax bill will be accurate because it is based on the previous year's tax (a known amount). In contrast, 90 percent of the current year's tax bill is dependent on your income for the current year, which isn't always known until it is too late to adjust your current year's prepayments.

To put it another way

There are occasions when it doesn't make financial sense to use the safe harbor method. Let's imagine, for example, that in the prior year, you received a large one-time income payout that raised your tax liability to $25,000, or $10,000 more than you typically pay. You're aware that you won't be able to afford that extra spending money this year. The alternative to prepaying $10,000 more so than your current year's tax under the 100%/110 percent safe harbor is to use the 90% current-year tax safe harbor, which is calculated by forecasting your current year's tax and tracking your income and tax paid throughout the year to ensure that you meet the 90% goal.

If your tax bill is higher than expected, you may be charged an underpayment penalty. The penalty might be imposed on taxpayers who owe the government $1,000 or more. The double whammy can be avoided, but there are several methods to do it.

Waiver of 80%

According to the IRS, taxpayers who paid at least 80% of their 2018 tax bill can avoid the underpayment penalty this year. To avoid the penalty, taxpayers must typically pay at least 90% of their tax obligation for the current year.

This new relief is welcome news after the IRS lowered the threshold to 85 percent in mid-January. Congressional and accountants' groups have been pushing the IRS to provide more waivers. Farm and fishing businesses were already exempt from underpayment penalties for 2018 if they filed and paid their taxes by April 15 before the IRS announced the 80 percent reduction.

Eric Bronnenkant, tax director at Betterment for Business, said that IRS assistance was offered "in appreciation of complexity for the 2018 tax year," acknowledging that many taxpayers didn't completely comprehend how the law changes may influence their bills.

Installment Method

Is there anything you can do about this? Make sure your pencil is razor-sharp! In the United States, the tax system is "pay as you go," which means that you must pay taxes on your income as it is received. Underpayment penalties might be reduced using the annualized approach if your wages and other taxable income are unevenly distributed.

A Comparison to The Previous Year's Tab

Whether you don't qualify for the 80 percent exemption, you should review your previous year's tax return to see if you made any mistakes. Did you pay less or the same amount of tax in 2017 as in 2018, including withholding and anticipated tax? To avoid the underpayment penalty for 2018, you must have paid at least 100% of the preceding year's tax bill for 2018 (or at least 110% of your adjusted gross income is $150,000 or more).

If you notice a significant increase in income, please notify a Yoketax professional immediately so that withholding or anticipated tax payments can be adjusted to avoid a penalty.

Preventing IRS Underpayment Penalties

Wed, 13 Jul 2022 17:25:40 GMT

Our tax structure is considered a "pay-as-you-earn" system by congress. As a result, the federal government has established various programs to assist citizens in achieving the "pay as you earn" obligation. These are some examples:

Withholdings from employees' paychecks.
Retirees' pensions are subject to withholding; and
Calculated tax payments for self-employed persons or with additional income sources that are not subject to withholding.

To avoid the underpayment penalty, taxpayers must prepay a safe harbor [minimum]. There is a greater nondeductible interest penalty than a bank might charge. Since the penalty is calculated every quarter, making an anticipated payment for the fourth quarter will only lessen the penalty for that quarter.

How does this change by quarter?

If you stick to the regulations, you won't be fined by the law in most states and federal jurisdictions. Two federal safe harbor levels apply when payments are received evenly throughout the year. This year's tax liability is your first and only safety net. You can avoid the penalty if your payments equal to or exceed 90% of your tax due for the current year.

To put it another way

Waiver of 80%

Installment Method

A Comparison to The Previous Year's Tab

If you notice a significant increase in income, please notify a Yoketax professional immediately so that withholding or anticipated tax payments can be adjusted to avoid a penalty.

The Comprehensive Guide to Defi Taxes (2022)

Wed, 13 Jul 2022 17:01:12 GMT

Cryptocurrencies are taxed like property in several nations, including the United States. Capital gains & income tax may be incurred due to using DeFi technologies. For example, if the price of your cryptocurrency has gone up or down since you first obtained it, you will be subject to capital gains or losses. Be sure to avoid these DeFi tax pitfalls , though!

The market value of the cryptocurrency just at the time it is received is used to calculate your ordinary income when you earn cryptocurrency through any method, including mining, staking, or different types of interest.

How Is Defi Taxed?

Even though the IRS has not issued detailed advice on DeFi, they have issued broad bitcoin guidelines. These principles and earlier legal concepts can be used to deduce the tax consequences of DeFi.

How Does DeFi Differ from Conventional Banks?

Cryptocurrency DeFi, short for decentralized finance, is a field of cryptocurrency that aims to provide access to financial services, including trading, lending, and borrowing, without the fees or delays associated with the traditional rent-seeking middlemen (i.e banks, financial institutions, etc.).

Ethereum is home to several prominent DeFi applications; however other chains, such as Solana and Avalanche, also have DeFi implementations. Several unique technology breakthroughs, such as AMM and Liquidity Pool, support the "decentralized" characteristics of many of today's most popular DeFi platforms to be implemented.

Is The IRS Aware of Any Defi Protocols?

Most DeFi protocols do not file tax returns currently. This, however, may be about to change.

In November 2021, President Biden signed the Infrastructure Bill , which mandates that any party that enables a cryptocurrency transaction to disclose the user and the IRS with 1099 tax reporting information .

At this moment, it's not evident if these rules will apply to protocols like DeFi, which may not be able to send out 1099s. It's impossible to report on these protocols because they are appropriately decentralized. If this measure becomes law, the DeFi environment in the United States might be dramatically altered.

However, at the earliest, the bill's crypto measures won't take effect until January 2024. It is widely assumed that significant crypto businesses would fight the action in court.

If you are using multiple exchanges at the moment, it is best to consolidate and bring your crypto to a single exchange. This will make tax reporting a lot simpler in the long run. If you haven’t connected with a tax professional to iron out your unique situation yet, now is the time to do it.

The Tax Treatment of Defi Platforms

Some of the essential tax considerations for DeFi protocols are outlined here. Remember that the IRS has not yet issued any DeFi tax guidelines. Please remember that the following descriptions are based on the current IRS crypto rules and reflect a cautious tax stance.

V2 of Uniswap

It is possible to trade/swap between cryptocurrencies using Uniswap's decentralized trading platform and make money by contributing cryptocurrency to liquidity pools. If the price of the coins you're giving away has increased or decreased since you first acquired them, then the gain or loss you make on the trade will be taxed.

Liquidity pool tokens reflect your portion of the pool when you contribute. An income tax is due, and any gain or loss will be included in that total. When you join one of these pools, it's like exchanging your coin for the Uniswap liquidity pool token. The value of tokens in the UNI liquidity pool increases as interest is accrued. Any center gain or loss you make or lose when you withdraw from the liquidity pool are returned to you in the form of UNI liquidity pool tokens.

Uniswap V3

For the first time, Uniswap V3 will provide liquidity providers with non-fungible tokens (NFTs) instead of LP tokens. A taxable event occurs when a liquidity position is wrapped up in an NFT. Depending on the price of tokens you wrapped, you'll be able to see either gains or losses.

Interest in the pool will make your NFT more valuable. Your capital gains/losses will be based on the price of your NFT when you exit the liquidity pool and exchange it for the underlying position you own. You can learn more about NFT taxes here .

Sounds like a lot? Connect with a tax pro for a free one hour consultation to find your best course of action. The less tax you pay, the better!

Compound

Borrowing, lending, and earning interest are all made possible using the decentralized system known as Compound. Taxes are levied on exchanging tokens like cETH for ETH (you dispose of your ETH when exchanging it for cETH). As you lend, the value of your cTokens rises. Returning your cTokens for the underlying asset results in a profit. The fair market value of any COMP obtained as a reward for utilizing this platform is taxable income.

Aave

Using Aave, users may give liquidity, earn interest, and borrow money. When minting aTokens, you're subject to capital gains or losses on the crypto asset you swap away, depending on how much its price has risen or fallen since you first got it.

aTokens are awarded to you because of interest earned on loans. When you get aTokens, you earn money based on those tokens' current fair market value. Users can stake AAVE in return for STK AAVE tokens, generating capital gains when they enter and quit the network. AAVE tokens earned because of holding STK AAVE are taxed as ordinary income at their fair market value when received.

Maker

ETH as well as other cryptocurrencies could be used as collateral for loans utilizing Maker and its Oasis platform. DAI can be earned by either locking ETH or other cryptocurrencies as collateral or storing DAI.

Making a trade from one cryptocurrency to another on Maker is a taxable event that results in capital gains or losses, just like trading on a centralized exchange. When DAI is received, the fair market value of the DAI is taxed at that time.

On Maker, the use of cryptocurrency as collateral doesn't result in a taxable event; nevertheless, if a position is liquidated, the underlying assets will be subject to capital gains/losses depending on their value at the time of liquidation.

Balancer

A cryptocurrency trading and swapping platform like Uniswap, Balancer allows you to participate in liquidity pools and exchange cryptocurrencies. Trades on centralized exchanges, like Balancer, result in capital gains or losses that must be reported as ordinary income. Balancer liquidity pool transactions are taxable events that result in capital gains or losses for the account holder.

The BAL tokens generated by Balancer Pool Tokens are also handed to liquidity providers regularly. When you get BAL tokens, the fair market value of those tokens at the time of receipt counts as regular income.

OlympusDAO

In contrast to other stablecoins, OlympusDAO's OHM token is unique in that its value is derived from its treasury and market demand, unlike other stablecoins. OHM stakers are rewarded by rebasing the coin.

Get Ready for Defi Tax 2022

Being prepared is paramount for those who wish to stay in the good graces of the IRS. Not filing your taxes on time can lead to many serious consequences. Failing to file your taxes correctly can lead to even more.

However, this doesn’t mean that you have to lose all your gains to a crypto tax. Instead, connect with a tax pro to minimize the IRS’s impact on your hard-earned crypto. There are a few methods which we have devised to help you pay zero crypto taxes , and we would like to share them with you.

Bahamas Tax Haven Laws - How to Take Advantage of Them

Wed, 13 Jul 2022 14:42:06 GMT

American expats like to go all over the world. Europe, South America, Asia- name a continent and you’ll find a community of expats there. But amongst all the potential countries expats visit, the Bahamas are perhaps the most interesting.

You might have heard that the Bahamas boast beautiful beaches and a very laid-back culture. For as true as this is- have you considered the Bahamas’ tax haven laws, and how expats take advantage of them?

What are tax havens?

We’ve all heard of tax havens being used by the wealthy to escape the grip of the Internal Revenue Service and its strict tax laws. In truth, “escape” is only half the story.

These locations also provide corporations and wealthy citizens the secrecy they desire to keep the money far from the IRS. As such, tax havens have the primary goal of hiding income and escaping taxes. Still, not all tax havens are made equal.

We highly recommend connecting for a free one hour consultation with a tax professional. Mistakes made when trying to utilize tax havens have heavy penalties, including steep fines and jail time.

How do tax havens work?

Any country, state, or territory which offers foreigners (individuals and businesses) little to no tax liability are tax havens. These locations must also be politically and economically stable in order to keep the trust of those wealthy tax avoiders. These havens come in three categories:

Primary: The physical location where money is deposited, usually a bank in the tax haven itself. Because they have no corporate tax, the Cayman Islands are a common go-to when people think of a tax haven.

Secondary: Locations with very low taxes in order to encourage business growth. Think of Ireland and its favorable tax laws towards corporations.

Conduits: These are locations where money made from deals outside the corporation’s country can be collected, and then transferred into a primary or secondary tax haven. So, for example, if Coca-Cola makes a big deal in Ethiopia, they can hold the cash in a secure bank there, and transfer it to Ireland.

Why are the Bahamas special?

We wanted to highlight the Bahamas because it has a reputation for very light tax policies. Most forms of taxes are not imposed on its citizens and resident aliens, including:

Income taxes
Capital Gains taxes
Gift taxes
Inheritance taxes
Sales taxes

Investors, business owners, and wealthy individuals also understand that the local economy is stable and growing steadily. When you add on the sun and fun, is it any wonder why so many American expats choose the Bahamas as the primary tax haven to settle down in?

If you are considering utilizing the Bahamas as a tax haven, connect for a free one hour consultation with a Yoke Tax professional.

Where does the government make money, then?

When most people hear about the incredibly friendly tax laws in the Bahamas, they question how the Bahamian government even manages to keep itself running. After all, we all learned in grade school that governments run on taxes. In truth, the government makes its revenue from other forms of tax, like:

Value-added tax
Stamp tax
Property tax
Import tax
License fees

The Bahamas is probably as close as an American libertarian can get to a hands-off government! Not only is it the third wealthiest country in the Americas (after the United States and Canada), but it also set its official language as English to facilitate easier business conversations.

Wait, but I still have to file my taxes!

That’s right! Even if you live in the Bahamas, one of the best tax havens in the world, the IRS and Uncle Sam will still look for ways to nab their cut of your earnings. The Bahamian government is not crazy enough to go in direct, open opposition to the US government, and so it shares taxpayer information to the IRS.

It doesn’t matter if you’re using cryptocurrency or a tax haven, the IRS will take what it can.

All US Citizens are required to pay their taxes each year, regardless of where in the world they might call home. Expats in particular have to report their “worldwide” income, not just income which came from business in the US.

You can try to ignore your US taxes, but there are extreme penalties for doing so. In addition, the IRS has an entire division which collects and analyzes information about tax havens and transactions in order to combat tax avoidance. You can read the entire page on the IRS website .

Are there any tax deductions for Americans living in the Bahamas?

Here’s the truth: a smart accountant can get you around owing taxes to the US government. As close to near-zero as humanly possible, at least. Which is actually well within the realm of possibility, depending on your specific situation.

There are multiple tax deductions and exemptions that expats can take advantage of, including the Foreign Earned Income Exclusion (FEIE).

Foreign Earned Income Exclusion

If you earn any income as an expat while living in a tax haven like the Bahamas, you can deduct it from your tax return. The exact amount changes by tax year, but a $100,000 USD deduction is the average. For many expats, that would knock out most (if not all) of their tax bill.

Note, however, that this applies only to “earned income” like wages, salary, commissions, etc. “unearned income” like capital gains, interest, and dividends are still taxed.

It doesn’t take long for these things to get confusing, as you’re juggling a lot of different tax laws. What’s more, the FEIE is not a guarantee- it’s a privilege. So if you make a mistake and put the accuracy of your word into question, the government will revoke your ability to file for it.

This continues to highlight why it’s so important for everyone to have a tax professional on their side, especially if they’re an American expat. If you are interested in lowering your tax liability the smart way, connect for a free one hour consultation with a tax professional.

How are Stablecoins Taxed?

Fri, 10 Jun 2022 14:36:02 GMT

Stablecoins are a staple of the crypto world. These coins have their value pegged to another currency’s value. That is, a stablecoin like USD Coin ( USDC ) will be tied to the value of the United States Dollar. However, stablecoins don’t necessarily have to be pegged to a particular fiat currency; they can also be tied to a commodity or financial instrument. This leads many investors to ask, how exactly are stablecoins taxed? In this article we will be taking a look.

Remember, Yoke Tax offers a free one hour consultation so you can analyze your unique situation with a tax professional. This way, you can maximize the benefits of your portfolio while minimizing your tax liability to the IRS.

Why do people have stablecoins?

Stablecoins have consistently shown themselves to be a prominent part of the crypto ecosystem. In 2021, the estimated transaction volume for stablecoins reached an exceptional $1.7 trillion . But this leaves many people confused, since the vast majority of consumers see crypto as an investment vehicle, not something to create into a slightly more complicated dollar bill. Are stablecoins really worth the exchange fees ?

The truth is that, yes, most people do see crypto as an investment. Those who buy Bitcoin are likely not planning to use it beyond acting as a staple of their crypto portfolio. The furthest the average investor will go is to use Ethereum to purchase another investment, like NFTs, which come with their own NFT tax headaches . Generally, investors don’t want to spend and incur capital gains on their long-term investment.

Stablecoins address this problem by acting as a cryptocurrency that investors can use on a daily basis. Because these coins are tied to a stable fiat currency (relative to the highly volatile crypto market), they are not subject to the stressors of constant value changes. Stablecoins can track fiat currencies, gold, oil, and more.

But wait… don’t these commodities vary in value?

Yes, good catch! The value of these commodities do change, but they are usually more stable and move at a slower, more gradual pace. However, considering that $1 in 1970 is worth $7.45 today in 2022, this is an important question to ask.

It is because of this very discrepancy that stablecoins are actually taxed the same as regular cryptocurrency, despite being meant for regular transactions. The IRS sees all cryptocurrency as property, and it applies capital gains tax laws onto each of them.

Because of this, savvy investors will work with a tax professional to use their cryptocurrency holdings to their advantage. We’ve made articles on how to lower your crypto taxes , how to create a backdoor crypto Roth IRA , and what you need to do to avoid crypto audits .

But beyond that, speaking directly to a tax professional about your unique situation is the best way to maximize your benefit with these various strategies. This applies whether you’re using stablecoins or focusing on your main portfolio! Set up a free one hour consultation with a YokeTax professional as soon as you can.

Stablecoin activity is taxed differently

Something we would like to touch on is how stablecoins are taxed depending on the situation. After all, investors will use stablecoins for a variety of purposes, and this can affect the degree to which they are taxed on April 15.

Buying a product or service with a stablecoin

When you buy goods and services with a stablecoin, you are within the legal bounds of a taxable event. The tax levied against you is capital gains tax, which we go over in more detail here. The long and short of it is that your capital gains tax will be based on how your stablecoins have fluctuated from the point that you purchased them.

Since the USDC is pegged to the USD, and the USD is always $1, your capital gain will be $0. This is something which you must report in your tax return, even if it seems silly. And yes, the IRS knows that you own crypto .

Trading a stablecoin for another cryptocurrency

Now, what happens if you trade your stablecoin for another cryptocurrency? Well, the same applies. If you bought Paxos Gold ( PAXG )- a gold stablecoin backed by real gold reserves held by Paxos, a for-profit company based in New York- with your USDC, then your USDC would still be subject to that $0 capital gains tax. That must be reported to the IRS.

Trading another cryptocurrency for stablecoin

The same applies! If you owned $500 worth of PAXG and decided to trade it to USDC after it hit $1,200, then you would be subject to a $700 capital gains tax (1,200 - 500 = 700).

Getting a stablecoin as a payment

The widespread adoption of crypto has led to a boom in innovation, even in hiring practices. Specifically in the tech industry, there are a growing amount of companies willing to pay employees with cryptocurrencies - usually in the form of stablecoins.

In these situations, the stablecoin is not an investment but income. As such, it must be reported as ordinary income. The tax you pay will vary based on your gross earnings, filing status, and the state in which you reside.

Speak with a Yoke tax professional in a free one hour consultation to learn how you can minimize your tax bill- be it with USD or USDC!

Transferring stablecoin between wallets

This depends on the situation. Is it a wallet that you own? Then no, you will not be triggering a taxable event because the stablecoin is still your property. It’s like moving a bike from your backyard to your garage: it’s still yours, but you’ve just chosen a different location to store it in.

Now, if the wallet is someone else’s then you have triggered a taxable event. The stablecoin is no longer your property, and thus you have sold it. Unless, of course, it was a gift. That’s a whole other can of worms .

No matter how you choose to lower crypto taxes on your portfolio, it is best to connect with a tax professional to make sure that everything is done correctly. Let Yoke Tax handle the numbers while you reap the benefits.

Use Your Money Like the Uber-Wealthy

Wed, 08 Jun 2022 18:24:03 GMT

With the United States’ progressive tax structure, how do the uber-wealthy get away with paying so little? There are six common techniques the wealthy employ in order to reduce their tax burden, allowing them to retain as much wealth as possible year after year. By employing them in your personal finances, you too can save like the rich.

Some Examples

Amazon, Tesla, and Bloomberg L.P. are among the largest companies in the U.S., each making a name for themselves in disparate industries. From e-commerce, to automobiles, to media, these corporations have undoubtedly found massive success. But apart from success, what do each of these corporations have in common? Their billionaire owners — some of the wealthiest men on the planet — pay less in taxes than you do.

In the U.S., income tax is progressive, meaning that high-earning individuals pay the highest tax rates . This fact can be misleading. Though wealthy individuals are subject to the highest tax rates, this has not led to them paying the most in taxes. On the contrary, many millionaires and billionaires pay almost nothing in taxes, while the average American, making a median annual income of around $67k in 2020 , will on average pay about $5k in income taxes each year.

In 2011, billionaire Amazon founder Jeff Bezos managed to pay nothing in income tax, something which Elon Musk of Tesla was able to replicate in 2018, as well as Michael Bloomberg and George Soros in recent years . There are some wealthy people, such as Warren Buffet, who believe the rich should be made to pay higher taxes . However, even when these high-earners do pay taxes, their true tax rate is meager. From 2014 to 2018, Buffet paid a staggering $23.7M in taxes, translating to a true tax rate of just 0.10% .

So if these guys are hardly paying anything in taxes, why should you? Here’s our six-step plan to help you pay hardly anything to the government, just like the wealthiest people in the world.

Step One: Know the Tax Rules

In order to avoid paying immense sums in income tax, the wealthy must develop a thorough understanding of taxes. A basic tax fact which allows for billionaires to pay low taxes is that income is taxed at the time of receipt, while wealth is taxed only when it is sold. Income refers to wages, while wealth encompasses appreciated stocks, cryptocurrency, and real estate, among other assets. This is important to note to understand the two following steps.

Because this is a foundational step and the U.S. tax code is often complicated, it’s best to connect with a tax professional. Having an accountant on your side can alleviate any mistakes you might make or any loopholes you might miss. Connect with a Yoke Tax pro for a free one hour consultation to get started.

Step Two: Own Significantly Appreciated Assets

Appreciating assets are assets which increase in value over time. Real estate holdings, stock in companies, and cryptocurrencies such as bitcoin are examples of such assets, which are potent sources of wealth. For example, if in 2010, a woman chose to invest $100 dollars into bitcoin, her investment would be worth nearly $8B in 2021 .

As mentioned in the previous step, this wealth would not be taxed until she sells her assets, making this an attractive means of increasing wealth without incurring taxes. Collecting appreciated assets is the trickiest method individuals can use to avoid paying high taxes, as not many people can succeed this way.

Step Three: Have Your Company Pay You a Low Salary

As mentioned in step one, income is taxed at the time of receipt, while assets are taxed when sold. For someone like Jeff Bezos, who owns about 10% of Amazon stock , wealth can be accumulated through his holdings of Amazon, while his “low” salary of $81k as CEO can be subject to income tax. In this way, Bezos will still pay taxes, but only on a fraction of his true wealth.

Step Three: Borrow Money Against Appreciated Assets

Not only are appreciated assets not subject to taxes, but any money borrowed from these assets are not taxed either, as borrowing is not a taxable event. This means that the millions, and in some cases, billions of dollars made by the richest Americans through their assets can be spent freely, without fear of taxes reducing the funds available to them.

Borrowed cash can be used to fund extravagant lifestyles. Mansions in upscale neighborhoods, private planes, luxury cars, and designer clothes. The rich often also use borrowed cash to enrich themselves further, using it to buy up more stocks or investing further into real estate. This technique allows the rich to enjoy their wealth, without paying the price for their wealth.

When it comes to calculating whether an investment is the right one, it’s best to consult with a tax professional first. This way, you can see the long-term effects of the asset on your portfolio, and whether or not the asset is as valuable as it seems. A free one hour consultation can save you hundreds of thousands in the long run.

Step Five: Die

When the rich pass away, their heirs receive the appreciated assets they leave behind, with a stepped-up basis, meaning they receive it at a value above the original value. For example, if a man paid $1M for a piece of land, and by the time he passed away, the land was worth $100M, his heirs would receive the land at its $100M value. In addition to this, heirs do not have to pay a capital gains tax on the $99M increase in value from the time the land was purchased. This passes wealth from one generation to the next.

Step Six: Repeat the Cycle

When one generation dies, the next utilizes the same techniques which allowed for capital accumulation, creating the building blocks for generational wealth and compounding on the wealth of previous generations. Heirs can continue to invest in appreciating assets, take on low salaries, and borrow money from their assets with the knowledge that these activities will only lead to a higher economic standing as income tax is avoided.

Ready to get started? Connect with a Yoke Tax professional to start using your money like the uber-wealthy. Our goal is to minimize the money you put in Uncle Sam’s hands and maximize the amount you keep in your pockets. Let us handle the numbers.

Exchange Fees and Your Taxes

Thu, 26 May 2022 20:56:53 GMT

Exchange fees are extremely common across the cryptocurrency world. Major exchanges like Kraken and Coinbase charge these fees on users in exchange for using their services. An exchange will charge a fee whenever the user buys, sells, or transfers crypto on its platform. These fees are then used to support the business. What a lot of crypto investors don’t know, however, is how exchange fees affect their taxes.

How exchange fees impact tax liability

Tax liability refers to the amount of money which you owe to your local, state, and federal governments. Many cryptocurrency holders who managed to make great investing decisions will find that, with the skyrocketing of their crypto profits, comes the skyrocketing of their crypto taxes. We’ve already covered that in this article , but what does this have to do with exchange fees?

Well, we have discovered that exchange fees can actually be tax deductible. This depends highly on how you position yourself as a crypto investor, but the opportunity is there. With a smart use of exchange fee deductibles, an investor can lower their crypto tax liability to organizations like the IRS.

Crypto exchange fee deductibles aren’t the only way to go about cutting down on crypto taxes. In fact, your unique position could lead to you finding many, many more ways to minimize your tax liability. With Yoke Tax, you can set up a free one hour consultation with a tax professional. He or she will have a minimum of twenty years of experience, and work with you to maximize the amount of your hard-earned money you keep away from the government.

Tax deductible exchange fees

The IRS is capable of recognizing exchange fees as an expense for a business. This means that, if your business transacts in cryptocurrency regularly and uses an exchange like Gemini to do so, then every fee you pay can be logged as a business expense.

But what about individuals? After all, exchange fees cannot be treated as an itemized deduction for regular taxpayers. In fact, for a lot of taxpayers, the exchange fees which they pay don’t amount to a large enough sum to compete with the $12,000 standard deduction.

In the case of individual taxpayers, we use a different method: we look at cost basis .

What is cost basis?

Cost basis is the original value of an asset which has been adjusted for stock splits, dividends, and return of capital distributions. In other words, it’s the amount which you spent to purchase your cryptocurrency to begin with.

This is important because the cost basis can be deducted from the fair market value of your crypto, and this will impact the amount of capital gains tax which you pay. Fair market value is determined by the price of the crypto asset at the time that you sell, trade, or otherwise lose authority over it. Thus, we create a new formula:

Fair Market Value - Cost Basis = Capital Gain/Loss

To provide a simple example:

Sarah buys a $100 cryptocurrency. She holds onto it for five months until she realizes that the crypto is rapidly increasing in value. She decides to sell it once the value of that crypto hits $170.

In this situation, we see that the fair market value is $170, while Sarah’s cost basis is $100. Thus, Sarah experiences a profit of $70, which is subject to capital gains tax.

Mixing exchange fees with cost basis

Now that you understand the foundation of this tax strategy, it’s very easy to realize how exchange fees can be used to manipulate the cost basis for your benefit.

When you calculate your cost basis, simply include the exchange fee in the cost! This will decrease the amount of capital gains tax which you pay the IRS.

Cost Basis = Cost + Exchange Fee

Exchange fee amounts can vary from exchange to exchange, but let’s try to apply the logic which we used in the previous example with Sarah to illustrate the usefulness of this concept.

Assuming a 0.50% exchange fee ( Coinbase’s flat fee ), Sarah’s $100 investment would increase to $150. That would be her adjusted cost basis. Once this is subtracted from the $170 fair market value when she sells in five months, Sarah’s true profit would be identified at $20. That’s $50 less that the IRS can charge capital gains on her for!

What does this look like on a higher scale?

Oftentimes, Yoke Tax clients are not simply holding on to a single cryptocurrency. Usually, there are a handful of them, good and bad investments. Some of these coins and tokens have been held onto for a long time, and some of which are new editions to the investor’s crypto portfolio. Depending on the unique situation of the client, the amount of capital gains or capital losses will vary.

As an example for a higher-scale implementation of the exchange fee cost basis strategy, we’ll use Alex:

Alex is a new investor and has $15,000 worth of crypto in his portfolio. He bought five coins for $3,000 each. He did this all on Coinbase, which has a flat 0.50% exchange fee. This fee is applied to each coin separately.

Now, we quickly see how Alex’s $15,000 cost is increased by the five instances of exchange fees, which totals to $7,500. This means that Alex’s cost basis is actually $22,500.

Now, let’s say the fair market value of Alex’s portfolio increases to $18,000, and he’s had enough of crypto. He just can’t take the headache! He sells everything.

$18,000 - $22,500 = -4,500. A capital loss!

The silver lining

…Which isn’t as bad as it seems. Alex did make a $3,000 profit trading crypto, but the exchange fees inflated the cost of his investment, and thus led to a capital loss. This actually comes with a wide range of benefits. Now, Alex can take that capital loss and offset it against assets of his which are actually doing really well, such as his real estate. This lowers his overall tax liability in the long run, even if he spent a lot on exchange fees.

This is why it’s so important, amongst other things, to connect with a trained tax professional. They will walk you through all the little details which you need to consider before filing your taxes. The goal here is to maximize the amount of crypto profits which you keep in your hands, while minimizing the amount that the federal government and your local state governments take from you.

Set up a free one hour consultation as soon as you can.

DAO Taxes - What are they?

Thu, 19 May 2022 15:35:57 GMT

Crypto traders might have noticed the abbreviation “DAO” popping up more and more over the last few months. DAO, which stands for Decentralized Autonomous Organization, is an interesting new structure. It allows stakeholders to make governing decisions over a cryptocurrency’s protocol without needing a centralized authority. It has many implications in crypto, including when it comes to the IRS. How does the IRS tax DAOs? Let’s look at the facts.

How do DAOs work?

As mentioned earlier, a DAO structure allows all stakeholders to have input on a cryptocurrency’s protocol. This is not unlike the modern situation with stockholders, in which each stockholder has a vote on what the company does. What does make things different, though, is that there is no Board of Directors in a DAO like there is with a traditional company. The Board of Directors is anyone and everyone who holds the crypto.

For an example of a DAO, we encourage you to take a look at Uniswap . The UNI token is structured so that those who hold it can vote on the future of the token. This includes everything from transaction fees to what (if any) new features will be implemented.

What does this have to do with taxes?

With anything involving finance, the IRS is close behind, keeping tabs on what is owed. Just like with traditional corporations, a DAO cryptocurrency is going to be looked at as a source of tax revenue by the federal government. Any entity which creates profits and divides it amongst its stakeholders will eventually be taxed.

What’s curious is that the IRS has yet to actually give any concrete information on how it plans to tax DAOs. After all, the DAO has no centralized authority. There is no Board of Directors or CEO to turn to and levy taxes again like is expected in a traditional company.

To complicate matters a bit further, what happens when the DAO is based outside of the United States? What if many of its members are split between the inside and outside the US borders? In such a case, maybe the DAO would be taxed as a foreign corporation, but then we return to the issue of no centralized authority.

Considering this, we have a few ideas on how DAOs might be taxed.

DAO Taxes: Pass-Through Entity

Pass-through entities are structures which offer stakeholders a favorable tax rate while protecting them from personal liability. On the federal level, we can compare these entities to sole proprietorships, partnerships, LLCs, and S-Corporations. Owners share the profits of the entity, but their individual income levels determine the amount of taxes they owe.

This is extremely beneficial because it allows stakeholders to avoid double taxation , which is common in traditional corporations. This is when a corporation pays income tax once when it earns income, and a second time when its shareholders are given a share of its profits through dividends.

The DAO structure allows for a single layer of tax: individual income. No matter the size of the DAO, how much profit it makes, or the amount of people holding onto its token, it will be taxed once.

To learn more about pass-through entities and how you can structure your own business to take advantage of this tax minimization method, set up a free one hour Yoke tax consultation . Our tax pros have over twenty years of experience and are excited to help.

DAO Taxes: Traditional Crypto Taxes

Based on what we currently understand about DAOs, it logically follows that individual token holders will be responsible for their own taxes. Since the IRS has no Board of Directors to target, it will revert its gaze to the individual stakeholder. DAO tokens will, like other cryptocurrencies, be subject to both income tax and capital gains tax.

In most countries which tax crypto, governments consider crypto as property. This is true in the UK, Canada, Australia, and the United States. Because crypto is property first and foremost, it is taxed as such. Much like a stock in a company, crypto can appreciate in value (increase in worth), and the owner may sell or trade it for profit. That profit is then taxed under capital gains tax. The same is true if the property depreciated in value (decreased in worth).

What is capital gains tax?

The IRS sees capital gains in two separate ways: short-term and long-term. Both have an impact on how much you are taxed at the end of the year, so it is important to keep records! For help, consider setting up a free consultation with a Yoke Tax professional.

Short-term capital gains are simply any gains (or losses) made from an asset which is held for less than a year. These gains are taxed under the same income tax bracket which you fall into. Long-term capital gains are a bit different. They focus on gains or losses for assets held for a year or more. Depending on the individual’s income, the amount which you are taxed can be much lower. Because of this, it is important that you buy to hold long term!

The IRS provides a specific guide on capital gain tax rates by income level on its website . Although the language is focused on USD, the laws apply as a crypto tax due to crypto being seen as a comparable property.

Final Thoughts

DAOs are an exciting new structure for cryptocurrencies of all types. Although it may seem technologically complicated, when it comes to taxes, they’re remarkably simple. We know the IRS wants to tax, and so it will tax whomever it can easily identify. In the absence of a centralized authority, the IRS will levy taxes on the token holder. After all, it already knows that you have crypto on hand.

The only thing that’s left to do, as a crypto investor, is to minimize the amount of your crypto earnings that the federal government takes away through taxation. That’s where Yoke Tax comes in. Connect with us and let us handle the numbers for you.

Does Married Filing Separately Make Sense?

Tue, 10 May 2022 17:10:51 GMT

One of the most important days of your life is the day you get married. When you look past the wedding and the monotony of regular life set in, though, you will face a variety of new problems. For a lot of couples, this is children and all the considerations needed to help them grow into happy, productive adults. During tax season, the problem comes down to filing status: married filing separately, or married filing joint.

While your accountant can’t do much to help you change diapers or pick the best school, he or she can definitely help you pick the filing status that will help you minimize how much of your hard-earned money Uncle Sam takes. It’s not the most glamorous topic, but it’s an important one.

What is married filing separately?

Simply put, married filing separately is exactly what it says: each spouse files a separate return. Each reports their own income, deductions, and credits. This is in contrast to the married filing jointly option, which sees both spouse’s income, deductions, and credits as one.

Some married couples file separate returns because each only wants to be responsible for his or her tax, and not their spouse’s. This often happens when a marriage is unstable and the lack of trust between the two spouses is growing.

Less distressing explanations can be found in other life circumstances. Parents who remarry, for example, may have children from the prior marriage and wish to keep their finances separate. This often happens when he or she believes they can save money by filing a separate return. That, or they want to avoid the tax liabilities which may be imposed on them in a joint filing. To see if your situation is better suited for a married filing separately or jointly filing status, speak with a tax professional .

While the reasoning varies from couple to couple, the consequences are generally very similar.

The benefits of married filing separately

In general, there are three situations in which we see married filing separately to make financial sense: money management, deductions, and debt. With all of these situations, it is better to have a tax professional on your side than to go in blind. You are likely unaware of the small changes which can be made to your filing that can be used to not only minimize these issues, but to also help you keep as much of your income as possible. Book a free one hour consultation with a tax pro as soon as you can.

Money Management Struggles

Beginning with money management, it’s important to remember that not everyone is financially literate. That is, not everyone understands the ins and outs of properly saving, spening, or investing money for their greatest benefit. If your spouse is just bad with money, he or she is risking higher taxes, getting audited by the IRS, and a reduced refund. When you file jointly with them, you deal with those exact same issues. Those married filing separately do not!

Higher Itemized Deductions

If one spouse is capable of getting a higher itemized deduction by filing separately, then this might be a good choice. Expenses that can be itemized off of your tax charge can include charitable contributions and medical expenses. If one spouse has used our Charitable Remainder Trust method for avoiding crypto taxes, this is a great opportunity.

Keep in mind, though, that if you file separately and on spouse itemizes, then you must both file for itemized deductions. The spouse without the higher deductions may find that their return is smaller than it would’ve been if they could take the usual standard deduction. Because of this, it is best for both spouses to discuss married filing separately ahead of time.

Debt Seizures

Debt is the final and most legitimate argument against married filing jointly, but it is also the most rare. We aren’t talking about minor credit card debt, here. The type of debt that you should watch out for is debt that is subject to refund seizure. This is nigh-impossible to escape, as the IRS will force you to pay, one way or another. If your spouse owes taxes, child support, or has outstanding loans after bankruptcy, married filing separately is a great call.

The drawbacks of this filing strategy

Generally, couples who file separately find themselves experiencing a tax rate higher than they would have on a joint return. Why is this? Because you will no longer be eligible for deductions which every married filing jointly couple can use:

Standard deduction if your spouse itemizes (you will need to itemize too)
Student loan interest deduction
Child and dependent care expenses credit
Earned Income Tax Credit (EITC)
Adoption credit
American Opportunity Tax Credit
Lifetime Learning Credit

If you try to claim the Child Tax Credit (CTC), the retirement savings contributions credit, or other credits, you’ll also find that you’ll receive less than those who file as married filing jointly. The IRS explains other drawbacks to married filing separately here .

Higher Income Tax Rates

As you might have noticed, a lot of the reasons why spouses shouldn’t file separately are under the hood. These deductions and credit disparities aren’t things you notice until you’re well into filing your return. At that point, you have already used up a lot of time and may not want to start all over again.

An easy way to illustrate the drawbacks of married filing separately is to compare the federal tax rates between it and married filing jointly. More details can be found in Revenue Procedure 2021-45 .

See the difference? When you file jointly, you are being taxed a lot less. Spouses making $20,000 a year are taxed at 10% when they file jointly, while those filing separately are pushed up to the 12% tax rate. And this keeps climbing as incomes grow!

Final thoughts

There are a variety of reasons for why you would want to file as married filing separately, but for most people, filing jointly is the best choice. For those who are in a situation where a spouse is in debt, the relationship is unstable, or if they simply believe they’d save more, filing separately might be the right choice. However, the best way to confirm this is by speaking to a tax professional and confirming it. Meet in a free one hour consultation with a Yoke Tax pro today. Worry less about the complexities of the tax code and let us handle the numbers.

2022 Mileage Rates - Everything You Need to Know

Tue, 03 May 2022 19:19:35 GMT

Gas prices are at a sky high for consumers and employers. As we exit the COVID-19 pandemic, we find ourselves in a world where it is’t uncommon to find gas stations displaying $4 to $5 a gallon gas prices. People ache for the days at the beginning of the pandemic, when gas prices were plummeting. And for those who depend on gas to do their jobs, mileage rates have never been more important to keep tabs on.

Who should pay attention to mileage rates?

As long as employees have been driving to make a living, so too has there been a need to determine their driving expenses. These employees include:

Those who drive their own cars to meet clients
Those who drive to attend professional events
Those who make deliveries or parallel duties

You’ll notice that this does not include company vehicles. This is because mileage rates are meant for those who use their own cars for work, and thus shoulder the burden of depreciation on their property.

How are mileage rates determined?

Business standard mileage rate is based on the fixed and variable expenses of running a vehicle that year. This includes all costs associated with maintaining and running a vehicle. Everything from gas and oil to insurance, registration fees, and licenses are included. In addition, the calculation takes note of repairs made to the vehicle, as well as depreciation.

It is incredibly important for employers to track their employees’ business mileage rates, both for themselves and for the employee. If you ever need help with this- whether you are employer or employee- give a call to a tax professional. Yoke Tax pros work hard to maximize your benefits and minimize your worries, no matter the situation.

What employers need to know

Employers track their employees’ business mileage and other associated costs for fuel, repairs, insurance, and general depreciation. All of this can be counted as a business expense. This brings a variety of benefits for a company, as smart deductions against business expenses can lead to a lower tax bill at the end of the tax year.

On the other hand, this little benefit might encourage some companies to reimburse their employees at a higher rate than the IRS’s standard mileage rate. This is best to avoid for the benefit of your employee, as the excess will be seen as additional income and will be taxed as such. Not only does this confuse your employees, but it may leave them disgruntled and feeling cheated.

What employees need to know

Employees benefit because the amount paid to them in mileage rates is returned tax-free. Some accountants refer to this mileage reimbursement as a “mileage allowance,” as any expenses incurred on the employee’s vehicle for business, medical, and charity activities can be deducted from their taxes.

Employees might notice that mileage rates are more generalized and might not cover the actual costs of driving the vehicle for the company. In this case, they do have the option to calculate the actual costs of using their personal vehicle. This requires thorough documentation to validate their cost estimates, and there are a variety of small things that need to be considered in order to avoid making mistakes in the tax filing.

This is why it is highly recommended that employees who want to calculate the total cost of driving for a company consult with a tax professional . He or she will not only know the right questions to unearth hidden opportunities, but also have the skill to help you avoid frustration and a possible IRS audit trigger .

What are the 2022 mileage rates?

In cents per mile, the IRS sets the standard mileage rates for 2022 as follows:

Business: $0.58 per mile
Medical: $0.18 per mile
Charity: $0.14 per mile

For example, if an employee for a window washing company drove 10 miles from his home to a client’s home, he would be paid $5.80 in reimbursement for the trip.

The drawbacks of mileage rates

This simple example shows why mileage rates can seem unsatisfactory; in a 10 mile drive, it’s definitely possible for damage to happen to a vehicle well beyond $5.80. What if the employee’s tire blows out? What if he gets caught in a crash? In more mundane examples, what if he has to pass a toll or pay for parking?

Also, what if your vehicle is a gas-guzzler? Automotive companies have been putting a lot of resources towards reducing the weight of our vehicles for over a decade . It’s well known that the heavier the vehicle is, the more gas it needs to take. The IRS does not account for the difference in weight between a sedan, SUV, and truck when determining the year’s mileage rates.

Beyond the simple complexity of these situations, some readers may have noticed that the IRS has based its calculations on 2021 gas prices. The average price of gas in 2021 was $3.00 - a far cry from the common $4-$5.00 price tag seen around the country in 2022! Standardized mileage rates end up being inaccurate in identifying the true costs of these activities.

What this means for you

As a taxpayer, there are a lot of ways that the IRS is going to try and take your hard-earned money. Understanding mileage rates is one of the simplest ways that you can minimize your tax burden and maximie how much of your income you keep.

Because of the inconsistencies described in this article, it is highly recommended that employers and employees alike make efforts to determine the actual cost of driving for a company.

If the actual costs are higher than the standard mileage rates, then employers have more tax-deductible business expenses and employees have a higher tax-free mileage reimbursement.

If the actual costs are lower than the standard mileage rates, then by choosing the standard, both employer and employee benefit again.

It’s literally a win-win situation .

That doesn’t happen often when it comes to the United States tax code!

Set up a free one hour consultation with a Yoke Tax professional today, and let us handle the numbers.

What is Crypto Form 1099-B?

Tue, 26 Apr 2022 16:10:09 GMT

Every cryptocurrency owner has a choice: they can either let the IRS know that they own crypto, or they can choose not to. The first option is the one we recommend the most, as it allows tax professionals to find interesting ways to minimize the amount of crypto gains that the IRS takes from you. The second option, which runs directly contrary to Form 1099-B, is a recipe for disaster that you really don’t want to deal with.

There is one problem, though: Form 1099-B has a few issues that makes it not only incomplete, but also a tax liability. Nobody is perfect (especially not the federal government). That’s why we’re here to iron things out for you. We want to let you know exactly how the IRS knows you have crypto, what it’ll do about it, and how to minimize your tax burden.

I don’t want to report my crypto…

We understand that a lot of crypto holders began buying crypto not simply because they saw it as an investment, but because they saw it as a legitimate opportunity to separate themselves from fiat currency. Another big advantage was the idea that crypto is completely anonymous. Reporting your Bitcoin and Monero to the United States federal government kind of flies in the face of that, right?

These are understandable concerns. However, the truth is that the IRS already knows that you own crypto. It has a general idea of how much you own, when you bought it, if you sold any crypto, and the value of that crypto. In fact, the IRS knows this because of Form 1099-B. So the best course of action is to report your crypto.

What is Form 1099-B?

The IRS sent out Form 1099-Bs before April 15th to a variety of crypto exchanges. This includes the most popular exchanges like Binance and Coinbase. The exchange sends a report of the individual’s trades directly to the federal government. The intent behind this was to skyrocket crypto tax compliance, and it was a key strategy in the 2021 Infrastructure Bill .

A Form 1099-B refers to the proceeds from an exchange. Exchanges summarize their customers’ annual gains and losses for the IRS. These are then subject to capital gains taxes.

A Form 1099-B takes three forms: Copy A, Copy 1, and Copy B.

Copy A is filed by the exchange and sent to the IRS.

The exchange also files Copy 1, which is sent to whichever state the customer is in.

Finally, Copy B is sent to the customer (you) so you can file your taxes.

If your copy, Copy B, is different from Copy A, the IRS will immediately know that you are trying to commit crypto tax evasion.

This also means that if your Copy B is different from Copy 1, your state government will know you’re trying to commit crypto tax evasion.

Does Form 1099-B actually work?

The federal government has lost millions (if not billions) in tax revenue due to crypto enthusiasts’ lack of tax compliance. They are trying to change that with their IRS Document Matching Program . It is an upfront alternative to tax audits. This way, instead of finding fraud or inaccurate reporting months after the fact, the IRS can now catch people in just a few days.

Cryptocurrency trading has not been the first space in which Form 1099-B was enacted. The first to deal with it was actually Wall Street and the various stock brokers around the country. The IRS was just slow to implement it on crypto before the 2021 Infrastructure Bill.

Form 1099-B is incredibly effective, but there are a few methods that tax professionals use to minimize your tax burden.

How to lower your crypto taxes

Yoke Tax refuses to allow the IRS to take all of your crypto gains. There are severe consequences put in place for those who try to avoid giving the IRS its share… but who said the IRS deserved most of your money? There are many strategies which you can use today to legally minimize your tax burden. You might want to consult with a pro before implementing them all, but they do work.

Crypto loss harvesting is a very simple method that uses the very thing investors are trained to hate: loss. Everyone has experienced purchasing an altcoin with the hope that it’ll skyrocket in value, only to watch as it plummets just moments after you buy. This may just be a blessing in disguise, however. You can use your crypto losses to offset the total taxable gains that you earn through crypto. Learn exactly how to do it in this article .

In our article, How to Pay ZERO Crypto Taxes , we go over exactly what you need to know to solidify your control over as much of your crypto success as you can. This process can be difficult to put into action, however, so it is highly recommended that you consult with a tax professional before making such big financial decisions. This is the best way to save your money in the long run, rather than pay the IRS for little mistakes a tax pro with 20 years of experience could handle.

What about deductions?

There are a few legitimate deductions that you can use to cut down on your tax obligations. Unfortunately, the IRS scrutinizes individuals who list write-offs, deductions, and losses far more than it checks those who under-report income. It’s a cruel irony, indeed, but not an unsurprising one.

It isn't uncommon for the IRS to notice that people are trying to use obsolete sections of the tax code to deduct their tax obligations. Although the enthusiasm is there, the experience and knowledge certainly isn't. This is why it is so highly recommended that taxpayers connect with tax professionals before starting on their taxes.

Let Yoke Tax handle the numbers while you reap the benefits .

Can the IRS Track Crypto?

Tue, 19 Apr 2022 16:57:53 GMT

Long story short… sort of. The IRS has several methods of tracking your cryptocurrency, but it is not a guarantee. We’ll be detailing exactly where the IRS finds your crypto, how they track you, and the ways that the IRS can’t quite manage to achieve its goal of taxation.

A quick note, however: we don’t recommend that you try to evade your crypto taxes.

We completely understand that a big part of the initial draw to crypto was the idea that it was anonymous and completely separate from the federal government. Those days are practically over. Nowadays, once the IRS knows that you own crypto, it will keep an eye on you. If you try to commit tax evasion, the IRS will make you regret it.

That’s why we at Yoke Tax prefer to focus on minimizing your tax burden, rather than risking jail time. Set up a free consultation with one of our tax pros to get started.

How does the IRS categorize crypto?

The IRS sees cryptocurrencies like Bitcoin and Ethereum as property, much like a stock or a home. As such, your crypto is subject to capital gains tax . Once you sell, trade, or use your crypto to buy something, it is subject to capital gains tax. You will incur a capital gain or a capital loss depending on whether the value of your crypto increased or decreased between the time you bought it and the time you got rid of it.

More recently, the IRS has begun to see crypto as ordinary income . In the cases of those who mine, stake, or receive crypto through airdrops, the value of the coin is treated as no different than a payment from an employer. If you mine $300 worth of Ethereum, then you’ve increased your income by $300.

...Have you noticed it yet?

The IRS is effectively double-taxing your crypto ! First through income tax when you receive it, then through capital gains tax when you dispose of it.

When faced with these facts, it’s no wonder that some taxpayers will try to evade reporting their crypto to the IRS. However, as we’ve previously stated, that’s a very bad idea. The IRS has the capability to track your crypto.

How does the IRS track crypto?

There are a few ways that the IRS tracks who and who doesn’t have crypto, but by far the most impactful method will be through Form 1099-Bs, which are sent out before April 15th. This form is expected to skyrocket crypto tax compliance within the American people, as exchanges like Coinbase and Binance send reports on individuals’ trades directly to the federal government. If taxpayers do not fill out Form 1099-Bs, or if they omit details, the IRS will know.

We go into more detail on this topic in our deep-dive on the 2021 Infrastructure Bill . There are a few issues with the government’s plan with the 1099-Bs, but it is safe to assume that the government will have a good idea of who has crypto, who doesn’t, and who is attempting to commit tax evasion.

Form 1099-B Basics

A Form 1099-B refers to the proceeds from an exchange. Exchanges like Binance and Coinbase are expected to summarize their customers’ annual gains and losses. These are then subject to capital gains taxes.

A Form 1099-B takes three forms: Copy A, Copy 1, and Copy B.

Copy A i s filed by the exchange and sent to the IRS.

The exchange also files Copy 1 , which is sent to whichever state the customer is in.

Finally, Copy B is sent to the customer (you) so you can file your taxes.

If your copy, Copy B, is different from Copy A, the IRS will immediately know that you are trying to commit crypto tax evasion.

Can you hide your cryptocurrency from the IRS?

You can definitely try, but ask yourself: is it worth risking five (5) years in prison and a $100,000 fine?

If the IRS gets the inclination that you are trying to commit tax evasion, it will begin to comb through your financial documents much more carefully. The IRS is known to be extremely meticulous when it comes to its audits.

You can learn more about crypto tax audits here .

Not filing a return is the biggest mistake that a crypto holder can make. We don’t recommend it. Instead, we at Yoke Tax prefer to find new and interesting ways to save you money. A crypto tax audit is inevitable, but how much the IRS takes from you is a lot more flexible. A smart accountant can be the difference between you keeping hundreds of thousands, or losing it all.

How to pay low crypto taxes!

So we’ve established that nobody wants to pay taxes, but that it’s safer to pay them than to try and avoid them. If the Internal Revenue Service will insist on making your life difficult, why not minimize your tax liability as much as possible? We’ve come up with a variety of ways to do this.

One method is by utilizing the long-term capital gains tax rate. If you hold on to your cryptocurrency for at least a year before you sell it, then the IRS sets a 0% capital gains tax rate. There is one catch, though: your annual income must remain under a threshold. This varies by your filing status. Learn more here .

Alternatively, you can utilize our Charitable Remainder Trust (CRT) method. This is our favorite, but it can be very difficult to set up without a tax professional walking you through the process. This is a more long term solution and is best for those who are making large gains. Read the article here .

In the end, it’s down to you. You can let Uncle Sam take as much of your crypto earnings as he wants (and he will), or you can find people to help you save money without risking your financial safety.

Our primary goal at Yoke Tax is to do just that. Connect with us for free and let us handle the numbers.

Rental Property Depreciation - A Quick Guide

Mon, 11 Apr 2022 15:24:42 GMT

Depreciation is an accounting method which identifies the value of a physical asset and determines its decrease in value over time. When most real estate owners hear of it, they think that it is a bad thing. Something that holds them back from gaining success on the real estate market. However, this can’t be further from the truth. When used strategically, depreciation can be used on both commercial and rental properties to maximize the tax benefits of the owner.

To give you an idea of how this can be done, we’ve put together a guide to rental property depreciation.

Why Depreciation is Good

When most people think of ways to minimize their real estate taxes, they jump to focusing on expense deductibles. Indeed, deducting rental property expenses can be very useful. However, they pale in comparison to the savings which can be garnered by using depreciation.

If you buy a duplex worth $100,000, it will begin to break down due to wear and tear. This is especially true if your renters are not the most careful or considerate. Due to the fact that the property is aging and being used, its value will begin to fluctuate.

What does this mean for you as the property owner?

It means that you can make deductions on the perceived decrease in value of your property . What’s more, you can spread out this depreciation deduction over several years. This leads to a consistently lowered tax bill.

A good accountant will be able to walk you through the depreciation of your unique properties and know exactly how to maximize your tax savings. To connect with a Yoke Tax professional with a minimum of 20 years of experience, set up a free one hour consultation .

How Depreciation Affects Your Rental Properties

You can deduct depreciation costs from your taxes as you improve your property, which lowers your taxable income. According to the IRS, your rental property qualifies for depreciation if:

You own the property
You use the property to produce income
The property has a “useful life” (it can lose value naturally, such as through wear and tear)
The property is expected to last longer than a year

Note that land does not fall into this category, as its “useful life” is endless . Expenses such as landscaping can be deducted as regular business expenses, however.

When Depreciation Begins and Ends

You can begin to depreciate the property the moment that you put it on the market for rent. So if you purchase a house in January, spend February making repairs and upgrades, and then list it on a rental website in March, then you may start tracking depreciation in March.

In the time that the listed property is not being used by a tenant, it is considered “ temporarily idle .” If you find a tenant in June, this means that the house was temporarily idle during April and May. Depreciation can still be claimed during those months.

Finally, you can stop depreciating a property when it is “retired from service.” That is, you stop using the property to generate income by either:

Selling or exchanging the property
Converting it to personal use
Abandoning it
Destroying it

Depending on whether the rental property is meant for commercial or residential use, the amount of depreciation which you can claim on your taxes is different. In addition to that, the recovery period (how long you can claim depreciation year over year) is also drastically different.

Residential Rental Properties

For residential properties, the recovery period is 27.5 years. For every full year that you keep the property in service, you must depreciate its value by 3.636%. If you have it in service for less than a year, then the IRS’s Residential Rental Property GDS table should be used to determine the depreciation rate.

To continue with our rental home example, depreciation would begin in March. For that year, you can claim 2.879%.

Commercial Rental Properties

The recovery period for commercial properties is 39 years. Much like with residential properties, the depreciation rate is different if it is in service for less than a year, but full years follow a consistent rate.

For commercial real estate, the yearly depreciation rate is 2.564%. If you listed a commercial rental property on the market in March, the claim you could qualify for it 2.033%.

But Wait… What About the Cons of Depreciation?

Nothing is perfect, especially when it comes to the U.S. tax code. In the case of depreciation, rental property owners have to take note of the Depreciation Recapture Tax. This tax addresses real estate’s largest edge in terms of an investment: it tends to increase in value more than it decreases.

Due to yearly depreciation deductions, you are valuing your property as less and less valuable. However, the market may see it as far more valuable. And so, in the event of selling, you may stand to profit significantly from the sale of your property. If these profits are higher than the depreciated valuing of your property, then you will be taxed as if this were ordinary income. Thus the value of the property is “recaptured.”

In short, you will be taxed over income rather than the expected (and frankly more favorable) capital gains tax. Depreciation recapture is reported on Form 4797 .

Closing Thoughts on the Benefits of Depreciation

By taking note of depreciation costs, you can lower your tax bill each year and save yourself thousands of dollars. However, those same deductions can lead to difficulties with property sales and may put a dent in your profits. Generally, depreciation is a smart tool that every rental property owner should utilize, but it takes an experienced tax professional to maximize its benefits without stumbling into long-term issues.

Our Yoke Tax professionals have over 20 years of experience and are there to help you with just that. Connect for a free one hour consultation now.

Watch Out for These IRS Audit Triggers!

Tue, 05 Apr 2022 18:46:42 GMT

When you file your taxes, the last thing that you want to hear is that you’ve triggered an IRS audit. An IRS audit is a review of one’s financial documents in order to ensure that the information within is correct and done in accordance with tax laws. Selection for an audit does not always mean that there was a problem with your filing. Sometimes people are selected due to the IRS’s own random selection program, the National Research Program. If this happens, don’t worry.

However, IRS audits can just as easily (and much more commonly) come from a variety of small mistakes on the part of the individual. In addition to these small mistakes, an increase in income correlates with the IRS auditing more documents. As such, the more income that you make, the more important it is to file your tax documents correctly.

Yoke Tax professionals can help you get started with just that, but first let’s go over the four most common reasons why you might get audited.

Self Employment Triggered an IRS Audit?

When you are a self-employed individual, you may get your income from a variety of sources. This increases the opportunities which you have to deduct expenses under the pretense of it being for business. Because these deductions are often abused by those with little experience or guidance with business tax filing, the IRS has come to see these deductions as suspicious.

Another aspect of this is related to how your self-employment income is recorded. When you are employed, it is very hard to cheat on your taxes because the employer will also report your income. In addition, you don’t have many opportunities to file business deductions on a W-2. When you are self-employed, however, the temptation to reduce your income and report fake business expenses is there.

As such, it is imperative that the self employed keep proper documentation of their business dealings. If you run an all-cash business, it is especially important to keep tabs on your income earnings and expenses. These will help legitimize the deductions you claim in your filings and keep IRS agents far away from you.

For help with self-employment income and maximizing business expenses without triggering an IRS audit, set up a free one hour consultation with a Yoke Tax professional today.

Too Many Deductions

To expand on the self employment tax deduction trigger, there is also the personal tax deduction trigger. If your tax return is overflowing with deductions, it is an immediate red flag for the IRS.

There are “norms” that the IRS expects different tax filers to follow. For example, those who file as married filing jointly are more likely to use the Child Tax Credit. Although COVID-19 has made this a little more complicated , it is nonetheless a norm for many tax filings and not something which the IRS would consider to be suspicious activity.

If your deductions are high compared to your total income and they fall out of the norm for what is expected from your filing bracket, do not be surprised that an IRS audit is triggered and an agent comes knocking!

Tax Documentation Errors

A lot of the time, simple tax filing errors are all it takes to trigger an IRS audit. Math errors like forgetting to carry the one means that the IRS’s computer screening tools will only take a few moments to calculate that your filing is different from the IRS’s records. Most American taxpayers fall into this category when they wait until the last minute to file.

Usually, this results in a letter from the IRS being sent your way with a request to make a correction. However, depending on other factors like the ones described in this article, this small error may lead the IRS to take a closer look at your documents and conduct a complete audit.

To avoid these small mistakes, double-check your math or connect with a tax pro whose job it is to get the math right (and increase your tax return).

Earn Income Tax Credit IRS Audit

A shocking 2018 article by ProPublica reported that recipients of the Earned Income Tax Credit (EITC) are more likely to be audited than the wealthy. There are a few reasons for this.

Originally, the EITC was created as an alternative to welfare in the 1970s. It was meant to give low-income wage earners a bonus for staying employed and having children. The average tax credit is $2,500, but if the family is large enough, this amount can exceed $6,000 . Coupled with the Child Tax Credit, this can easily bring a tax filing out of the expected “norm” and trigger an IRS audit.

Because the EITC is not a welfare provision, it has no application process like food stamps. Instead, taxpayers need only claim the credit on their tax returns. This leads to millions of people improperly reporting. One fifth of eligible taxpayers don’t receive the EITC, and about $17 billion is paid out each year to those who aren’t eligible.

What To Do If You’ve Triggered An IRS Audit

As we’ve established, you might experience an IRS due to simple bad luck with random screening, or because you engaged in one of the listed triggers which lead agents to reassess your documentation.

The first thing you must do is not panic , as you might end up doing something which puts you in a worse situation. Instead, start by calling a Yoke Tax professional. With over twenty years of experience, they’ll be able to walk you through the next steps of an IRS audit.

The IRS will provide you with a list of documents which it wants to see, including bills, medical records, legal papers, and more. Any proof to justify every statement made in your filing will be checked. Generally, an IRS audit is done on returns filed in the last two years. Based on the complexity of issues, availability of information, and your agreement or disagreement with the IRS’s findings, an audit can take a few weeks to a few months.

To get the most out of your tax filing while avoiding an IRS audit, connect with a professional for your personal and business needs.

Parents Might Pay More Taxes Because of This IRS Mistake…

Fri, 11 Feb 2022 01:16:31 GMT

No one ever said the federal government was the most efficient (or most organized). This is probably why. The Advanced Child Tax Credit, a stipulation created in 2021, was created with good intentions: help parents across the country push through the pandemic with some extra cash. However, it’s parents who utilized this aid who are now put in an unfavorable position by the IRS itself.

What is the Advanced Child Tax Credit?

Under the American Rescue Plan of 2021, advance payments of up to half the 2021 Child Tax Credit were sent to eligible families. More than 30 million American families received monthly payments of up to $300 for children younger than 6 and up to $250 for children ages 6-17. These taxpayers did not need to take any action to receive these payments, as they were automatically sent out on the 15th of each month, beginning in July 2021.

The intention behind this program was to allow families to benefit from their 2021 income tax return’s Child Tax Credit in advance, and thus lessen the negative impact of the COVID-19 pandemic on them. Parents would then be able to claim the other half of their Child Tax Credit when they filed their 2021 income tax return.

The IRS is currently sending out 6419 Letters , which contains details on how much child tax credit money you received in 2021. The problem is that the letters themselves have come with mistakes.

What Went Wrong?

The IRS’s 6419 Letter should contain the sum of all the money parents received from the advanced payment program, as well as the number of children those payments were for. This total is important because it determines the remaining amount of Child Tax Credit payments you can be given when you file for your 2022 taxes.

The problem here is that parents aren’t getting the correct amount!

This is really important because an incorrect logging of your payments can lead to significant changes in your tax refund. Parents who are told that they received money which they didn’t receive may end up with a far lower tax refund. Alternatively, they might end up with no refund at all!

Parents who qualified for the Advanced Child Tax Credit but didn’t receive their monthly payments are also in a bind, as sometimes they are getting notices that they were sent money. In truth, they will have to claim the full Child Tax Credit on their taxes when they file this April.

What’s the IRS’s Response?

In a press conference , Ken Corbin, the IRS’s chief taxpayer experience officer and the agency’s wage and investment division commissioner, noted that the IRS is aware of this issue.

He recommends that parents with incorrect 6419 Letters log into the IRS website to double-check. Alternatively, if the amounts wired to your bank account differ from the amounts in your Letter 6419, you should use the bank’s numbers.

If there was ever a reason for parents to keep track of their finances, this would be the one. Connect with a tax pro to iron out what can be done about the Advanced Child Tax Credit. Our professionals with 20+ years of experience can work with you to find unique ways to lower your total tax bill.

Crypto Tax Guide 2022

Thu, 27 Jan 2022 19:42:55 GMT

As the 2021-2022 tax season comes to an end, it's time to re-evaluate how your cryptocurrency investments will be looked at by the Internal Revenue Service. The IRS not only taxes cryptocurrencies like Bitcoin and Etherium, but it also taxes NFTs. To provide you with the best tax savings, we’ve created a crypto tax guide for 2022.

How Does The IRS Know You Have Crypto?

Many people enter the crypto market in hopes of investing in something which skyrockets in value. With the rise of public acceptance of crypto, these investments have put billions of dollars at stake. The IRS, like any other government entity, wants a cut. Crypto is no longer as private as it was originally intended.

There are a few ways that the IRS tracks who and who doesn’t have crypto, but by far the most impactful method will be through Form 1099-Bs, which will be sent out before tax day 2022. This form is expected to skyrocket crypto tax compliance within the American people, as exchanges like Coinbase and Binance send reports on individuals’ trades directly to the federal government. If taxpayers do not fill out Form 1099-Bs, or if they omit details, the IRS will know.

A crypto tax is inevitable, but how you respond determines how much the government takes. This can be minimized significantly with the help of tax professionals .

How is Crypto Taxed?

What is capital gains tax?

What Triggers a Capital Gains Crypto Tax?

A crypto tax is triggered on very specific events. There has been some confusion as to which events will be taxed and which won’t. Although a tax professional could easily identify what does and doesn’t count, it is important to help average people get an idea of the requirements.

Taxable events may take the form of:

Receiving cryptocurrency as a result of a fork or mining
Trading one crypto for another (ie Bitcoin for Ethereum)
Trading one crypto for fiat currency (ie USD)
Using crypto to purchase a good or service

Non taxable events are just as common, however. These include:

Donating crypto to a 501c3 organization
Transferring crypto between wallets owned by the same person
Gifting crypto to others
Buying crypto with fiat currency

There are some nuances with these events, however. For example, gifting crypto to others is not usually a taxable event, but there is one stipulation: the gift cannot exceed $15,000. Doing so subjects the giver to fees.

Connecting with a tax professional can help you avoid these situations and minimize other common crypto tax pitfalls.

Get Ready for Crypto Tax 2022

How NFT Taxes Work

Mon, 10 Jan 2022 16:13:33 GMT

Have you heard of Crypto Kitties ? It is a collection of non-fungible tokens (NFTs) which has made many a crypto investor quite a bit of money. Beyond smart investments, however, NFTs have revolutionized how artists, musicians, celebrities, and even corporations buy and sell original content. The rise of NFTs coincides with the rise of cryptocurrencies, which makes one thing clear: NFT taxes are right around the corner!

What are NFTs?

NFTs do not just have to be pictures of cute kittens. NFTs can take the form of artwork, domain names, music, and even videogame add-ons. All of these are considered digital assets . Once an NFT is created (minted), it is given an ID which brands it as completely different from other NFTs. If two NFTs look similar, they can be identified as separate creations based on their IDs.

An NFT’s ID includes metadata on its transaction history. Specifically, who minted it, who owned it, and what it’s been sold for. Because of this, NFTs are taxable.

When do you pay NFT taxes?

Profits from trading NFTs are taxable in three cases:

Buying
Selling
Trading

Each of these transactions impact your tax liability. Because the only way to purchase NFTs is through cryptocurrencies, you will be subject to a capital gains tax. Ethereum, which is the most popular method of buying and selling NFTs, can rise in value after you purchase it from an exchange, but BEFORE you use it to buy an NFT. In such a situation, you are subject to capital gains tax.

To learn more about how crypto is taxed, read our guide .

Alternatively, you can speak with a tax professional to determine the various ways that you can expect your crypto portfolio to be taxed.

When it comes to selling and trading the NFTs themselves, NFT taxes take on a different form.

NFT Taxes for Investors

The IRS has not provided any guidance on how it plans to tax NFTs specifically. This makes many assume that these tokens will not be subject to tax. This assumption is false, as NFTs technically fall under the “ collectible ” tax classification. This means that any NFT sold or traded on the OpenSea or other NFT trading platforms will be considered by the IRS as a unique work of art, comparable to anything which can be bought at a traditional art auction. This is particularly important because NFT gains can be subject to a slightly higher tax rate than regular cryptocurrencies.

How are collectibles taxed?

Collectibles are taxed when they are sold. The maximum tax rate for collectibles held for under one year is 28%, which is considerably higher than the average capital gains tax which investors pay for non-collectible investments. For long-term capital gains, for example, the tax rate is 0-20% depending on your income bracket.

It may shock you to learn that, if you buy and sell an NFT in less than a year, your short-term capital gains tax skyrockets to 37-50% . Yes, up to half of your earnings can be taken away by NFT taxes. To get around this, it’s crucial to speak with a professional before doing anything. Our Yoke Tax professionals are focused on minimizing your tax losses while maximizing your earnings retention. Connect with us for a free consultation .

NFT Taxes for Artists

Creating an NFT in itself isn’t actually a taxable event. When you sell your NFT, however, you will have to pay taxes on the profits which you made. The profits from selling NFTs are considered income, which means that they will be taxed at your regular income rate.

For example, if you spend $100 worth of Ethereum to create an NFT, and sell it for $500 Ethereum, then your profit is $400. This is taxable income. However, do not forget that this NFT income is subject to self-employment taxes! You may want to connect with a tax professional before selling your creation.

Final Considerations

Generally, NFTs are treated differently based on who is buying and selling it. For artists, we can see a very simple tax guideline which follows self-employment taxes. For investors, NFT taxes get messy depending on how much the NFT is bought for and how long it is held. This is because NFTs are taxed as collectibles.

However, NFT taxes don’t have to be complicated, and they certainly don’t have to take most of your earnings. Connect with a Yoke Tax professional to iron out what can be done to maximize your earnings retention. Don’t stress- let us handle the numbers.

Payment Apps like Venmo Reporting $600 payments

Mon, 03 Jan 2022 19:00:44 GMT

As more and more people are growing comfortable with using payment apps to do their shopping online and paying friends back, the IRS has decided to take a closer look at things.

What happened?

The American Rescue Plan, which was signed in March 2021, introduced this change. This is because the IRS realized that people who used payment apps like Venmo or Cash App were trying to avoid paying their taxes.

Payment aps are considered third party payment network providers. This meant that the IRS only expected them to report accounts which met both of the following two requirements:

Make more than transactions in the tax year
Gross payments must exceed $20,000

With such relaxed standards, of course people started to utilize payment apps more and more! Unfortunately, those days are gone. Keep good records of your transactions and consult with a tax professional . The IRS has made payment apps a lot more regulated.

What are payment apps doing?

Beginning January 1, 2022, payment network providers will be required to send users a Form 1099-K for any of their transactions. This means that the impact on your tax statement is going to impact your 2022 tax return, which you file in 2023. There is still a bit of time before things really get going.

You can expect the IRS to require payment apps to request additional information from you in order to properly report your transactions. These transactions include payments from credit cards, debit cards, and crypto if the platform supports such payments.

Basically, if you are doing business over a payment app, and gross profit is exceeding $600 per year, then you ought to expect a Form 1099-K heading your way next tax year.

Other taxable events include wages, rents, tips, and retirement income.

I only use payment apps casually. Will I be taxed?

A great deal of the people who use these third party payment networks like Venmo and Cash App don’t use them for business. In fact, the most common use of these payment apps are:

Repaying friends or family
Transferring money to pay a share of rent
Getting money from friends, family, or third parties as a gift

Thankfully, all of these actions are non-taxable. In fact, the IRS considers gift giving to be a positive thing. If you are giving a gift to a qualified 501(c)(3) nonprofit organization, then the gift is actually tax deductible! If you are just giving gifts to friends and family, it will not be taxed so long as it does not exceed $15,000 that tax year. This is the federal gift tax .

Speaking to a tax professional may shine some light on how all of these different topics fit together. A pro can even help you learn how to set yourself up for a smaller tax bill. Connect with one now .

Common Crypto Tax Pitfalls You MUST Avoid

Wed, 22 Dec 2021 18:25:33 GMT

How is Cryptocurrency Taxed?

Before we begin outlining crypto tax pitfalls and the issues which come with them, we ought to first address how crypto is taxed. Crypto is taxed as a capital gain, which means that anything you earn from selling it will be taxed. For example, if you purchase $1,000 of Ethereum and sell it for $5,000, then you are subject to $4,000 of capital gains tax ($5,000 - $1,000 = $4,000).

This does not mean that all your gains are taken by the IRS, however. That depends on a variety of factors, including your filing status, income, and how long you hold onto your crypto assets. If you are a single individual making $85,000 annually, for example, you are subject to 22% in short term capital gains taxes.

To learn more about capital gains taxes and how they affect your crypto portfolio, connect with a tax professional.

Crypto Tax Pitfalls for NFTs

Starting with non-fungible tokens (NFTs), which are digital representations of art or music, we come against the first of our crypto tax pitfalls. The IRS has not issued any specific NFT tax laws, which makes many assume that these tokens will not be subject to tax. This assumption is false, as NFTs technically fall under the “ collectible ” tax classification. This means that any NFT sold or traded on the OpenSea or other NFT trading platforms will be considered by the IRS as a unique work of art, comparable to anything which can be bought at a traditional art auction. This is particularly important because NFT gains can be subject to a slightly higher tax rate than regular cryptocurrencies.

The Solution

Unlike classic cryptocurrencies like Ethereum or Bitcoin, it is difficult to properly assess fair market values for NFTs. Since these are collectible artistic assets, they have to be appraised in order to determine true value, and thus accurate taxable gain or loss. Because this can quickly become a complex affair, it is important to consult with a qualified tax professional. A short one hour conversation could be the difference between paying thousands to the IRS, or just a few hundred.

Not reporting crypto is a HORRIBLE idea

Many crypto enthusiasts rightly point out that paying taxes on crypto goes completely against the ethos of the crypto market and the entire decentralized finance (DeFi) movement. Indeed, the fact that a centralized agency such as the IRS can require individuals to pay taxes on a currency which is built on privacy and autonomy is a direct contradiction. However, it is the IRS which has not only the full force of the federal government behind it in order to enforce its rulings, but the IRS also has the compliance of many major crypto exchanges.

Far too many cryptocurrency investors are under the impression that the IRS has no way of knowing your crypto activity. This is not completely true. In actuality, the IRS is actively looking for methods to track your crypto movements. At the moment, their primary method is through having major crypto exchanges like Binance and Coinbase send reports on what you spent and what you earned, and comparing that to what you report (or don’t report) on your tax return. You can read more about this in our discussion on the 2021 Infrastructure Bill .

If the IRS finds out that you have been withholding information, and thus not paying your taxes, you will be liable for a variety of aggressive penalties brought on by the United States government. That’s probably the worst of the crypto tax pitfalls you could deal with!

Crypto Tax Pitfalls of Record-Keeping

Clearly, you want to keep in the good graces of the IRS. In such a case, your record-keeping is absolutely crucial to everything within your tax return. It isn’t uncommon for crypto enthusiasts to lose records due to exchange closures or, worse yet, simply not keep records at all. Crypto record-keeping is incredibly important in the event that the IRS accuses you of fraud or some form of tax evasion.

Make sure to keep all your source data in one secure location, as the ultimate burden of proving your honesty on your tax return information is on you. Many crypto tax pitfalls simply start with inconsistent or nonexistent recordkeeping, and this is something which can be easily fixed.

Crypto Tax Pitfalls of Positivity

Everyone appreciates some positivity every now and then, but when it comes to tax season, some taxpayers can be a little excessive. Indeed, a lot of taxpayers realize that they can use write offs, deductions, credits, and losses in order to cut down their tax payment requirements. This is great at first, until one realizes that the IRS scrutinizes these items more than they do under-reported or omitted income.

A lot of the crypto tax pitfalls that taxpayers fall into in this regard comes from a misunderstanding of tax law, and a misuse of deductions and write offs. In fact, it isn’t uncommon for the IRS to notice that people are trying to use obsolete sections of the tax code to deduct their tax obligations. Although the enthusiasm is there, the experience and knowledge certainly isn't. This is why it is so highly recommended that taxpayers connect with tax professionals before starting on their taxes.

Yoke Tax employs a variety of tax pros with over 20 years of experience who are ready and willing to help you retain as much of your crypto earnings as possible, without sacrificing it all to Uncle Sam! Tax season does not have to be a complicated affair, and a smart tax pro can help you save money and set you up for future success. Just let us handle the numbers for you, and never worry about crypto tax pitfalls again.

How the Federal Bonding Program Impacts Your Business

Wed, 22 Dec 2021 18:25:22 GMT

During the middle of the Great Resignation , it can be difficult to find candidates who have what it takes to work for your business. However, sometimes the best employees are those who have had a hard past (and are thus more grateful for new opportunities). In order to give these potential candidates a chance, the federal government has created the Federal Bonding Program. Here’s what that means for you as a small business owner, and how that can help you in the long run.

What is the Federal Bonding Program?

The Federal Bonding Program was created as an incentive to encourage business owners to hire at-risk job applicants with limited liability. This is a business insurance policy which insures the employer against theft, forgery, embezzlement, and larceny from an “at risk employee.”

This program does not cover an employee’s poor workmanship, job injuries or work accidents, but these are all things which can be mitigated with the proper training and procedures.

Of course, there are other ways to mitigate the financial cost of these mistakes. A Yoke Tax professional with over 20 years of experience will know a variety of ways to save you money on these issues come tax season. Connect with one for a free consultation whenever suits you best.

Who counts as an at risk applicant?

The people who the Federal Bonding Program is trying to incentivize back into the workforce are those who have lower chances than the average worker, for whatever reason. These at-risk applicants include

Ex-offenders
Recovering substance abusers
Those dishonorably discharged from the military
Welfare recipients
Those with poor credit or those who have declared bankruptcy

How does this benefit you, exactly?

Because the Federal Bonding Program provides a $5,000 bond on each employee who falls into the “at-risk” designation, this gives you a bit of leeway in hiring employees you otherwise wouldn’t consider. There’s no doubt that some of these applicants are simply bad apples, but that is not the case for all of them. There are many who are just looking for an opportunity to start over on the right foot.

As a business owner, you have the opportunity to change someone’s life for the better. The Federal Bonding Program intends to make that decision a lot less taxing. In fact, you can double your benefits by using the Federal Bonding Program in tandem with the Work Opportunity Tax Credit .

Before you do anything, it’s always best to consult a tax professional to see how this can benefit you in the short and long term. There are several other small incentive programs provided by federal and state governments which can help lower your taxes next April, and a tax pro can help you utilize them effectively. Set up a free consultation today.

The Infrastructure Bill is Messing With Your Crypto Taxes

Fri, 10 Dec 2021 02:40:13 GMT

The American federal government can be depended on for one thing: finding some way to tax the American people. Crypto taxes were an inevitability, all things considered. However, no one expected things to get as complex as they are now. At the moment, crypto is subject to capital gains taxes because it is seen as property. That is still the case, but the Biden Administration’s new Infrastructure Bill is shaking things up- and not in a good way…

What happened?

On November 15th, President Biden signed the Infrastructure Bill into law. Within it, there is a section which requires cryptocurrency brokers to issue Form 1099-Bs to their customers for the 2023 tax year.

The regulators in Washington D.C. did this because they are under the impression that an influx of 1099-Bs would improve crypto exchange reporting, and thus pressure taxpayers into filing their crypto taxes. Taxpayers, who are already notorious for looking for methods to avoid cryptocurrency tax compliance, should find this process easier than trying to skirt the taxman. That’s what they think, at least.

However, the tax experts at YokeTax have noted that the Infrastructure Bill has completely ignored the intricacies of crypto. Because cryptocurrencies are built on the principles of decentralization and self-custody, Form 1099-Bs will be overwhelmingly ineffective. For taxpayers who do comply, however, the 2023 tax year will be an absolute nightmare . It might be best to consult with a tax pro now to take precautions.

What is Form 1099-B?

A Form 1099-B refers to the proceeds from a broker and barter exchange. Exchanges like Binance and Coinbase are expected to summarize their customers’ annual gains and losses. These are then subject to taxes, which is the primary goal of the Infrastructure Bill.

A Form 1099-B takes three forms: Copy A, Copy 1, and Copy B.

Copy A i s filed by the exchange and sent to the IRS.

The exchange also files Copy 1 , which is sent to whichever state the customer is in.

Finally, Copy B is sent to the customer (you) so you can file your taxes.

The information on Form 1099-B is meant to explain what you earned in the crypto market, as well as what you lost. To learn more about how crypto is taxed, read our 2021 crypto tax guide .

Why is this in the Infrastructure Bill?

This is all part of the IRS’s attempt to streamline their tax flagging operation. The federal government has lost millions (if not billions) in tax revenue due to crypto enthusiasts’ lack of tax compliance. They are trying to change that with their IRS Document Matching Program . It is an upfront alternative to tax audits. This way, instead of finding fraud or inaccurate reporting months after the fact, the IRS can now catch people in just a few days.

The DMP has been in place for decades, and stock brokers are well aware of it, but the IRS has been slow to connect crypto to it. The Infrastructure Bill has provided the IRS with just the right opportunity to do so.

This way, if you don’t report that $800 profit that you made on an altcoin, the IRS can check against the crypto exchange’s records and charge you a capital gains tax.

When a taxpayer is directly mailed a Form 1099-B, which not only shows his capital gains but also notes that the IRS has a copy, the taxpayer hesitates to underreport. In fact, noncompliance plummets to only 17% when taxpayers are shown a 1099-B. The IRS likes those odds in the stock space, so it assumes that this will translate well into the crypto space. ...It’s wrong, though!

Why the Infrastructure Bill will fail in the crypto space

If we’re being honest 1099-Bs do have a history of skyrocketing tax compliance. It makes sense that the federal government would assume the same would apply in the cryptocurrency space. However, the crypto space is a fundamentally dynamic environment.

Factor One: Anonymity

How can exchanges be expected to fill out 1099-Bs if they are built on a foundation of anonymity? Smaller exchanges like Uniswap do not collect any customer information (name, address, social security number, etc) from its users. A 1099-B cannot be filled out without this information!

Say you purchased $500 worth of Bitcoin on Uniswap and transferred it to an exchange which does track user information, like Kraken. If you sell it on Kraken for $1,000, the Infrastructure Bill requires Kraken to issue a 1099-B. However, Kraken has no idea that you bought that Bitcoin for $500, and thus this information cannot be reported.

Factor Two: Self Custody

There is also the issue of self custody. Unlike other securities, it is incredibly easy to transfer cryptocurrencies between several exchanges, both national and foregin. All it takes to create an incomplete 1099-B is for a user to put their crypto in the hands of a foreign exchange. This is all because crypto is built on the privacy and security of the user. Nobody is meant to tell you where you can and cannot move your crypto, which means it’s harder for a government authority to control its flow (and taxation). In addition, moving crypto from exchange to crypto ledger, and vice versa, makes things even more anonymous.

Say you bought $5,000 worth of Bitcoin three years ago on a small exchange which did not collect your taxpayer information. If, in 2022, you send this Bitcoin to Kraken and sell it for $35,000, you would owe $30,000 in capital gains taxes. ...However, because Kraken has no idea what you bought the Bitcoin for, it cannot report that on a 1099-B.

Again, the Infrastructure Bill falls on its face by trying to treat crypto like every other security it’s seen, when it is fundamentally different. This will fail in the crypto space- undoubtedly- but how will it fail you, the taxpayer?

What taxpayers can do about the Infrastructure Bill on their crypto taxes

There’s nothing guaranteed in life but death and taxes, and the future looks grim.

The immediate effect of the Infrastructure Bill on your crypto will be an influx of 1099-Bs. Because exchanges will be grasping at straws to try and find information worthy of reporting, these 1099-Bs will be incomplete. Taxpayers who are not careful will likely end up overpaying on their taxes in an attempt to stay on Uncle Sam’s good side.

Some taxpayers will try to comb through their exchange accounts and records in order to figure out exactly how much they actually owe in taxes. However, it’s all too likely that this information is going to contradict the incomplete 1099-Bs which exchanges will be sending to the IRS and state governments.

This will trigger the IRS Document Matching System and lead to various notices and consequences, including more taxes.

Our Solution

We don’t recommend not paying your taxes. One way or another, Uncle Sam is going to get his cut. We would rather that you give him a smaller piece of your profits than he wants, though.

In addition to helping you pay less in taxes, Yoketax has methods to prevent you from paying crypto taxes altogether . Read up on our favorite tax loophole as soon as you can.

The government is looking for ways to tax you with its new Infrastructure Bill, but it doesn’t have to take all your money. Sit back, relax, and let us handle the numbers.

Pay Zero Crypto Taxes

Fri, 03 Dec 2021 15:12:26 GMT

The sad reality of American life is that the government will tax anything and everything. Thus, it was only a matter of time before the Internal Revenue Service set its sights on the cryptocurrency market! Crypto taxes have been put into effect, and they are coming for your profits. What can you do about it?

Understand how crypto taxes work

First, you need to understand how the IRS is going to take your crypto profits. The IRS sees cryptocurrencies like Bitcoin and Ethereum as “ property .” This means that, when you sell or trade your crypto in an exchange, that you are subject to capital gains tax.

Capital gains tax comes in the form of “losses” and “gains.” It depends on the difference from how much you bought the cryptocurrency for (the cost basis ) and the amount which you sold it for (the proceeds ). If you sold for more than you bought, you are subject to capital gains tax. If you sell for less than what you bought your crypto for, then you have capital loss crypto taxes.

In the end, the amount of crypto taxes you pay can reach up to 37% if you’re not careful! A tax pro can help you avoid this and other tax issues. Simply set up a free consultation .

How do you bring your crypto taxes down to $0?

It sounds fantastical, doesn’t it? The idea that you don’t have to pay your taxes on something as scrutinized as crypto is very enticing. However, for the smart taxpayer, this is a completely feasible goal.

It all depends on these three aspects of your tax filing:

Your filing status
Your overall income this year
How long you hold onto your crypto

Aspect #3, “how long you hold,” is actually the most important part to paying zero crypto taxes!

The IRS separates capital gains taxes in two ways: long-term and short-term. Short-term capital gains taxes are created when you sell your crypto before you’ve held onto it for a year. These taxes are high and to be avoided at all costs. If you buy Bitcoin in January and sell it in May, then you are subject to short-term capital gains tax.

Why you should hold for a year

What you really want to do is hold onto your crypto for at least a year before you sell it. If you do this, then the IRS will use the long-term capital gains tax rate for your income bracket and filing status.

As long as your income meets its requirements, the IRS will not make you pay crypto taxes!

If you have any questions, connect with a YokeTax professional. We have tax pros with over 20 years of experience who are ready to save you money! Set up a free consultation before you miss out on more tax strategies.

Use the Work Opportunity Tax Credit to Your Advantage

Thu, 11 Nov 2021 17:46:53 GMT

The Work Opportunity Tax Credit is a federal tax credit. It is given to employers who hire and retain qualified individuals from target groups who, historically, have faced barriers in finding employment. By creating economic opportunities, this program hopes to lessen the burden on other government assistance programs.

How does the Work Opportunity Tax Credit Work?

When an employer hires a member of a WOTC group, they may apply for a general business credit against their income tax. By employing such individuals, participating companies can bet 40% and up to $6,000 of wages paid to the qualifying WOTC individual against their taxes.

Who qualifies under the WOTC?

The targeted groups under the Work Opportunity Tax Credit are those who often struggle to find adequate employment. According to section 51 of the code, the following are considered targeted groups:

the formerly incarcerated or those previously convicted of a felony;
recipients of state assistance under part A of title IV of the Social Security Act (SSA);
veterans;
residents in areas designated as empowerment zones or rural renewal counties ;
individuals referred to an employer following completion of a rehabilitation plan or program;
individuals whose families are recipients of supplemental nutrition assistance under the Food and Nutrition Act of 2008;
recipients of supplemental security income benefits under title XVI of the SSA;
individuals whose families are recipients of state assistance under part A of title IV of the SSA;
individuals experiencing long-term unemployment.

Who doesn’t qualify?

Any individual who is not listed in the targeted groups section does not qualify for the Work Opportunity Tax Credit. In addition, the WOTC-targeted employee must be in their first year of employment with the employer. They must also provide at least 400 hours of service to that employer.

Why does this benefit you?

Depending on the industry which you work in, you may benefit more than other businesses from the Work Opportunity Tax Credit. No matter your profession, however, a $6,000 discount on your income taxes has to be of benefit. Consider connecting with a tax professional to determine how you can maximize your benefits from this new opportunity.

How can you find qualified WOTC groups?

The American Job Centers and partnering agencies and programs can help employers connect with skilled job seekers who may be in a targeted group for the WOTC. American Job Centers (AJCs) can assist employers in recruiting talent, hosting job fairs, conducting skills assessment, and providing support to workers transitioning to new jobs.

Generally, government agencies on the local to federal levels will have many pre-qualified WOTC job seekers available. Of course, it isn’t required to find someone pre-certified to claim your WOTC, but it certainly helps in the paperwork department! Some federal government agencies which can supply WOTC employees are the Department of Corrections or the Veterans Administration.

Where can you claim the Work Opportunity Tax Credit?

To apply for certification that qualifies a new hire for one of these tax credits, employers only need to complete these forms:

These forms must be sent to an employer’s state workforce agency within 28 days of the eligible employee beginning work. To simplify the process, connect with a tax professional. He or she can help you maximize your benefits from the WOTC.

How to Legally Shorten Your Crypto Tax Audit Period

Mon, 08 Nov 2021 19:05:45 GMT

An audit clock refers to the statute of limitations, which takes effect the moment that you file your tax return. This statute of limitation controls the time frame in which the IRS has the authority to audit your tax return. When it comes to crypto, it’s important to lower the chances of this. A crypto tax audit can be the difference between you keeping your crypto earnings, or the government taking it all.

What does the IRS ask for in a crypto tax audit?

A major selling point of crypto is its privacy. From the beginning, it was all about having an asset which the government has no control over. However, a crypto tax audit severely hinders this ideal. The IRS will ask you to disclose all crypto accounts which you own in order to tax you. Specifically:

All wallet IDs and blockchain addresses owned by you
All digital currency exchanges used by you, including your user ID, email, IP address, account number, etc

Once the IRS has this information, it will look for records of each and every transaction which you’ve made relating to crypto. This is because a crypto tax audit is made to look for taxable events - points where the IRS has a legal right to tax you.

On its website , the IRS asks for “the basis and FMV of each unit at time of acquisition… The date and time each unit was sold, exchanged, or otherwise disposed of… (and) the FMV of each unit at the time of sale, exchange, or disposition, and the amount of money or the FMV of property received for each unit...” amongst other things.

To parse through each requirement and how it affects you can take a lot of time. Indeed, it can get confusing. To avoid any frustrations, be sure to consult a tax professional as soon as possible. He or she will figure out exactly what you need to do to lower your crypto taxes.

Why don’t you want a crypto tax audit?

Whether you’re low income or high income, there’s one thing which binds all people: nobody likes paying taxes. As more people have entered the crypto market and have found success, they want to avoid getting their earnings taken away from them by the government. A crypto tax audit is exactly how the IRS takes your profits- they go through your tax return and look for justifications. Don’t give them any!

The less time that you give the IRS to go through your tax return, then the less likely the IRS is to actually find any mistakes. These mistakes, which can include anything from a misspelled item to an incorrect calculation, can lead to a variety of consequences. More importantly, however, is the fact that giving the IRS less time to do a crypto tax audit gives it less time to tax you more .

There are three ways to go about this: the three year rule, the six year rule, and the forever rule.

The rules of an IRS tax audit

Three Year Rule: The IRS has three years from the date of your tax filing to conduct an audit. If you file your tax return on April 10, 2021, then the IRS has until April 10, 2024 to conduct a crypto tax audit. After this date, the IRS will not audit your taxes unless it sees that you committed fraud or misrepresented your financial situation.

Six Year Rule: If you misrepresent your income by more than 25%, then the IRS may extend its power to audit your return. This extension from three to six years allows the crypto tax audit to become more meticulous, which leads to more taxes for you.

Forever Rule: Generally, we don’t recommend committing fraud (filing a false return or willfully attempting to evade taxes). In fact, it’s as bad an idea as not filing your tax return at all. If you do this, then the IRS has the legal right to audit your return indefinitely. You will be liable for back taxes forever, and the IRS will make sure to find every avenue to take each cent from you.

Once you understand all of these aspects of the crypto tax audit, it becomes a little more clear on how you can shorten it.

How to shorten your crypto tax audit

Simply be as thorough as possible. Be detailed and precise in everything which you report on your tax filing. Do not omit any information. The more errors you leave, the higher the risk of an audit. The IRS will find every opportunity to tax you if it gets the opportunity, so keeping the audit period to the minimum of three years is the best choice.

In the end, not filing a return is the biggest mistake that a crypto holder can make. We don’t recommend it. Instead, we at Yoke Tax prefer to find new and interesting ways to save you money. A crypto tax audit is inevitable, but how much the IRS takes from you is a lot more flexible. A smart accountant can be the difference between you keeping hundreds of thousands, or you losing it all.

Crypto Loans: A Tax Guide

Mon, 01 Nov 2021 21:40:04 GMT

More and more people are getting into crypto. While most are looking at cryptocurrency as an investment or weekend gamble, there are many who are looking to make more use out of it. One way that this is done is with crypto loans. As more crypto exchanges pop up and more products accept crypto as legitimate payment, crypto has developed a variety of interesting tax advantages. By looking into crypto loans, we can learn how to help you come out on top of it all.

What are crypto loans?

Crypto loans work very similarly to traditional USD/fiat loans. The creditor puts his or her crypto holdings to work by locking them into interest-earning platforms such as Celsius . The debtor, on the other hand, can use his or her crypto as collateral to borrow other assets.

Why take out crypto loans?

The interesting change which we see in the move from traditional loans to crypto loans is the difference in interest rates. A Bank of America credit card might run you an annual percentage rate of 14-24%, while a Bitcoin loan from BlockFi is about 5%. This is a massive difference for borrowers. Coupled with crypto’s mass-adoption, it is likely that this will become more normalized. Normalization can only benefit creditors.

Why give out crypto loans?

Individuals may take the position of the giver, rather than the borrower. Through crypto loans, you can help people get the money they need without having to wait in a long queue like they would at a traditional bank. Instead, you and the borrower sign a smart contract which explicitly states the terms of the loan (amount, payments, APR, etc). This contract is processed through the blockchain, which means that there is no third party- and thus less profits lost.

In addition, lending out your coins offers a level of stability in your investments. Crypto volatility is notorious for swinging in either direction, at any time, for any reason. Crypto loans allow you to utilize stable coins like USDT, which is pegged to the US dollar, in order to give you a solid base in your portfolio which you can fall back on.

I TOOK crypto loans. How am I taxed?

In the US, most crypto trading qualifies as a taxable event. On the other hand, simply borrowing money is not a taxable event. Because you are taking out crypto loans and not investments, then you are not taxed.

If you use crypto loans to buy more crypto, however, things get a lot more complicated. You will have to pay taxes on your bought crypto, as well as interest, since these all count as taxable events. Because of the complexity of this situation, it is best to connect with a tax professional before making such decisions.

When it comes time to pay off your loan, you also don’t have to worry about taxes.

I GAVE crypto loans. How am I taxed?

When you loan out crypto, there are usually two ways in which you are rewarded:

Interest Earnings: The lending platform you use pays you interest on whatever crypto you loaned. This means that if you gave them Bitcoin to loan out to borrowers, then you will receive interest as Bitcoin. Because this is interest income, the IRS will see this increase in your Bitcoin holdings as ordinary income . It is treated no differently than income which you earn from your job.

Capital Gains: Many DeFi platforms choose instead to issue their own tokens. These tokens are called Liquidity Pool Tokens (LPTs), and they usually take form because the platform structures its adding/removing of liquidity as a token swap. You earn the LPT from providing crypto loans, and you can later trade your LPT for crypto of your choice. This is taxed as capital gains/loss .

If your earnings fall into the capital gains territory, things can become a bit confusing. If you do not trade your LPTs for a different crypto within a tax year, does it still count as capital gains? Or is it treated as simply buying and holding a new cryptocurrency? If your crypto loan isn’t paid back in full, how does that affect things?

In these situations, it is best to connect with a professional .This way you can speak with him or her about any issues you are facing or questions which you might have. Set up a free consultation with a professional as soon as possible.

Are interest payments tax-deductible?

If a business takes out a loan for its general conduct, then interest is treated as a tax-deductible business expense. However, the IRS does not extend the same ruling on personal loans. You cannot deduct purchases of personal items or services, such as electronics or lawncare, through crypto loans. However, if an individual uses a crypto loan to purchase assets which produce investment income (such as real estate), then the IRS sees this as tax-deductible.

Make your life easier with YokeTax

At YokeTax, we only hire the best of the best. Certified tax professionals with a minimum of 20 years experience, who are always keeping up to date on the changes in the tax code and how it affects you, are at your command. Set up a free consultation to get a personalized look at your financial situation. Be it crypto loans or estate planning, let us handle the numbers.

Taxes on Stolen, Hacked, or Lost Crypto?

Mon, 01 Nov 2021 21:40:03 GMT

Generally, cryptocurrency has a simple philosophy around security: as long as no one knows your crypto wallet’s seed phrase, then you’re safe. Unfortunately, sometimes thefts do happen. Top traders have had their crypto stolen before, and smaller crypto traders are targets for theft every day. Stolen crypto isn’t even where it ends- sometimes people hack wallets to get what they want.

Finding justice for stolen, hacked, or lost crypto is hard. In addition, there’s the issue of taxes. Are there taxes on theft of your crypto? What can you do if your crypto has been stolen? We have a few actionable solutions for your problem. As always, however, be sure to speak with a tax professional before making any big decisions with your assets. A short conversation just might save you thousands down the line!

How is crypto stolen?

The first thing to understand is exactly how your crypto was stolen. Many people keep large quantities of their crypto in a cryptocurrency exchange account. In such a case, hackers are capable of finding your login information and transferring funds. In the case of crypto stolen from a wallet, the strategy is exactly the same: find the password and transfer immediately. Since crypto wallets are all anonymous, it is difficult to keep track of exactly who is stealing your funds.

Do you pay taxes on stolen crypto?

Hackers have managed to steal billions of dollars’ worth of funds throughout the last decade. Crypto exchanges have been hotbeds for this type of theft. Because there are so many exchanges with lower security standards, hackers can easily enter and extract as much crypto as they can get their hands on.

If your crypto is stolen, then, is it possible to deduct the losses from your taxes? Many people assume that, since the coins were taken, they can deduct the amount they were worth from their tax report.

In most cases, however, a loss is out of the question. The IRS considers this a theft and personal casualty loss. Neither of these types of losses are tax-deductible. In other words, the IRS sees your crypto stolen as no different from a petty thief stealing a woman’s purse.

What about lost or destroyed crypto?

You cannot actually destroy a cryptocurrency. When most people ask this, they are usually talking about their wallet. It is fairly common for people to lose their crypto wallets, and thus lose access to their holdings. If your crypto wallet is lost while you are on a trip, or is destroyed, then it is the crypto wallet which has been affected- not your crypto. Either way, the IRS sees this as a personal casualty loss. It isn’t possible to claim a tax deduction on such an event!

Do you pay tax on ICO scams?

Investment losses are more of a grey area. This form of lost crypto can take on the form of Initial Coin Offering (ICO) scams. While not all ICOs are scams, they are usually extremely risky because they face immense volatility in the market. Coupled with the fact that these ICOs are not too regulated, many unscrupulous individuals use them as pump and dump schemes: they jack up the price, sell, and let the value plummet. To avoid such events, China’s central bank completely banned ICOs in 2020.

If you invest $3000 into an ICO which turns out to be fraudulent, you should note what happened in Form 8949 . Note that you had a $3000 cost basis and $3000 loss, but $0 in proceeds. As long as you manage to sell, it is theoretically possible that the IRS will accept your claim, just as it would a regular capital loss claim.

Not all tax professionals agree, however. Because the IRS has not given specific guidance on these situations, it is difficult to determine the best course of action. In the end, it is safer to consult with a tax professional before making any final decisions. This way, you can get a more rounded idea of how to save money on crypto taxes.

How can you avoid crypto theft?

Recovering stolen crypto funds is incredibly difficult. Many people find it nearly impossible. As such, it is important to create a barrier between your assets and the hackers who want to steal them. The safest way to store one’s crypto is not in an exchange, but rather in “cold storage.”

Cold storage is a secure offline wallet where you can store your cryptocurrencies. The Trezor-T, for example, is a popular choice. If you transfer your crypto funds to your offline wallet, then your only job is to keep it in a safe place. As always, your seed password is the most important. Even if you lose your cold storage, you can recreate it in a new wallet with your password. Keep it safe!

If you have any other questions about crypto, talk to a Yoke Tax professional today. Let us handle the numbers while you reap the benefits.

Crypto Staking: Worth It?

Mon, 01 Nov 2021 21:39:54 GMT

Crypto staking can be a great way to generate passive income on your crypto holdings.

What is Crypto Staking?

When you are staking crypto, you are basically locking your funds to allow for returns on a yield-per-year basis. These returns are considered “rewards.”Not all coins allow for crypto staking, however. Only coins which run under a Proof-of-Stake protocol , like Ethereum, are capable of being used for crypto staking. Other popular staking coins include Cardano, Solana, and Tezos.

Some platforms allow you to stake your coins as well. Crypto exchanges allow their users to stake coins from their wallets for different yields and periods. Kraken and Binance are popular choices for users who go this route. Staking-as-a-service platforms such as Stake.Fish and Stake Capital have also grown in popularity as alternatives.

Is staking taxable?

The IRS sees staking rewards as a taxable event. When you receive a crypto staking reward, you are expected to assess it’s fair market value in USD. This will be recognized as income, as staking is most comparable to receiving interest on your crypto.

Your tax professional can help you find the fair market value of your past, current, and future crypto staking activities. Simply set up a free consultation with a Yoke Tax pro today.

What are the benefits of crypto staking?

The benefits of staking are lucrative, especially if you want to have more of an impact on a particular cryptocurrency. Because staking makes you more entrenched in a cryptocurrency’s ecosystem, you are granted “ voting rights ” as to what happens with the crypto next. Similar to stockholders getting a vote on what a company does, a stakeholder gets a vote on what happens next in a cryptocurrency’s development.

Staking can simplify growing your crypto holdings . Because all you really have to do is press a few buttons and not use your coins, staking can be a very simple source of passive income. Simply watch your holdings grow and reap the benefits.

In addition, crypto staking is less resource-intensive than crypto mining . The Proof of Stake network works by locking crypto assets and using those locked assets as validation for future crypto transactions. This results in a reward from the network, which is given to the crypto’s owner (you!).

Are there any risks to crypto staking?

As with all things relating to currency, there are inherent risks. Crypto staking is no different. For one, crypto can be incredibly volatile . Price swings are common, and many crypto experts have noticed a pattern of the entire market following Bitcoin. If you are staking smaller coins, the chances of one Bitcoin downswing decimating your reward opportunities are high.

Lock-up periods also make crypto staking risky. You might lock up your cryptocurrency for a few months or a few years. This means that you have no control over them for that amount of time. In a volatile market where a coin might surge in price, you may want to sell it and simply be unable to. Since there is no way to “unstake” your crypto until the holding period has completed, you may find yourself regretting locking up a once in a lifetime selling opportunity.

Fees are also a common risk of crypto staking. While they vary by exchange, it isn’t uncommon for rewards to be eaten up by fees. In such a case, you end up missing out on rewards you should have earned.

To figure out the best way to minimize these risks, consider setting up a consultation with a Yoke Tax professional. A pro with over 20 years of experience can help you find the path which saves you the most money.

How are crypto staking rewards taxed?

As mentioned earlier, crypto staking rewards are considered to be taxable income by the IRS. This means that, if you earn $150 worth of rewards by staking ADA, then you owe regular income tax on that interest. According to Form 1040, Schedule 1 , the rewards are reported at their USD value during the tax year they were earned. If you received $50 worth of ADA as a crypto staking reward during the tax year, you will only be taxed on that original $50, whether or not ADA rises or decreases in price.

If you were to sell your crypto staking rewards, it would then be subject to a capital gains tax. However, if you want to know how to pay ZERO crypto taxes and keep the IRS out of your wallet, we have an in-depth article to help you do just that. Read it here .

Is there a crypto gift tax?

Mon, 11 Oct 2021 22:38:15 GMT

The Internal Revenue Service has a variety of rules on pretty much everything involving money. Cryptocurrency falls into that. You can read more about how crypto is taxed here , but for now let’s zoom in to gifts involving crypto. The IRS’s rules regarding cryptocurrency gifts can be complicated, whether you’re the donor or the recipient.

How is a crypto gift taxed? (Giver)

Let’s say that you give your sibling a gift of a few cryptocurrencies. If the fair market value of those coins is less than $15,000 at the time that you give them, then you have nothing to worry about! The IRS does not consider this a taxable event. In fact, you don’t even need to report this gift on your tax return. It’s smooth sailing for you!

However, if you give someone crypto which is equal to or more than $15,000, we start running into issues. The IRS expects you to fill out a gift tax return. You must print out Form 709 , fill it out by hand, and mail it before the April 15 tax deadline.

Note that this filing only applies if you give the cryptocurrency to a single individual or entity. If you split the gift into three $5,000 gifts to three different people or organizations, then your crypto gift is not taxed.

YokeTax professionals can help you get started on crypto gift strategies that can help you lower your taxes in the long run. Set up a consultation with a pro today.

What about charities?

If the cryptocurrency gift is given to a charity, how it is taxed changes slightly.

If the charity qualifies to receive deductible donations , you do not need to file a return on your crypto gift. This only applies so long as you transfer all interest in the given crypto to that charity. If you only gave the charity partial interest in your crypto gift, then you must file and report this to the IRS.

If the charity does not qualify to receive deductible donations, you must include your gift in your filing.

Another interesting thing about gifting to charities is that this will not trigger a capital gain or loss in the eyes of the IRS. In fact, if you have been holding onto your donated crypto for more than a year, you are eligible for a deduction! This deduction is equal to the fair market value of the crypto on the date of your donation. You still qualify for a deduction if you’ve held the donated crypto for less than a year, but the deduction will be lower.

No matter what you do, always remember that crypto donations should be reported on Schedule A, line 12 as part of your itemized deductions.

How is a crypto gift taxed? (Receiver)

The IRS does not consider receiving a crypto gift as a taxable event. You aren’t required to recognize your new crypto as income. If the value of the crypto exceeds the $15,000 limit, then it will be taxed on the part of the giver , not the receiver.

How to Lower Your Crypto Taxes

Sat, 25 Sep 2021 18:05:58 GMT

Crypto taxes were an inevitability. As anyone who has made money will tell you, the IRS will always get its cut . There’s nothing guaranteed in life but death and taxes!

However, we at Yoke Tax refuse to allow the IRS to take all of your crypto gains. There are severe consequences put in place for those who try to avoid giving the IRS its share… but who said the IRS deserved most of your money?

There are many strategies which you can use today to legally minimize your tax burden. You might want to consult with a pro before implementing them all, but they do work.

How do crypto taxes work?

The IRS considers cryptocurrencies like Bitcoin and Ethereum to be property. Other examples of properties include real estate or equities. Just like real estate, crypto is subject to two forms of taxes: capital gains and income.

Capital gains taxes take effect whenever you sell your property. This is called a “disposal event.” In the case of crypto, disposal events take the form of selling your crypto for fiat (i.e. USD), trading your crypto for others (i.e. Bitcoin for Monero), and buying goods or services with crypto.

Because cryptocurrencies can appreciate or depreciate in value as you hold them, capital gains taxes are implemented a little differently. If your tokens increase in value since you originally bought them, the amount which you pay varies depending on if you hold them for less than a year or more than one. If you hold onto your crypto for less than a year, you pay more in capital gains tax than you would have if you hold them for a year.

Income taxes are multifaceted. Since you can earn income in the form of cryptocurrency, you will need to pay income tax . The points where you're taxed for income are called “income events.” Income events can include staking or mining rewards or getting compensated for your labor in crypto rather than fiat. Even earning referral bonuses from crypto apps, which is more and more common, is considered an income event.

Lower crypto taxes with Crypto Loss Harvesting

Crypto loss harvesting utilizes the bane of every trader’s existence: loss. That is, assets which have lost their value. If you are an active crypto trader, it’s likely that you have hundreds if not thousands of unrealized capital gains. You invested in a cryptocurrency which you thought was bound to skyrocket like Ethereum or Monero, only to find that it went in the completely wrong direction.

What crypto loss harvesting does is offset the gains you made from successful crypto picks. This decreases the amount that the IRS will tax you for. You can learn more in our previous article, here.

Lower crypto taxes with a Charitable Remainder Trust

The CRT is a specialized trust recognized by the IRS, which lowers crypto taxes to a point that they’re almost negligible. It allows you to donate large sums to charities, while providing you and your heirs with larger tax breaks. These trusts are meant to be long-term dedications which can last up to and over 30 years. In addition, CRTs are irrevocable.

This means that, once you set one up, you cannot change your mind. What’s done is done. This is why speaking with a tax professional is so important. You’ll see even more reasons as we explain our step-by-step process on paying zero crypto taxes in this article .

Once you have read the step-by-step guide, you might wonder what you should do next. Things become a little less concrete, unfortunately. Because the amount of capital gains you earn on your crypto, the years your CRT functions, and the amount of tax deductions you can expect vary, it’s very difficult to give exact numbers.

However, we do know one thing: you need to set up an annuity.

An annuity is a contract which requires scheduled payments for a year or more. That money is entitled to a single person, who is called the annuitant.

A tax professional can walk you through how to set up an annuity, but ideally you will set it up to pay out at 8%. Once you title yourself as the annuitant, you will be entitled to that 8% payout every single year. For the rest of your life, you will receive 8%.

Lower crypto taxes with your IRA

Retirement accounts, which are designed from the ground up to provide investors with tax benefits, are a great way to lower crypto taxes. If you decide to sell your assets in an IRA, you are not required to pay taxes on them until you withdraw your earnings.

Although many IRA providers don’t allow investors to invest in crypto, you can store your retirement savings in your own self-directed IRA. A self-directed IRA is run by you, and you can use it to invest in cryptocurrencies, precious metals, real estate, and more. Those under the age of 50 are able to contribute up to $6,000 a year in total to all IRAs.

IRAs which are popular with cryptocurrency enthusiasts include Bitcoin IRA and iTrust Capital .

Crypto Loss Harvesting - What You Should Know

Sat, 25 Sep 2021 18:05:53 GMT

Crypto loss harvesting has one goal: save you money on crypto taxes. That’s right, the IRS is taxing crypto and it is on the lookout for those who are trying to hide their profits. Why deny that you were successful in the crypto market and face possible jail time, when you can be honest and keep a greater share of your earnings? We’ve come up with a method which can do exactly that for you.

Consider a free consultation with a Yoke Tax professional to learn how this can be of benefit to you. Each Yoke Tax professional has over 20 years of experience to best ensure that you save money.

What is Crypto Loss Harvesting?

What Crypto loss harvesting does is offset the gains you made from successful crypto picks. This decreases the amount that the IRS will tax you for.

What does Crypto Loss Harvesting look like in practice?

To illustrate, suppose you invest in three cryptocurrencies: Catcoin, Turtlecoin, and RabbitCoin. You buy 10 of each for $100, resulting in a total $300 investment.

Rabbitcoin skyrockets from $10 a coin to $100 a coin, leading to a new value of $1,000. From your initial $100 investment in Rabbitcoin, you gained $900!

Catcoin and Turtlecoin both decrease in value to $3 per coin, resulting in a new value of just $60. From your initial $200 in these cryptocurrencies, you lost $140.

By using Crypto loss harvesting, you should report both the $900 gain and $140 loss to the IRS. Now, instead of taxing you fully on your $900 gain from Rabbitcoin, the IRS will deduct your losses from Catcoin and Turtlecoin and offset the loss. $900 - $140 = $760 taxable capital gains .

What’s the catch?

As with most things, nothing is perfect. Crypto loss harvesting has one major issue: you lose out on the long-term tax rate. When you sell your coin for under a year, your capital gains is higher than if you hold onto it for over a year. If you are a long-term investor, this style of saving on taxes may not be for you.

There is a more secure way of saving money on crypto taxes, however. In our article, How to Pay ZERO Crypto Taxes , we go over exactly what you need to know to solidify your control over as much of your crypto success as you can. This process can be difficult to put into action, however, so it is highly recommended that you consult with a tax professional before making such big financial decisions. This is the best way to save your money in the long run, rather than pay the IRS for little mistakes a tax pro with 20 years of experience could handle.

Does Crypto Loss Harvesting have a limit?

You can only deduct up to $3,000 of net capital loss each tax year. This does not mean, however, that you are out of luck if you lost more than that. In fact, the IRS does allow you to carry over your remaining losses towards the next year. You can continue this until you finish reporting all your losses.

For example, if your net capital loss on cryptocurrency is $10,000, you can only deduct $3,000 from your taxes. The next $7,000 will be carried into the next year. Then the process repeats until your final year, when you have just $1,000 left in capital loss which you may deduct.

Final Thoughts

To sum things up, crypto loss harvesting is a strategy which most traders can use, and all active traders are highly recommended to use. There are some limits to how much value can be offset from your crypto taxes, but it is better to use this strategy than to miss out on tax savings. If you wish to use the crypto loss harvesting strategy more often, remember to actively monitor your cryptocurrency portfolio. Review each stock's performance, find the high performing assets, and note the stocks that you want to dump in return for a sweet tax benefit.

Still, it is best to connect with a tax professional to make sure that everything is done correctly. Let Yoke Tax handle the numbers while you reap the benefits.

Backdoor Crypto Roth IRA Simplified

Sun, 12 Sep 2021 23:49:09 GMT

Many of our clients find that they can no longer qualify for a Roth IRA. Many more are curious about putting money into a Crypto Roth IRA. We believe that the most logical solution to this issue is to instead create a Backdoor Crypto Roth IRA. While this is a complex accounting task, it will save clients thousands in the long run.

Consider a free consultation with a Yoke Tax professional to learn how this can be of benefit to you. Each Yoke Tax professional has over 20 years of experience to best ensure that you save money.

Why not a Roth IRA?

There are many people who simply don’t qualify for a Roth IRA. This has a variety of reasons. A very common reason is that they make more than the allowed amount . The federal government has a maximum annual gross income ceiling of $206,000 if you are married and filing jointly. If you are single, the ceiling dips to $139,000. The federal government simply does not want the wealthy to benefit from a straight Roth IRA.

This is where the Backdoor Roth IRA comes in. It is the foundation to the Backdoor Crypto Roth IRA.

What is a Backdoor Roth IRA?

Many high-income earners incorrectly fear that because they make more than the IRS’s set limit for Roth IRAs, they cannot participate. This isn’t true! There is one simple way to get around this issue: simply make annual contributions to a Traditional IRA!

Traditional IRAs are non-tax deductible. This means that the taxes paid on the money inside these IRAs must be paid in advance. Once these “after-tax dollars” are within your Traditional IRA, simply convert it to a Roth IRA. You can learn the difference between a Traditional IRA and a Roth IRA in this article .

In the end, while you don’t get the tax deduction on the amounts contributed like you would with a traditional Roth IRA, your Backdoor Roth IRA will allow you to keep your funds tax-free once you retire.

Now the only issue is figuring out how to convert that USD to crypto.

How to set up a Backdoor Crypto Roth IRA?

A Backdoor Crypto Roth IRA is simply a Backdoor Roth IRA which utilizes cryptocurrencies like Bitcoin and Ethereum rather than regular US Dollars. Setting one up is extremely simple, but because this strategy is utilized by higher income earners, there is little room for mistakes. What seems like a small mistake can result in thousands of dollars lost, which is why it is best to speak with a tax professional before making this major financial decision.

Create a Traditional IRA

Contribute up to $6,000 into this account. Because the goal is to make this backdoor Roth IRA a crypto one, make sure that the amount of crypto which you include does not exceed the $6,000 limit. That is, the price of your crypto shouldn’t be more than $6,000 at the time of contribution . You can do this by keeping track of cryptocurrency markets to see how much your crypto is worth

Convert the Traditional IRA into a Crypto Roth IRA

A Roth conversion is simply an event in which you convert a pre-tax account (such as a traditional IRA) into a Roth IRA. There used to also be an income limit on Roth Conversions, but those were removed in 2010. This conversion does create a one-time taxable event, but the amount paid pales in comparison to the tax-free growth one can expect from a Crypto Roth IRA.

Fill out IRS Form 8606 for tax season

You are going to want to speak with a tax pro to make sure that you are filling out Form 8606 correctly. They will double and even triple-check your numbers to make sure that everything is consistent and in line with the law. All of this is necessary to avoid suspicion from the IRS or suffering any financial consequences from a misplaced period!

How are Backdoor Crypto Roth IRAs TAXED?

As with most things related to money, Uncle Sam does want his cut. The IRS will not allow you to pick and choose what money is taxed once you convert your Traditional IRA into a Roth IRA. Instead, it will be taxed in proportion to when it came into those accounts. This is the Affordable Care Act’s Rule of Parity .

Backdoor Crypto Roth IRA Pitfalls to Avoid

Another aspect of Backdoor Crypto Roth IRAs which we would like to touch on are the pitfalls. There are a few that you need to keep in mind if you want to maximize your financial health and success.

Don’t use it when you don’t have to! All Backdoor Roth IRAs are best utilized by high income earners. If you have not exceeded the income limits for a Roth IRA, then you have little reason to use the back door. Simply walk in the front!

Fill your retirement buckets first. If you haven’t maxed out your 401(k) , for example, you are missing out on a lot of long term benefits. While this is not necessarily required, you may want to consult your tax professional if this would benefit you more.

Keep track of dates! Ideally, you should make sure that your contribution dates and your conversion date all fall in the same tax year. This keeps things extremely simple when it comes to reporting to the IRS.

Make your transactions sparse. You don’t want to deal with too many transactions because it can be a hassle to keep track of them all. The best case scenario is that you make the necessary contributions to your Traditional Crypto IRA, then convert it to a Backdoor Crypto Roth IRA. From there you simply need to fill out Form 8606.

Final Thoughts

A Backdoor Crypto Roth IRA is a great way for high income earners to grow their wealth tax free. You can trade as much as you want inside of the account and even transfer the account to a custodian without fear of new taxable events. Still, it is best to connect with a tax professional to make sure that everything is done correctly. Let Yoke Tax handle the numbers while you reap the benefits.

How Billionaires Pay Little to NO Taxes

Mon, 30 Aug 2021 13:19:23 GMT

The average person seems to either love or hate billionaires, and it all comes down to their money. We think about how we could spend it, how we could keep it, and how we could change lives with it. But over the last few years, more and more people have been claiming that billionaires aren’t “paying their fair share” in taxes. In fact, despite their staggering wealth, a 2021 ProPublica report determined that billionaires like Jeff Bezos and Elon Musk are paying pennies in taxes… if that.

How are they doing this? We call it the Buy, Borrow, and Die Strategy . Just keep reading and we’ll outline the simplified process that billionaires are using to avoid their taxes.

1. Billionaires Know the Tax Rules

This is what gives billionaires the edge that changes everything. The tax code is a mountain of bureaucracy and red tape. This makes it extremely daunting for the average person to interact with it, but tax professionals do it for a living! So billionaires simply employ the aid of top tax professionals with decades of experience. Like Yoke Tax professionals, these accountants keep consistent knowledge of the tax code, how it’s updated, and any advantageous positions for their clients. You can start too with a free consultation .

In the end, the tax rules which are the backbone of the Buy, Borrow, and Die strategy are tied to income and wealth . While most people see these concepts as the same, the tax code does not.

Income = Wages. It is taxed at the time of receipt.
Wealth = Assets (stocks, crypto, real estate, etc). It is NOT taxed at the time of receipt

This simple difference is the foundation to how billionaires avoid paying the high amount of taxes they would otherwise need to.

2. The Power of Appreciated Assets

Billionaires own a lot of assets. Stocks, in the cases of Warren Buffet and corporate CEOs, are a given. However, these assets can also take the form of cryptocurrency, real estate, and others. The catch is that these assets can’t just be run of the mill. They must all appreciate in value. This means that these assets must increase in their value the longer that the billionaire owns them.

For example, buying a stock at $10 just makes it an asset. However, if the stock’s price rises over the year to $20, then it is considered an appreciating asset. If the price of the stock falls over the year to just $3, then it has depreciated in worth.

While this sounds like the most simple step, it is the most difficult. It is hard to identify great assets with the potential to appreciate in value. This is why it is so critical to connect with a financial professional. While a tax pro can’t pick the asset for you, he or she can certainly lower the amounts which you pay in taxes once you get it. This allows your appreciation to continue without being weighed down by the IRS.

3. Get Low Wages

This is certainly not what most people expect. Most people are surprised when they hear that Jeff Bezos only gets paid $80,000 by the Amazon Corporation each year. While this annual salary is nice and certainly more than the national average , it isn’t what people think of when they think “billionaire salary.”

This is all part of the Buy. Borrow, Die strategy! While Jeff Bezos could set a $10 million annual salary for himself, that would be horrible when tax day arrives. He would have to pay income taxes on every cent. Uncle Sam would get his cut, and billionaires don’t want that.

So, to avoid the problem all together, billionaires give themselves a very low income (compared to what they could have). They still use tax advantages tied to income, however. Jeff Bezos claimed and received $4,000 from the IRS to raise his children, according to the ProPublica report. There are many small tax deductions which can add up quickly if you know where to find them. A Yoke Tax professional can give you a roadmap on how you can save, too. Simply set up a free consultation .

When all of this is said and done, billionaires focus all their energy on wealth

4. Billionaires Like to Borrow

As many people know, borrowing money is not a taxable event. Earning or spending money is. You don’t pay taxes every time that you borrow money with your credit card to pay for groceries, but you do get a sales tax for spending that borrowed money. Billionaires take this concept and run it to its logical conclusion: borrowing constantly.

Specifically, billionaires will borrow against their appreciating assets. There are a variety of methods to do this, but each comes with its own issues and struggles. It is extremely important that you do not attempt to borrow against your assets without a strong understanding of what you are doing, and professional help.

5. Death comes for us all

Yes, death is certainly an important part of the Buy, Borrow, and Die strategy. Billionaires aren’t simply thinking of their own lives. They have to think about their spouse, children, close family, and friends. Billionaires are literally incapable of spending all their money by themselves, so they have to leave it all behind to somebody. That's where heirs come in.

An heir, according to the tax code, is an individual who inherits some or all of the estate of the deceased. While this is usually the deceased’s children, it isn’t always . At death, a smart billionaire will leave his or her appreciating assets to the heir. This will be done on a stepped-up basis.

A stepped-up basis is the re-adjustment of an asset’s value for when it passes from one owner to another. This only applies to inheritances, in the case of the owner and the heir. When the asset is passed on to the heir, the capital gains tax is minimized.

For example, if you paid $1 million for a piece of land, then developed that land until it appreciated to an amazing $100 million value by the time of your debt, it would be considered an appreciated asset. When you die, your heirs will receive that asset for a $100 million cost basis. This will allow them to avoid paying any capital gains taxes on the appreciated $99 million.

If this seems a bit confusing, it’s because it’s meant to be! The IRS does not make finding these loopholes easy for the average person. If you would like to learn more about how you can use these loopholes (and a few other secrets) to benefit you, then chat with a Yoke Tax pro . It’s quick, easy, and free.

6. Billionaires Repeat the Process

The heirs of these billionaires, often their children, need only repeat this process if they want their bank accounts to keep swelling. While income can have a limit, wealth is limitless. By simply following the Buy, Borrow, and Die strategy, heirs of billionaires can compound wealth for the next generation.

Of course, this is a heavily simplified version of how the Buy, Borrow, and Die strategy works in the United States. There are many, many hoops that individuals have to jump through in order to do this right. And since the IRS has a talent for creating red tape, identifying the right path to success is incredibly difficult.

All Yoke Tax professionals have over 20 years of experience in the industry. Having worked with individuals who are doing anything from running small businesses to making a living gambling, and even some who have struck it rich trading cryptocurrency, each tax pro is equipped with the skills to help you succeed. If you are interested in learning more about the Buy, Borrow, and Die strategy, set up a free consultation with a Yoke Tax pro today.

How are stocks taxed?

Tue, 24 Aug 2021 15:53:18 GMT

So, you made yourself a pretty penny in the stock market last year. Congratulations! But before you spend your entire portfolio earnings, don’t forget that the government is always looking for its cut! Like all things which make you money, stocks are taxed. Like your regular income, you have to pay your taxes on your profitable stocks. How much you have to pay, however, is up to you.

What are stocks, anyway?

When a corporation becomes public, it allows portions of itself to be listed on the stock market. These portions are called shares of stock, and each represents ownership of the company. Each share you own entitles you to a portion of the company’s assets (what is owned) and profits (what is earned).

Stocks are considered the foundation of every investor’s portfolio. Historically, stocks are able to outperform other investments. It’s common for a stock to rise in price as time goes on.

For example, if you bought 5 shares of Apple at $10 in 2010, and sold them all for $30 in 2015, you would have made a $20 profit on each share.

The more stocks in a company which you own, the more that you have a claim to that company. If Apple issued 1,000 shares and you bought 100 shares, you would have a claim to 10% of the company’s assets and earnings.

Why do companies offer stocks?

Companies issue stocks to raise money. Stocks are entitlements to company assets and earnings, so companies sell these entitlements in an attempt to help their growth and expansion. Selling stocks allows companies to buy real estate, develop new products, reduce debt, grow staff, etc.

But you might be wondering how all of this affects you on tax day…

How stocks are taxed

In the end, stocks are taxed through Capital Gains Taxes . A capital gain occurs when you sell an asset for a higher price than what you originally paid to own it. It is that difference in profit which the Internal Revenue Service taxes.

Stocks are not the only assets subjected to capital gains taxes. In fact, all capital assets are subject to the tax. Examples include:

Stocks
Bonds
Jewelry
Homes
Vehicles
Collectibles

Non-capital assets are excluded from capital gains taxes. Examples of non-capital assets include copyright, artistic compositions, patents, drawings, recordings, etc.

If it is not immediately clear whether you have a capital asset or a non-capital asset, it is better to consult a tax professional before selling it. This way, the tax pro can explain how your property might be taxed, and by how much!

Long-Term vs Short Term Capital Gains Taxes on Stocks

Capital gains taxes vary depending on how long you hold a stock. For investments which you hold onto for at least a year, the tax rate is determined by your filing status and income bracket. It typically varies from 0-20% depending on the income bracket. These are considered “long term” capital gains taxes.

If you hold onto a profitable stock for under a year- that is, you purchase and sell it within 365 days- your stocks are taxed as short-term capital gains. A short-term capital gains tax is far less favorable to the long-term tax due to tax liability. Your short-term tax is tied to your income . This means that the higher your annual income, the higher the tax rate on your capital gains.

The IRS has already created a guide for the different filing brackets and categories. For your convenience, we will list the tax rate for Married, Filing Jointly.

How can you lower your stock’s capital gains taxes?

It is in the event that you wish to sell a stock that it is the most critical time to consult with a tax professional. This will always give you an edge on protecting your money and paying as little as possible to the government. A tax pro has access to knowledge which you may not have. For example, there are 9 states which tax less for capital gains:

Arizona
Arkansas
Hawaii
Montana
New Mexico
North Dakota
South Carolina
Vermont
Wisconsin

A tax professional could show you how to maximize your tax savings through little loopholes like this. And it doesn’t end with stocks- a tax pro can illustrate how to minimize your capital gains on your cryptocurrency as well. In fact, we have an entire guide ready to walk you through our process!

In addition, capital gains taxes on your stocks can vary depending on the type of stock which you own. Dividend stocks in particular require a few more gymnastics to lower your tax rate, for example, but it is possible.

Our primary goal at Yoke Tax is to save you money. We want to help you avoid paying Uncle Sam as much money as possible, without risking your financial safety. Saving you money on capital gains taxes is only step one in that journey. Connect with us for free and let us handle the numbers.

Crypto Terms and Taxes Simplified for 2021

Tue, 17 Aug 2021 13:50:21 GMT

Indeed, it was only a matter of time before the Internal Revenue Service decided that cryptocurrency must be taxed. You can learn more about the broad plans of the IRS and the Biden Administration to tax your crypto here . However, if you’re looking for a quick, down to earth guide about crypto terms, how they’re taxed, and what that means for you, then this is the place to be!

Crypto Terms: What is DeFi?

DeFi is short for the crypto term “decentralized finance.” It is a cryptocurrency market in which public blockchains create financial services for users. What makes this financial sector decentralized is its lack of reliance on centralization. There is no requirement to access your crypto through a third-party intermediary, such as a bank or broker. Instead, you can borrow, trade, and lend your crypto globally. The blockchain protects your transactions and thwarts the possibility of external interference, such as theft.

Through DeFi, you eliminate bank fees, increase your financial security, and move your money anonymously.

Liquidity in Crypto Terms

In the financial sector, an asset’s “liquidity” refers to its ability to be converted into cash. In crypto terms, liquidity considers whether there is a significant discount or premium being placed on a crypto when buying or selling it. A high discount would suggest that the crypto is severely undervalued, while a premium suggests that the crypto is overvalued. In the crypto market, stable and transparent prices (and the consistent liquidity levels) are important for user confidence.

Crypto Terms: Lending

DeFi allows you to lend out your cryptocurrency assets to other users. This results in a yield, which means that you make (or lose) income based on that action. As with all income, the IRS sees it as taxable. Depending on how the lending was conducted, the IRS will treat your spending as regular income or capital gains. Both of these are taxed differently.

Regular Income

A plain run of the mill lending activity- that is, loaning crypto with the understanding of repayment plus interest- is simple. Any income which you earn from such an activity is treated as regular income. It will be taxed at your income tax level, which means that it varies based on total income and marriage status.

Capital Gains

Some DeFi platforms are not paying interest directly into your crypto wallet. These platforms choose to issue Liquidity Pool Tokens instead, which are a pool of tokens which the platforms use to create an efficient trading environment. A liquidity pool is an automated market maker, and the pool’s supply of liquidity helps prevent large fluctuations in the pricing of a cryptocurrency, such as Bitcoin.

When you are issued a LPT by a DeFi platform, know that it represents your stake in that liquidity pool. You are not being paid interest, but the value of your LPT grows as the liquidity pool earns interest. You will need to pay capital gains taxes when you trade in your LPT for another crypto currency.

If you have any questions on how capital gains taxes on crypto work, always feel free to reach out to a tax professional.

Yield Farming

While we are on the topic of the effect of liquidity, now is a good time to talk about yield farming . By leveraging crypto assets, a user aims to generate positive yields passively. Simply put, you add your token to a DeFi platform’s liquidity pool and earn interest on it. This process is remarkably similar to the traditional savings account. You left your money with the bank, and the bank used it to lend money to its customers. In return, the bank provides you with interest.

Of all the crypto terms to remember, this is an important one. Since it is so easy to do, yield farming can act as a great passive income opportunity for users. How much of your crypto you dedicate to yield farming, however, depends on your financial situation. Don’t hesitate to connect with a tax pro if you ever have questions.

Crypto Terms: Borrowing

Just as you can lend your cryptocurrency, you can also borrow it. You will have to put up your underlying crypto assets as collateral for the loan BEFORE the lender consents to the loan. Because the money which you borrow from a lender will have to be paid back, the federal government does not consider this a taxable event. No capital gains or income taxes will be applied.

In the crypto world, however, there is often a lot of price fluctuation. If the underlying crypto asset’s price takes a dramatic dip in the crypto market, then the lending platform will be forced to liquidate your collateral. This is taxable to you! The IRS will treat the sale as short-term or long-term capital gains. This depends on the length of the holding period for your collateral.

Governance Tokens

Governance tokens are crypto terms which are rarely talked about, but serve an important function in the crypto market. A governance token allows the user to make decisions about the future of the protocol which issued the token. Like a shareholder of a company, your single coin allows you to take responsibility for the coin’s future.

DeFi protocols like MStable or Compound distribute governance tokens, which are taxable upon receipt. Your taxable income is determined by the fair market value of the coin at that time. Once a governance token is given, you may sell it on the market, or trade it in for USD. However, be aware that you will incur a capital gains or loss tax for this activity!

Crypto Terms: Gas Fees

The last but not least of our crypto terms is gas. Gas is a fee which is paid when using the Ethereum blockchain platform. These fees are labeled as gwei and priced in small fractions of ETH. They reduce the total income earned from selling a cryptocurrency or executing a swap, which means your taxable income will be lowered.

Yoke Tax employs top professionals in the field of accounting for complex topics such as these. Each tax pro has over 20 years of experience and is more than willing to help you with any questions you might have. Simply set up a free consultation and let us take care of the numbers.

1031 Exchange - Simplified 2021 Guide

Tue, 10 Aug 2021 06:40:04 GMT

The 1031 Exchange is incredibly useful for property owners. If you’re thinking of selling your property, or even buying a new piece of property, then this might just be what you’re after! The 1031 exchange is the perfect vehicle to lowering your capital gains tax, and even making you money in the long run. Of course, always set up a free consultation with a Yoke Tax professional before making any major decisions!

How a 1031 Exchange works

Explaining the 1031 Exchange is often easier than actually carrying it out.

Simply put, a property owner sells their investment property, and then uses the income from that sale to invest in a new property. The new property needs only to be of “like kind” and of equal or greater value.

The benefit? You avoid paying capital gains taxes when you sell your original property. The 1031 Exchange is tax-deferred ! This means that you do not need to pay tax until later.

Nonetheless, it is important to understand that proceeds from your original sale must be transferred to a qualified intermediary, rather than to you (the seller of the property). The qualified intermediary has one job: hold the funds earned from the sale of the original property until they are ready to be invested in a new property. As the facilitator of the 1031 Exchange, the law requires the qualified intermediary to be completely independent from the buyer or seller of the properties.

Why would you want one?

The main benefit of using a 1031 Exchange rather than simply buying and selling properties directly lies in the tax code. Because 1031 Exchanges are tax deferred, you are able to use more of your money to invest in a new piece of property. So long as the qualified intermediary holds your funds, you have no taxes to pay.

In addition, there is no limit to how many times you can use a 1031 Exchange! The IRS sees it as perfectly logical that a real estate investor should be able to swap one property for another, etc., etc., and continue to do so until he or she has settled on what’s comfortable for them. Only then do you pay tax! For most individuals, that takes the form of 15%. If your income is under $80,000 per year, then that capital gains tax is a measly 0%!

1031 Exchange sounds too good to be true!

It really does. And, just like with all things of this nature, there is always a catch.

As you may remember from earlier in the article, the new property which you buy with a 1031 Exchange must be of “like kind.” That is where a lot of investors get lost.

Does this mean that, if your original property is an apartment building, then your new one must also be one? Surprisingly enough, that is not the case. The IRS allows you to exchange any real estate property for another real estate property. You could trade a small business for a farm, if you wanted.

The “like kind” stipulation really boils down to depreciation . Depreciation is the recognition of a property's wear and tear in the form of decreased property value. When a property is sold, the IRS calculates capital gains taxes based on the property’s net-adjusted basis:

Property’s Original Purchase Price + Capital Improvements - Depreciation = Net-Adjusted Basis

If your property sells for more than its depreciated value, then that extra money will be added to your taxable income at the end of the 1031 Exchange process.

In action, this becomes far more complex, and far more dangerous. The IRS has a lot of red tape which only a tax professional can walk you through . Don’t let complexity stop you from saving your money!

How do you choose a replacement property?

Now comes the fun part! As previously stated, a replacement property must follow these three rules to be legitimate under a 1031 Exchange: of like kind, of equal value, and of greater value.

These three stipulations give you and your accountant a lot to work with! There are three ways which you can use to identify valid properties.

First, the Three Property Rule is the simplest. It allows you to pick three potential replacement properties, regardless of their market value. This means that, if you’re selling a $100k property, then you could buy another $100k property, a $250k one, or even a $500k one.

The 200% Rule is a bit more complex under the hood. Basically, you can identify an unlimited number of replacement properties so long as their cumulative value (of all the properties) does not exceed 200% of your original property. Using the $100k property example, you could choose unlimited properties so long as they didn’t exceed $200k in cumulative value!

Finally, there is the 95% Rule . You can identify as many properties as you like with it, but those properties must be valued at 95% of their total or more. This is a research-intensive job which is likely best left to a professional.

In either case, when you choose a property, it is always a safe bet to discuss it with a tax pro . It will save you a lot of headache and confusion down the line...

Is a 1031 Exchange worth it?

Yes, absolutely! The single disadvantage to using the 1031 Exchange is its complexity. The average person will struggle to carry it out effectively, and is highly likely to fall into red tape and fees. However, a seasoned tax professional will have a great time using that complexity against it! The 1031 Exchange is a wonderful opportunity for investors of all stripes. At its core, the 1031 Exchange is a vehicle for the frugal investor to use the tax code in his or her favor.

Celsius Network vs Traditional Banks

Mon, 02 Aug 2021 16:02:00 GMT

When it comes to currency, there will always be someone taking up the role of the banker. After all, one must make sure that his or her assets are appreciating- not gathering dust. Traditional banks have been holding that role for as long as people have needed somewhere to store their money. However, the rise of online banks dramatically changed the banking world. Now it looks like traditional banks have another competitor for their position: the Celsius Network .

If you have more questions or would like to learn about how to save on crypto taxes, set up a free consultation with a Yoke Tax professional!

What is the Celsius Network?

If you hold cryptocurrency like Bitcoin or Dogecoin, you may be surprised to learn that you do not have to keep your coins in your digital wallet. Instead of having your coins stay in one place and hoping that they give you a return on investment in two or three years, why not let them make you money? By using the Celsius Network, crypto holders can earn interest by lending their crypto or getting loans (with their coins as collateral).

The rates which the Celsius Network offers are also extremely attractive when compared to what traditional banks offer. The interest which some users have earned for lending their crypto reaches as high as 17.78%. Those who take out crypto-backed loans start with interest rates as low as 1%.

How does it work?

Celsius Network is a wealth management platform which allows users to borrow or lend cryptocurrency assets. The network is supported by its own ERC-20 token, CEL . In order to receive interest payments from the Celsius Network, you must stake CEL in your crypto portfolio. The amount which you stake drops you into four tiers: bronze, silver, gold, and platinum. The more you stake, the higher your tier. Users in higher tiers are the ones who get high interest.

With numbers like these, Celsius Network may seem too good to be true. In some ways, it is. The Celsius Network, like any other banking institution, has its share of pros and cons.

Is Celsius Network Trustworthy?

Simply put, yes. The Celsius Network CEO and founder is Alex Mashinsky (best known as the inventor of the VoIP). It is his invention which allows us to talk with friends and family through the internet rather than traditional telephone networks. Mashinsky has been open about his work on the Celsius Network and hosts weekly AMAs (Ask Me Anything) on his YouTube channel .

The rest of the team includes Harumi Urata-Thompson (CFO), Nuke Goldstein (CTO), and Daniel Leon (COO), who are all highly skilled technology and blockchain experts.

Of course, name recognition is not always enough to determine whether one should buy in. Always speak to a professional before making such major decisions.

How does the Celsius Network compare to traditional banks?

As stated earlier, Celsius leaves traditional banks in the dust when it comes to interest rates and loan discounts. Another major win that Celsius Network has over traditional banks is its lack of fees . There are no deposit or withdrawal fees, no origination fees, no default fees, and no early termination fees.

When it comes to getting a loan, the Celsius Network makes things easy. Simply click “apply for a loan” in the Celsius app, choose how much you want to borrow, and pick a coin as collateral. Taking the loan in CEL tokens will give you the lowest interest rate available, but the interest rate is so low you might not care. Most cryptos will get you a 1% APR, while a .7% APR is the usual for CEL loans.

This is in stark contrast to most traditional banks, where the lowest possible APR is 6%. Most of the time, traditional bank customers are stuck with loans of 10-12% APR.

Vs Traditional Banks on Security

The most overt difference between Celsius Network and traditional banks is security.

Traditional banks have a business model which has been shown to work for decades. They are also decently regulated, and the money which you place in their hands are federally insured. This means that if someone robs the bank, your savings will be replenished by Uncle Sam himself.

We could not find any information on whether Celsius Network was FDIC insured, but we did learn that it has a license with the Financial Crimes Enforcement Network ( FinCEN ) and the Securities and Exchange Commission ( SEC ). In addition, the company offers two-factor authentication and biometric signatures to users who consent to them. Even if you don’t, Celsius Network stores your funds with PrimeTrust and Fireblocks, who both provide insurance and wallet infrastructure. In their 3+ years of business, Celsius has never had a hack, security breach, or loss of funds- which is a praiseworthy feat in the crypto world.

Vs Traditional Banks on Stability

You may be wondering about the security of the CEL token. After all, it’s not unheard of to have a successful token plummet in value in the span of a few hours. How are interest rates determined?

Celsius Network’s interest rates are determined by three main factors:

The Crypto Market
Coin Demand
Profit Generation

80% of Celsius’ profits are returned to its users via weekly interest payments. This means that the amount of interest which you earn, no matter your tier, will vary from week to week. If CEL coins are doing well in the crypto market, this certainly helps.

This is completely different from traditional banks. For one, traditional banks would consider giving 80% of their profits to their customers to be a preposterous idea. Traditional banks do offer their customers more stability, however. They use the USD, which is a time-tested and a world-recognized currency. They also offer a consistent interest rate which does not change frequently.

In short, you know you’re getting less with a traditional bank, but you’re guaranteed to get it. With Celsius Network, you know you’re getting more than you would at a big bank, but you have no idea how that will manifest each week. As such, it is up to you to determine which tradeoff you would take!

The Elephant in the Bank

When researching Celsius Network, we found it odd that so few people addressed its Custodial Service overtly. Instead, many chose to hide this fact behind dozens of lines of jargon.

Celsius Network is a custodial service platform, which means that you must turn your cryptocurrency keys over to them. This means that your crypto is no longer private. If a thief or hacker somehow managed to get through Celsius’ security, then they would have free access to your crypto wallet. They could steal it all!

On the other hand, this is not too different from a traditional bank. In 2011, CitiGroup had $2.7 million stolen from its users. $300 million was stolen from around the world in 2015. Theft is nothing new in banking. Perhaps this may not be too much of a concern for you.

Should you check out Celsius Network or stick with Traditional Banks?

Celsius Network has become one of the most successful blockchain lending platforms. Its strong leadership and generous mission statement is a sure sign of a positive future. With increased interest from retail investors, Celsius can act as a great first step for widespread crypto integration into everyday life. Can traditional banks keep up? Only time will tell.

Have any questions on Celsius Network and cryptocurrency? Set up a free consultation with a Yoke Tax professional today. We can show you why the Biden Administration is targeting your crypto and how to pay zero crypto taxes . Simply give us a call!

Save like Billionaires do on Taxes!

Tue, 27 Jul 2021 14:07:12 GMT

What brings someone to the favorable position of being a billionaire? Well, there are three primary aspects: creating, saving, and spending. Billionaires know what to create, when to save, and where to spend their income. Of course, all of this is easier said than done. The average person is liable to come across more roadblocks than any given billionaire. It is important to make a difference where possible, though. If you want to save like billionaires do, then you need to think like a billionaire!

One of the most important places where billionaires need to save is in their taxes. Just like you, everything that a billionaire purchases or owns is taxed. However, the average billionaire is more likely to save on taxes than you are! The only differences between you and the billionaire are:

Quantity of assets and income ( which we go over here )
Tax-saving strategies

It’s unlikely that you can change the former come next tax season, but the latter is achievable! Especially if you take the time to connect with a tax professional, who can walk you through all the steps. Sign up for a free consultation to see how you can save like a billionaire.

Save like billionaires through tax write offs

This is the oldest trick in the book, by far. If you own a small business, the first thing that any tax professional worth his or her salt is going to ask you is, “What can you write off?” Are you looking at your meal deductions? How about your home office, computer, and cell phone? Travel is also a very common tax write-off for businesses of all kinds. All of these little things add up really quickly! So not taking advantage of them leaves you floundering and gives Uncle Sam more money than he needs.

If you’re someone who is not a business owner, then you still have tax savings available. The Child Tax Credit is a common deductible for individuals. Or, if you have your hands dipped in cryptocurrencies like Bitcoin, there are other options. In fact, we have developed a strategy on how to pay ZERO crypto taxes that you can check out.

Billionaires store their money

You might be thinking, “Yes, of course they do! Everyone does.” Just like you and your peers use banks, surely billionaires do the same? The truth is that this covers only half the story.

Yes, billionaires leave a decent amount of their money in banks, but banks are not the best place for your money. Because of rising inflation and the stagnant interest rates which banks offer, you are usually losing money by leaving it in a bank.

Billionaires have seen this fact of life, and they have adjusted their saving strategy. Instead of leaving the bulk of their income in banks, they now place them in appreciating assets. These are assets which increase in value the longer that you hold them. The most common appreciating asset is real estate.

If you want to save like billionaires do, then understanding the power of appreciating assets is paramount to your success. That’s not even considering the benefits of leveraging debt !

How Billionaires leverage debt to save on taxes

For a lot of people, debt is a bad word. It’s something which should be feared. And most of the time, this is probably true. Excessive debt , debt with high interest rates, and debts which you cannot discharge even if you go bankrupt are all horrible things to deal with.

But the way that billionaires see debt- as a tool- is what separates their astronomic tax savings from the average person’s meager ones.

Billionaires use debt as a tool which can leverage their position. Continuing with the real estate example, a billionaire can take debt against her property if she needs money. If the interest rate on the debt is lower than the rate at which her real estate property is appreciating, then simply taking out a loan is a smart choice!

When you take debt against an asset, that is not income . You haven’t sold the asset, and you haven’t realized any gain from it. But, you are still getting the benefits of the asset’s appreciation today .

A tax professional can actually walk you through how to do this, step by step . This is one of the most important mindset shifts that anyone who wants to save like billionaires must learn. Do not be afraid of debt. Just be smart when you use it!

Save like billionaires do by using a Roth IRA

The Roth IRA is a common retirement savings account which is used by millions of Americans.

With the Roth IRA, you are expected to take income which has already been taxed (after-tax dollars) to fund it. This means that your earnings can grow tax-free, and qualified withdrawals are tax- and penalty-free.

A self-directed Roth IRA changes the game. Some people think that this is a tool which is only available for the rich, and that the average person has to stick with index funds which are managed by investment managers. THAT IS NOT TRUE! Anyone can open a Roth IRA and do with their money as they wish.

If you wish to invest your money into a start-up, you have that opportunity. This is how many investors became rich by investing in companies like Facebook and Twitter WITHOUT fearing the tax man.

Obviously, this comes with its own set of risks. A lot of start-ups fail. A lot of investors lose. This is, however, a great opportunity which the rich leverage. A little risk today for a big payoff tomorrow.

Are you ready to save like billionaires?

Save like billionaires do by doing what billionaires do! Connect with a Yoke Tax professional today in order to figure out what works best for you. Remember, we’ll handle the numbers!

Want to build wealth? Here’s how

Tue, 20 Jul 2021 14:40:01 GMT

Money doesn’t buy happiness, but it certainly buys security. More importantly, it provides you with the opportunity to do what you like, rather than what you have to do. This is why it is so important to build wealth. However, it is not as easy as simply saving money in your bank account each month. Although these are good steps to consider, they are not the true path to wealth.

If you truly aim to build wealth for yourself, your family, and your heirs, then the only logical choice is to understand the foundations of wealth building. And, once you’ve amassed your wealth, you will need to know how to best protect it from the IRS. Here’s how you get started.

Operations determine how you build wealth

Operational Income refers to all avenues of direct wealth generation.

What are you doing to earn income day to day? Like most Americans, you are likely working a job and earning a wage or salary. This is your ordinary, regular income. It is the most simple building block on your wealth journey. The money earned from your job should be used to keep you fed, as well as take care of your expenses. Any leftover money which you earn from your job should be placed in your savings bank account. You will be using it later to take wealth building to the next level.

This can also take the form of entrepreneurship. Many people have side-hustles and small businesses which they run alongside their primary work. Some people teach, others create art, and some even use their skills from their jobs to create their own small business. An accountant at a large pharmaceutical company might take up bookkeeping in the medicine industry , for example.

If the side hustle is going well, you might see an opportunity to take it full time. Becoming a business owner and working to build your own brand is a great way to improve one’s finances. This strategy does come with its own ups and downs, however. Confusion on whether to register as an LLC or an S-Corp- as well as understanding which tax breaks do and don’t apply to the business- are common. Always consult a tax professional before making such large decisions.

Passive ways to build wealth

The other aspect of building wealth lies in “Passive Income.” Passive income is money which you earn despite not actively working. It is income which is related to your assets. The two most common examples of passive income are rental properties and investment accounts, which are also known as passive assets.

Your passive assets have only one job: take any money which you feed into them and make you more money. So, if you take $5,000 from your savings (which you earned from your operations) to place in a Roth IRA, that money should be appreciating in value. That is, it should be making you more money.

Why have passive income?

It is important to create avenues for passive income because that is what separates the wealthy from the rest.

In 2020, for example, the median Amazon worker made $29,000 annually . Jeff Bezos, as the CEO, earned a salary of over $1.68 million. This is 58 times that of the average worker, but is nothing compared to Bezos' true net worth of $198.4 billion. Bezos’ net worth encompasses everything from stock and rental properties to websites- which all provide him with income while he is not working.

Because Jeff relies so hard on passive income, he beats his operational income 7,825,000 .

You might not be able to buy rental properties just yet, but you can definitely start pouring some money into a Roth IRA, and HSA, or a 401(k). A tax pro can help walk you through that process and answer any other questions you may have for free .

The foundation of wealth building

Now that you know what operational and passive income are, as well as how you can use each to your advantage, it is time to put it all together! Have a tax professional help you set up a Revocable Living Trust (RLT).

An RLT is a trust which holds a variety of assets. The owner of the trust is given the legal authority to make decisions about any money or property being held in the trust.

This RLT will hold all of your side hustle or business income, all of your passive income, and any assets which you are not using to actively generate wealth. Examples of these include your car, your land, or the home you live in. Everything should be held by your RLT in one way or another.

What this means for you

There are a lot of benefits to planning your finances in this way. Here are a few.

Tax-free growth. Having your operational income clearly separated from your passive income is incredibly advantageous in terms of tax planning. Because actively earned income is often the most highly taxed, for example, the IRS will only take a cut of what is on that side of your RLT. Once that income is taxed, you can use it to fund your passive assets and allow them to grow tax free.

You protect yourself from auditing. In fact, you have a lower chance of being audited because 90% of audits are extremely specific. The IRS will audit your LLC, it will audit your rental property, and your 1040. Unless you seem like you are hiding ill-gotten gains, the IRS has little interest in going through your entire RLT and dealing with the paperwork of finding all the different ways you are protecting your money.

Clearer bookkeeping is so easy! This is probably more of a benefit to your accountant. He or she will identify where your money is, where it’s going, and what it might do so much more efficiently. They will thank you for being so organized! This is good for you because it makes it easier for your accountant to find ways to save you money through tax write offs and deductibles.

Eager to build wealth?

Since the odds of winning the lottery are so low, perhaps your time would be better spent incorporating this into your financial journey. Connect with a Yoke Tax professional today in order to figure out what works best for you. Remember, we’ll handle the numbers!

Your Eye Clinic Deserves the Best Bookkeeper

Thu, 15 Jul 2021 13:19:51 GMT

Just like any other small business, eye clinics are in need of bookkeepers. This is a given. After all, who is going to keep track of all the transactions which go on in the business? The money that comes in from customers, and the money that goes out for business expenses. A bookkeeper tracks everything. Most small businesses have the owner taking on these functions. The eye doctor (ophthalmologist), especially when he or she has just established their practice, takes on this role. But, as the business grows, it is best to delegate this task to someone else.

Why delegate bookkeeping for your eye clinic?

As an eye clinic grows, the owner will come across a variety of issues. The increased influx of customers comes with the need for a more refined custom management system, for example. Having more customers may necessitate hiring more employees, which comes with all sorts of other considerations. Payroll, employee benefits, days off, and even employee morale become things which the business owner has to consider. Growth of any kind necessitates delegation!

This applies to anyone in the medical industry. You can read more about the wider industry’s relationship with bookkeeping here .

It is in this environment of growth that the bookkeeper comes in. The bookkeeper’s job is simple:

Track all transactions related to the business (money in, money out)
Create reports which summarize those transactions for the business owner.

While these are relatively simple requests, they take a lot of time to do. And it’s exactly because of this that it’s better to hire from outside your clinic than getting a direct employee.

Why you shouldn’t hire an in-house bookkeeper

To be frank, it all comes down to cost. Ask yourself this: is it really the most efficient use of your money to hire someone who will:

Commute for thirty minutes to your location five days a week to do a job which they could do just as efficiently online
Work for 3-4 hours a day but get paid to do twice that
Spend the other 4 hours doing small tasks to pass the time

And, of course, this is not even considering the employee benefits and morale issues!

All of these aspects of hiring an in-house bookkeeper serve to primarily drain your eye clinic of its hard-earned profits. Instead of bleeding money , hire a contractor to carry out an agreed-upon task. He or she will do precisely the amount of work which you need done, and all within an agreed upon price range.

Efficiency in a role as pivotal as a bookkeeper lays the foundation for your clinic’s future growth.

Signs you found a great bookkeeper for your eye clinic

All bookkeepers can do the basic tasks expected of a bookkeeper. By generating financial reports and balance sheets, a bookkeeper can provide you with an accurate understanding of your business’ revenue, profit, and expense. This information will be important for tax records and detecting potentially fraudulent transactions.

There are several signs that you picked the right bookkeeper.

If he or she has experience in your field , you have identified a competent bookkeeper. She can look through the financial reports which have been written for you over a given tax year. Through their experience with the industry, they will know which tax laws allow you to save money. They will also know which tax write-offs apply to you. This not only allows you to pay the Internal Revenue Service what it’s owed, but it also helps you avoid paying it too much!

Awareness of common practices in your field is also a great benefit. A professional bookkeeper will have experience with identifying common problems and mistakes which eye clinics often run into. They can guide you through these issues in order to mitigate any risks your business experiences. In fact, speaking directly with a professional can help you highlight what issues concern you specifically. Set up a free one hour consultation with a Yoke Tax professional to better articulate what matters to you.

A detail-oriented bookkeeper seems to be the type of thing which is expected. After all, someone who is trusted to work with your money and report how it moves has a lot of responsibility. Things can get especially hairy if your bookkeeper missed some details which the IRS didn’t! However, an inexperienced bookkeeper is more likely to fall into these traps. They might forget to log a transaction, or they might simply log it incorrectly. A smart bookkeeper will have several methods in place to avoid this and save you the headache of false information.

The bookkeeper who is a powerful communicator changes the game for any eye clinic which they work with. Reporting accurate information on your business transactions is important. What’s more important is articulating exactly what this means for your business two months, six months, and even a year in the future. A powerful communicator is able to take complex concepts and break them down for you. This bookkeeper will not only have a positive attitude on their skills- they will also spread that confidence to you!

What eye clinics need to remember about bookkeepers

It’s incredibly easy to dismiss bookkeeping as a more complex form of data entry. In truth, bookkeepers who approach the position with such a mindset are usually the ones who will waste your money in the long term. A great bookkeeper crunches numbers, but he also cares about what those numbers mean for your business. He cares about communicating where your business is struggling and even suggesting resolutions to those issues. A great bookkeeper is not an employee- he is a partner .

The medical industry in particular is in need of partners: people who want to build, rather than simply take. Because of this, some business owners are unsure of what they should expect from their bookkeeper, and why a partner bookkeeper is a better choice than an employee. Asking the right questions and getting honest, direct answers is the first step towards success for any eye clinic.

Ophthalmologists should not have to deviate from their primary mission- providing their patients with the best eye care- in order to stress over bookkeeping tasks which could be done more efficiently. Give Yoke Tax a call, and let us handle the numbers .

How Veterinarians Pick the Best Bookkeeper

Wed, 07 Jul 2021 14:31:03 GMT

Just like any other small business, a veterinary practice needs accurate bookkeeping. This is an essential component to any successful business. Picking the right bookkeeper is picking between paying excessive taxes and fines or finding well-hidden tax breaks and money saving opportunities. Any veterinarian would prefer the latter.

Why does a veterinarian need a bookkeeper?

If you are wondering what exactly bookkeeping is, then the simplest definition is “the process of recording all transactions which happen in your business.” This includes both the money coming in and the money coming out. Bookkeepers have different ways of recording these transactions, but the main objective of a competent bookkeeper is to record honestly, frequently, and correctly

As a veterinarian, it is extremely important that you pick a smart bookkeeper, as the medical industry is littered with all sorts of laws and red tape regarding your business. Most veterinary schools do not equip their students with the tools to properly handle the finances side of their business. A bookkeeper with many years of experience will search for opportunities to improve your cash flow and keep you updated on where any problems may arise.

Yoke Tax professionals have over 20 years of experience in this field. They are ready and willing to help you maximize your return on investment- simply give them a call !

The personal benefits of a bookkeeper

Time and time again, we find that business owners are simply overwhelmed. There is simply too much stuff to keep track of. Budgets, marketing, and customer satisfaction are all at the forefront of the business owner’s mind. That’s not including the entrepreneur’s own life, which is full of both minor and major stressors.

Thus, the most common benefit of a bookkeeper regaining control of one’s free time . Now that you do not have to spend several hours each week going through every transaction in your business, recording them, and going over them again, you are free. Instead, depending on what you request, you will get a weekly or monthly report, its implications, and how you can benefit- at no cost to your time.

Want to get started? Connect with a Yoke Tax professional to hammer out the details.

The second most important benefit of a bookkeeper is expertise . This is particularly true with bookkeepers who have been in the business for a long time. A professional bookkeeper will have the experience necessary to quickly identify common problems and mistakes which veterinary practices run into. He or she will be able to guide you through these issues, and find ways to lower the chances of them popping up again.

Why not hire an in-house bookkeeper?

We’ve established that maintaining and expanding a business is a lot easier to do when one utilizes a bookkeeper. However, a lot of business owners are on the fence as to hiring an online bookkeeper or one who comes in person to work.

This is understandable. Part of the anxiety of hiring virtual bookkeepers is not knowing who you’re working with. At least with an in person bookkeeper, the logic goes, you can get to know them personally.

But this is a very one-sided view of things. You can form a positive professional relationship with anyone, whether you meet in person or online. In fact, working with a YokeTax professional allows you to call in whenever you have a problem. And, because we want you to work with someone you can trust, you’ll be paired with a pro who meets your needs. It’s a win-win!

The hidden cost of full-time bookkeepers

Most veterinary offices do not require their own full-time bookkeeper. This is because, at most, a bookkeeper only needs to file one report a week, as well as provide assistance on related tasks. This does not require a full week of work!

Is it really necessary to hire someone to commute all the way to the office for five days a week, only to do two or three hours of work a day? The bookkeeper is forced to spend the other five or six hours doing minute tasks, and your business is bleeding money.

Rather than paying eight hours of wages (plus benefits!) to an in-house bookkeeper, hire a contractor to carry out the agreed-upon task. This allows you to pay for precisely the amount of work which you need done, and no more.

This puts the ball back in your court. It is your veterinary practice, so it is only natural that you choose what needs to be done, and only pay for that service. It creates efficiency in your business which will be the foundation of its future growth.

The truth about bookkeeping for veterinarians

If you have any more questions on the necessity of bookkeeping in the medical industry, read this article . There are many risks which businesses take on when they hire inexperienced or sloppy bookkeepers. Asking the right questions and getting honest, direct answers is the first step towards success for any veterinarian.

How to Pay ZERO Crypto Taxes

Mon, 28 Jun 2021 15:10:23 GMT

Yes, that’s right. We have looked for and discovered one method which you can use to pay zero crypto taxes. This is a part of our series on cryptocurrency and taxes. More people are getting into cryptocurrency, and it has become a major problem for the Internal Revenue Service. Having so many people taking USD out of the general economy and into the crypto space is a major problem for the IRS, as it needs some way of funding the government’s treasury. The IRS has been tracking the rise of cryptocurrency, and it is ready to tax you. Luckily, Yoke Tax pros have found a loophole...

What is the IRS Crypto Tax?

You can read more on the IRS Crypto Tax here . However, the long and short of it is that the IRS sees your crypto as property. This means that the tax principles which apply to regular property-- such as your home-- applies to your Bitcoin. You get short term and long term capital gains (or capital losses).

How much you are expected to pay the IRS varies based on a variety of factors, such as how you acquire the crypto. If the cryptocurrency’s protocol experiences a change like a “hard fork,” your tax rate may change. Be sure to speak to a Yoke Tax professional before making any big decisions on your crypto!

How to pay ZERO crypto taxes

It all comes down to the Charitable Remainder Trust .

The CRT is a specialized trust recognized by the IRS. It allows you to donate large sums to charities, while providing you and your heirs with larger tax breaks. These trusts are meant to be long-term dedications which can last up to and over 30 years. In addition, CRTs are irrevocable. This means that, once you set one up, you cannot change your mind . What’s done is done. This is why speaking with a tax professional is so important. You’ll see even more reasons as we explain our step-by-step process on paying zero crypto taxes.

Step One: Create a Charitable Remainder Trust

When you create a CRT, you will designate two recipients: a charity and a lifetime beneficiary.

The lifetime beneficiary, for simplicity’s sake, is you.

The charity can be a church, your own foundation, or even Wikipedia . The only stipulation is that the charity must be recognized by the IRS as a 501(c)(3) organization.

Step Two: Pay zero crypto taxes by donating it!

Create a cryptocurrency wallet which is tied to your CRT. You can donate any amount of crypto which you don’t want to be taxed on within this CRT Wallet.

You may be wondering, “Why would I set up something which keeps my crypto assets locked for decades?”

Well, because you get a tax deduction !

Step 3: Understand the tax deduction

That’s right. A Charitable Remainder Trust acts as a kind of “buffer” charity of its own. Because you “donated” to that CRT, you will be granted a tax deduction based on the value of the crypto on the day that you donated.

This deduction will typically be 30-35% of whatever amount you donated. This is because the charity doesn’t get the money until the CRT pays out. Since this can take 20 years or until your death (whichever is longer), the IRS sees no reason to give a 100% tax deduction immediately.

Simply put, you look at the present value of the deduction based on the future value of the charitable contribution. A tax professional can explain this in further detail. Set up a free one hour consultation if you have any questions.

Step 4: SELL, SELL, SELL!

Sell your crypto tax free.

Yes, that’s right.

Sell your crypto and pay zero crypto taxes.

Why? Because you didn’t sell it, a Charitable Remainder Trust “charity” sold it. Charities don’t pay taxes .

When you sell the crypto from your CRT Wallet, you will receive fiat currency (USD) in return. This money will transfer into your CRT. Congratulations; you have made money off of your cryptocurrency while paying zero crypto taxes!

What happens next?

Where you go from here is less concrete. Because the amount of capital gains you earn on your crypto, the years your CRT functions, and the amount of tax deductions you can expect vary, it’s very difficult to give exact numbers.

However, we do know one thing: you need to set up an annuity .

An annuity is a contract which requires scheduled payments for a year or more. That money is entitled to a single person, who is called the annuitant.

Will this money be taxed?

Yes, unfortunately, but don’t forget your tax deductions from Step 3. You can use them to whittle away at any taxes which you will need to pay on that 8% payout. The deduction offsets your first few years of your IRS payments.

What about protection?

What’s even more interesting than paying zero crypto taxes? Knowing that all your money in your CRT is asset protected. This means that absolutely no one can touch those assets. They are yours no matter what happens. If you get a divorce, those assets remain yours. In the case of bankruptcy, nothing changes. Even if you got into a car crash and wiped out your savings, you will never be forced to take money from your CRT.

How do I start paying ZERO Crypto Taxes today???

Our primary goal at Yoke Tax is to save you money. We want to help you avoid paying Uncle Sam as much money as possible, without risking your financial safety. Saving you money on crypto taxes is only step one in that journey. Connect with us for free and let us handle the numbers.

Why Your Dental Office Needs a Bookkeeper

Wed, 23 Jun 2021 15:45:15 GMT

When it comes to the financial health of any dental office, it’s all about bookkeeping. Proper bookkeeping can be the difference between a good dental office and a great one. No matter how strong your customer relationships are, or how many hours you work, your dental office will fail if your bookkeeping fails.

Simply put, bookkeeping is the process of recording all transactions which happen in your business. This includes both the money coming in and the money coming out. Bookkeepers have different ways of recording these transactions, but the main objective of a competent bookkeeper is to record honestly, frequently, and correctly. This is especially important in the medical industry , as there are several laws and considerations which need to be considered.

The benefits of a dental office bookkeeper

Consistently hiring a single bookkeeper for your dental office, however, offers several benefits. Yoke Tax professionals , who have several years of experience in the medical industry, are especially qualified in providing these benefits to you.

Experience in your field allows a bookkeeping professional to identify the best ways to save you money. He or she may look through the financial reports which have been written for you over a given tax year. Through their experience with the industry, they will know which tax laws allow you to save money. They will also know which tax write-offs apply to you. This not only allows you to pay the Internal Revenue Service what it’s owed, but it also helps you avoid paying it too much!

Awareness of common practices in your field is also a great benefit. A professional bookkeeper will have experience with identifying common problems and mistakes which dental offices often run into. They can guide you through these issues in order to mitigate any risks your business experiences.

Expanding your business is a lot easier to do with a bookkeeper. Dental offices which do well may feel the need to expand their workspace. If you wish to purchase property in order to conduct your business, a personal bookkeeper will know the most efficient way of doing so. By determining which loans are dental specific, and providing accurate records of your dental office’s success, your bookkeeper can provide you with favorable terms.

This saves you a lot of money- and headache!- in the long run.

Book a free consultation with a Yoke Tax professional. He or she will help you find all the benefits of hiring a personal bookkeeper for your dental office.

Does your dental office NEED a full-time bookkeeper?

Most of the time, dental offices do not require their own full-time bookkeeper. Many dental practitioners are self-employed and their practice is often their only income. Since a bookkeeper only needs to file one report a week (at most) and provide assistance on any tasks related to bookkeeping, there is little reason to hire a professional for 40 hours of work each week. That wastes the bookkeeper’s time, and it wastes your money.

Dental offices with zero bookkeeping support would especially benefit from hiring a bookkeeper. Experienced contractors like the ones who work at Yoke Tax can begin by doing the work for only a handful of hours per week. Once the dental office sees the amount of slack which this offers them- both in time and resources- it would make little sense to hire a full-time bookkeeper. In addition, this gives the dental practice time to test out their bookkeeping professional before completely committing to working with them in the future.

The flexibility and choice is completely in the hands of the dental office!

Why you should hire a bookkeeper

If you have any more questions on the necessity of bookkeeping in the medical industry, read this article . There are many risks which businesses take on when they hire inexperienced or sloppy bookkeepers. In addition, some business owners are unsure of what they should expect from their bookkeeper, and why an online bookkeeper is a better choice than a physical one. Asking the right questions and getting honest, direct answers is the first step towards success for any dental office.

Smart Bookkeeping in the Medical Industry

Tue, 15 Jun 2021 13:14:33 GMT

Most small and mid-sized businesses start out by keeping track of their own finances. Often, the onus falls on the founder or co-founder to take on these duties. Bookkeeping is something that every business has to take special care of. However, there are some aspects of bookkeeping for the medical industry which necessitates further scrutiny.

Part of this is because of the wide range of regulations and bureaucracy which hang over the medical industry- both for the company’s security and the patients’ confidentiality. As a business grows in the medical industry, the average business owner may find that their bookkeeper needs more diligence in order to keep up.

Major risks of bad bookkeeping in the Medical Industry

The biggest risk a business faces with any employee handling its financials is, of course, fraud. Financial fraud is a major risk for a business because it can start out so small. A little bit here, a little bit there. A bad actor can employ anything from forgeries to embezzlement. Inconsistent financial records born out of the greed of an employee spells doom for the business when the Internal Revenue Service catches on!

Of course, human error cannot be ignored. Most in-house bookkeeping is really only as good as the experience and confidence of its bookkeeper. Deciding to use a third-party bookkeeper mitigates this risk. Yoke Tax, for example, maintains a strict standard of industry practices and management. Many Yoke Tax consultants have years of experience under their belt working with medical industry businesses. Set up a free consultation to see how they can help you.

All of these factors cumulate into dozens to hundreds of hours of time dedicated to bookkeeping. For small and mid-sized businesses the costs of putting employees in a position where they are less efficient are extremely detrimental . The costs of hiring an inexperienced bookkeeper to record finances are also costly from a time perspective. This is because someone- often a business leader- will have to take time out of their day to oversee the bookkeeper’s activities.

It is essential that bookkeepers understand that they are not simply “handling some money.” They are wholly responsible for the business. If they report incorrectly, then the business suffers, the employees suffer, and the clients suffer. Nobody wants that! To avoid this, it is important to learn how to mitigate risk with bookkeepers in the medical industry.

How to make sure your bookkeeper avoids these risks

A good bookkeeper will always show his or herself to be trustworthy. Every transaction must be recorded and checked regularly. This is to ensure the best results, consistent financial statements, and minimal risk to the employee or business. Bookkeepers in the medical industry should also be aware of other job functions. A well-timed audit or bank reconciliation, as well as reporting which is simple to understand, all benefit the business owner in the long run. Once a trustworthy bookkeeper is found, a business owner can focus on growth, rather than the day-to-day financial functions of a bookkeeper.

Determining an accounting method beforehand is also important when it comes to bookkeeping. There are two types of accounting which every bookkeeper should be able to complete: accrual accounting and cash basis accounting.

Accrual accounting is a common form of bookkeeping in the medical industry. The bookkeeper notes any billables (ie expenses) the moment you are billed for them. The same is true for any receivables (ie payment) which you bill to a patient. For example:

If you bill a customer on a Monday and receive payment for your services on Friday, then your bookkeeper would record that receivable for Monday.

Cash basis accounting is much more prevalent in physician-owned businesses. This is because it provides the most up-to-date view of a business’ finances. Through cash basis accounting, receivables and billables are recorded once they are paid .

Using the previous example, that means that the bookkeeper would record the receivable for Friday.

Hiring an accounting professional can allow you to hit the ground running. Set up a consultation with a Yoke Tax professional today.

What to look for in a bookkeeper for your medical industry business?

Ideally, a business in the medical industry should hire a professional bookkeeper with a few years of experience under his or her belt. The level of expertise impacts not only the efficiency at which the work is done, but also the amount of oversight necessary to guarantee a good service. A more inexperienced bookkeeper may do well, but it is never a guarantee. A small business might have to go through their work regularly in order to avoid small mistakes that a professional would otherwise catch.

A good bookkeeper will offer a variety of services . Each of these items should in some way improve the financial record keeping operations of your business. Smart bookkeeping makes it easier to generate monthly and quarterly financial reports for future analysis. Depending on the business owner, a bookkeeper in the medical industry will perform their duties on a weekly, bi-weekly, or monthly schedule.

Some of these duties include:

Bank account reconciliation
Income statement and balance sheet preparation
Payroll preparation
Post Cheques, deposits, and credit cards
Write customized reporting on finances
Analyze of customized reports
Billing statement and general ledger preparation
Assistance in collecting outstanding receivables
Cash management

A freelance bookkeeper may offer even more flexibility. Simply communicate with them your needs! If you are unsure about what would be best for your business, consult a Yoke Tax professional for free.

What separates online bookkeeping from physical?

Some businesses may not feel comfortable with outsourcing their bookkeeping to a third party. They may be especially nervous about the costs. Won’t outsourcing be more expensive than doing it themselves? These are legitimate concerns, but they are unnecessary.

Online bookkeeping services are often staffed with reliable professionals and industry experts. They understand the concerns of a business owner and are willing to work with you to meet your needs. Secondly, outsourcing routine services like bookkeeping reduces business costs in the long run. As a business owner, you will have more time to dedicate to other aspects of your business, such as client acquisition or marketing.

For business owners in the medical industry, delegating workload should be one of the most important actions taken. Let us handle the numbers .

Cryptocurrency Taxes 2021

Tue, 08 Jun 2021 20:47:18 GMT

The cryptocurrency market is exploding. Even with many coins experiencing a significant dip in 2021, the general consensus amongst experts and enthusiasts is that the market will continue to grow. This is an inevitable change in how we look at money, and how we tax it. That’s right- crypto is going to be taxed! Here’s what you need to know about cryptocurrency taxes for the 2021 tax year and beyond.

Way back in 2014, the Internal Revenue Service (IRS) determined that it would classify Bitcoin and similar cryptocurrencies as “property” under the tax code. This allows the federal government to tax crypto for capital gains , just as it would treat stocks and bonds. After all, most crypto users consider themselves “crypto investors.”

Cryptocurrency taxes and capital gains

Crypto is taxed when it is sold for fiat currency (such as the USD and British Pound). When it is used to purchase any goods and services in place of a fiat currency, it is also taxed. The final capital gains tax is placed when a cryptocurrency is traded or swapped for another one. That is, if you trade a Bitcoin for an equal amount of Ethereum in price, then that trade would be taxed under capital gains.

Short-term capital gains are simply any gains (or losses) made from an asset which is held for less than a year. These gains are taxed under the same income tax bracket which you fall into. The tax rate for the year 2021 can be found on page five of the IRS’s Revenue Procedure 2020-45 . If your taxable income does not exceed $19,900 with a cryptocurrency, then your crypto will be taxed at 10%- just like any other income you earned.

Long-term capital gains are a bit different. They focus on gains or losses for assets held for a year or more. Depending on the individual’s income, the amount which you are taxed can be much lower. Because of this, it is important that you buy to hold long term!

Can you deduct or carry over your losses?

The short answer? Yes.

However, it should be noted that you have limits. If your capital losses are greater than your capital gains, you can claim those losses. A single individual can claim those losses and deduct them from their taxable income for up to $3,000. Individuals who are married filing separately have a $1,500 limit. All of this information is noted on your Schedule D (also known as Form 1040 ).

A carryover is a provision which allows you to move your tax losses onto future years. This is typically used by individuals and businesses to reduce any future tax payments, though it can get complicated. This is partly because cryptocurrencies are so new, but also because of significant modifications made by the 2020 Coronavirus Aid, Relief, and Economic Security ( CARES ) Act. A tax professional would be able to better identify where you fall into these payments, as well as how to calculate an amount which would save you the most money.

How scams impact crypto taxes...

Whenever there is money to be made, it can be guaranteed that scammers will rush to make a quick buck. Unfortunately, cryptocurrency is not exempt from this reality. It has its own set of scams . Some common ones include:

Fraudulent ICOs (Initial Code Offerings)
Suspicious crypto exchanges
Fake wallets
Pyramid schemes

Because crypto is built on being decentralized and open-source, it is not difficult to find those who are willing to take advantage of that openness. The only way to avoid getting scammed is to trust reputable sources, educate yourself, and get a second opinion from a financial advisor.

What happens if you lose your investments through cryptocurrency theft? The IRS sees situations like these as “complete tax losses.” You can claim them on Form 8949 as zero proceeds transactions. For example, buying Bitcoin on a coin exchange for $10,000 would be taxed as if you bought stock on a stock exchange. If your coin exchange provider was hacked and you lost your Bitcoin, then you would be able to report a $10,000 loss to the IRS.

What about pyramid schemes and Ponzi scams? Crypto which is lost through these situations are treated as itemized deductions by the IRS. That is, the amount in which you invest in the scam can be deducted from your taxable income. This can be a little difficult to prove, however, so clear and thorough documentation is a must.

How to get ready for cryptocurrency taxes in 2021

You can learn more about cryptocurrency taxes in this article.

Tax season comes sooner than you think! Because of that, being prepared is important if you wish to keep your head above water in the eyes of the IRS. Not filing your taxes on time can lead to many serious consequences. Failing to file your taxes correctly can lead to even worse ones. To avoid these negatives, consider these three tips.

First, keep a detailed record of all your cryptocurrency activity. Record all your crypto purchases and sales. Airdrops, trades, and interest earned from loaning crypto must all be recorded as well. Some may think that they can get away from paying their crypto taxes, but the IRS is always one step ahead! The vast majority of crypto exchanges have built-in tax reporting features which generate reports automatically. These reports are sent to the IRS in order to check if your information is truthful.

Second, calculate any capital gains and losses which you have accrued from your cryptocurrency. This is best done with a Yoke Tax professional. They will be able to identify the tax maneuvers which save you the most money, as well as maximize your return. Sign up for a free consultation today.

Finally, look at how your fiat currency is being used. Your USD can have several deductions which you might not be aware of. The Child Tax Credit is a fairly well known deduction, but did you know that the average professional can also qualify for meal deductions on their taxes? For these reasons alone, it is worthwhile to keep records on how your money moves, even if that money is not crypto.

Professional Gambler Tax Guide 2021

Tue, 01 Jun 2021 18:19:12 GMT

The Internal Revenue Service is always on the lookout for sources of taxation. Gambling is fertile ground for just that! Any winnings which you earn from participating in casinos, lotteries, or sports betting will be taxed by the IRS. This applies to both physical and digital gambling, of course. Whether you are a professional gambler or a casual gambler, you need to know your gambling tax rate.

Hiring a tax pro can help you lower the cut the IRS takes from your winnings. Sign up for a free consultation now.

How to be recognized as a Professional Gambler?

The IRS is not so inclined to believe that someone is a professional gambler if they don’t act like it! Otherwise, many people would take advantage of this special tax group and its benefits. Instead, the IRS requires professional gamblers to provide proof that they are gambling in order to turn a profit- not for entertainment.

We have listed below a few things which can be done in order to provide reasonable evidence that someone treats gambling as a career. Of course, you don’t have to do all of them. However, they could come in handy when providing proof to the court system or the government (local or federal) that you are indeed a professional.

Keep records of all wins, losses, and expenses related to gambling
Show a pattern of improvement by winning more over time
Clearly separate gambling from other recreational activities
Put in many hours in order to improve your gambling ability
Interact frequently with people in the industry
Develop a positive reputation in gambling
Maintain credit card and bank records of money spent at gambling establishments
Store forms given to you by gambling establishments when you win over a certain amount
Save dated parking tickets, hotel reservations, and meal receipts from gambling trips

You can discuss whether or not what actions you have taken up to this point qualify. Simply call or text YOKE” to 210-980-0355 in order to get connected with a tax pro as soon as possible.

How are Professional Gamblers taxed?

While many people only dabble in gambling as entertainment, there are some who decide to gamble professionally. Some simply do so because they enjoy it a lot, while others find that they are good enough to make a living off the craft. For these individuals, gambling should be treated as a business.

Professional gamblers should keep a record of any income or losses which result from their gambling. This information can then be transferred on to a Schedule C form when they file their taxes. Much like a small business owner would track its gains and losses, a professional gambler tracks his or her wins and losses.

When a loss is recorded on a Schedule C , the gambler can carry that loss to their regular 1040 tax form. In addition, a professional gambler has the ability to deduct expenses from their business. Some of these business deductions include travel costs, equipment, meals, etc. The gambling tax is then based on this information, and several other aspects of the tax code.

Professional Gambling tax laws - Simplified!

As with most tax laws, the ones around professional gambling can be confusing and difficult to follow. While some laws do not apply to some states, many other states may enforce those laws. For that reason, it is best to consult a tax pro before making any final decisions on your gambling taxes.

Gambling results in either winnings or losses. Winnings are taxed by the IRS and many states across the United States. They must always be declared as income on an individual’s tax return, or they may face serious consequences. Losses can often be subject to itemized deductions. For recreational players, this deduction is limited to the amount of winnings declared. Because professional gamblers are treated as self-employed businesses , the amount which can be deducted is a bit different. This will be covered in the next section.

Wins and losses cannot be carried over. They must only be reported in the years in which they occur. This means that, if you win $20,000 in December 2019, those winnings will have to be reported for 2019. If you lose $5,000 in 2020, then you cannot bring that money forward into 2021.

What can Professional Gamblers deduct from their taxes?

The IRS considers deductible expenses to be “ordinary and necessary” to “carrying on any trade or business.” This is a fairly broad definition, but it is one which any smart business owner will take advantage of. Some of the items which you deduct can also apply to digital gambling.

Office expenses (Internet, Equipment, etc)
Tax Advice (We suggest you take advantage of that!)
Record keeping expenses
Travel and meal costs during gambling events and tournaments
Wages paid to individuals for help
Coaching expenses

As long as the IRS sees your spending as reasonable, it will allow deductions for items such as these. What is “reasonable?” Using travel as an example, riding economy to a tournament would be seen as a reasonable expense. However, riding a private jet to reach the same destination would be very unreasonable to the IRS.

If you have any questions, never hesitate to reach out to a tax professional to help! Professional gamblers often have to jump through a lot of hoops in order to retain the bulk of their earnings. Having Yoke Tax handle the numbers for you allows you to focus on what really matters: winning!

What does a Professional Gambler need to watch out for?

Comps: Many professional gamblers may accept rewards from benefactors. These rewards can take the form of cars, extravagant activities and the like. In these cases, it is safer to claim their market value as income. There are rare exceptions which a tax pro could identify.

Staking Agreements: Benefactors may financially support a professional gambler in exchange for a percentage of the winnings. The amount which is withheld depends on the benefactor. If they are a professional gambler and the game is played in U.S. borders, then up to 30% can be withheld. However, if the benefactor is a foreigner or an American outside U.S. borders, then the taxes cannot be withheld.

Online Winnings: Do not treat online winnings differently from physical winnings. A win in an online casino is just as legitimate as one from a live casino in the eyes of the IRS. In either case, the winnings must be reported.

If you want to maximize your winnings and minimize how much in taxes are taken from you, then connect with Yoke Tax. Sign up for a free consultation now

Crypto Transfers Targeted by Biden Administration

Tue, 25 May 2021 16:04:02 GMT

It seems that the wild west of crypto is nearing an end. The Biden administration has recently released a new outline for its tax compliance plan. The report , released by the U.S. Treasury Department, outlines this requirement as follows:

“As with cash transactions, businesses that receive crypto assets with a fair market value of more than $10,000 will also be reported on."

What does this mean?

Put simply, this means that businesses must file a transaction report with the Internal Revenue Service (IRS) when they receive a sum of crypto currency which is worth at least $10,000. This is to correlate with the already established reporting which businesses do with cash transactions. Banks and other financial institutions already report inflows and outflows of $10,000 or more to the IRS. This is used as a way to detect and minimize unreported income.

Because cryptocurrencies are often used as cash, the new rule plans to expand reporting bodies. The Biden administration aims to subject crypto asset exchanges, custodians, and payment service companies to this rule.

For example, if you spend $11,000 worth of Bitcoin to purchase a new car, then every business involved in that purchase will report it to the IRS. If your Bitcoin was stored with a crypto custodian, they will send a notice to the IRS. The car company you purchased from will also notify the IRS.

This means that the IRS will know you had purchased at least $11,000 worth of Bitcoin before your car purchase. It could possibly tax you on that amount. However, you can lower that payment by consulting a tax professional . This is highly recommended because the IRS’s new rules can be confusing to understand.

You might end up paying more than you need to if you're not careful!

Why did the Biden administration do this?

Since 2020, the crypto market has grown to and exceeded $2 trillion . This massive acceptance of the technology among the general public is considered a positive by many Americans. It is likely that crypto will continue this rise into the next decade.

As far as the U.S. government is concerned, however, this wide acceptance poses a massive threat for tax collection. The IRS is already aware of the millions it lost in tax revenue due to the federal government’s slow adoption of crypto and blockchain technology. The Biden administration is concerned about the use of cryptocurrency, especially the use of it by criminals and other bad actors. Tax evasion was a notable concern for the administration in the report.

In actuality, the IRS has recently announced Operation Hidden Treasure in March 2021. The operation is a collaboration of IRS Criminal Investigation and its Fraud Enforcement Office. Its aim is to find taxpayers with unreported income from cryptocurrency transactions specifically. It intends to get taxpayers to pay back taxes, interest and penalties.

The Biden administration’s latest move on cryptocurrencies like Bitcoin, Dogecoin, and Ethereum is only part of the story. It reflects a wider trend towards Uncle Sam figuring out how to get his share of crypto’s growth. The IRS will tax your crypto, but a smart tax pro can lower how much it takes from you.

Gig Workers Impacted by Latest Stimulus Bill

Tue, 18 May 2021 13:58:21 GMT

The stimulus bills which Americans have received in response to the COVID-19 pandemic have been a real boon to those who managed to receive them. However, the sheer amount of information within these bills have made it difficult for the average person to understand each aspect within them. This ranges for anything from small business loans to tax breaks for specific individuals. Gig workers are no different! The latest stimulus bill, the American Rescue Act , is changing how gig workers approach their taxes.

What is a Gig Worker?

A gig worker is anyone who is earning income outside of the traditional model of employment. That is, someone who doesn’t have a 9 to 5 wage or salaried position. Gig workers are seen by the Internal Revenue Service( IRS) as independent contractors. This means that they do not receive many of the benefits which a traditional employee would have. Employer benefits like health insurance and retirement plans are not offered to gig workers.

On the other hand, a gig worker receives a lot more flexibility in how he or she approaches the work day. They can work shorter or longer hours, and are primarily responsible for the amount of income which they earn through their labor. Gig workers can come from all walks of life and take on very specific jobs.

What does this have to do with the stimulus bill?

Some gig workers are given a Form 1099-K from their employers at the end of each tax year. This is where things get a little bit tricky. For that reason, it will always be a safe move to consult with a tax professional before making any major moves with your taxes. YokeTax professionals keep up to date on all IRS changes in order to save you the most money.

How Form 1099-K USED to work

Usually, regular employees are provided with a Form W-2 from their employer. It informs them of how much money they earned with that employer during the tax year. It also notes how much money was withheld for taxation purposes, retirement, healthcare, and other aspects of stable employment.

The equivalent of the W-2 for gig workers is the Form 1099-K. While this form does not show any deductions, it is used by gig workers to report income to the IRS. Anyone who was paid through a third-party payment network, such as Paypal or Stripe , can expect their payments to be sent back to the IRS if they receive a 1099-K. However, there are two primary thresholds which keep most gig workers from being sent a 1099-K.

He or she must earn annual gross payments which exceed $20,00
The worker must provide over 200 transactions

This means that, even if the gig worker cleared the first requirement, they would not have received a Form 1099-K if the second requirement was not met. This made it so only certain types of gig workers would be realistically taxed correctly. An Etsy shop owner may be able to pass these requirements, but what about gig workers who have more sporadic demand for their labor?

Why the new bill affects gig workers

In response to these concerns, the IRS has significantly lowered the bar. Beginning with the 2022 tax year, gig workers who earn an excess of $600 a year will receive a Form 1099-K. The amount of transactions which the gig worker executed no longer matters. Gig workers who do not report their earnings will be on the hook.

The IRS has always required gig workers to report their income, just as it expects all people in American territories to do so. However, it is of little surprise that many people try to hide their earnings in order to avoid paying the taxman. Even more had no intention to omit the information. They simply were not sure what was required of them due to misinformation. However, the IRS’s message is clear to all gig workers: No more tax dodging!

As Benjamin Franklin said, “...Nothing can be certain, except death and taxes.”

Want to save yourself the hassle? The IRS will tax your earnings, but a smart tax pro can lower how much it takes from you.

What about earnings through Venmo?

If you are sending or receiving cash gifts through a Person-to-Person app such as Venmo, you might worry that the money will be seen by the IRS as income. Does the new tax bill affect this? No. These are seen as wire transfers between individuals, not payments for a good or service. As such, the IRS does not tax these gifts. If you are using these P2P platforms for your business, however, then the money is considered taxable income.

Depending on the amount which is transferred, the IRS might become suspicious. For example, regular payments above $1,000 to the same recipient may come off as more of a business transaction. In fact, Venmo does report any large currency transfers to the Office of the Comptroller of the Currency . If the amount sent reaches $10,000 (or a series of payments is near that limit), then Venmo will flag the account as a potential bad actor. To illustrate:

- Getting $100 from grandma for your birthday: No issues. Not taxed.

- Borrowing $1000 every now and then from a friend: Suspicious, but plausible. Not taxed.

- Receiving $1,000 from someone for providing a good or service: Taxed

- Receiving $9,000 from anyone: Highly suspicious. Venmo will notify the OCC. Taxed

A similar situation can be seen through CashApp, and app much like Venmo. Individual accounts of Paypal follow the same rules, but Paypal business accounts will be taxed. If you are still confused or if you have a specific situation, ask a tax pro for advice.

What this means for the federal government

Obviously, this change means that all gig workers will be expected to report any and all income which they earn from their work. The relaxing of the rules down to a simple $600 threshold makes things easier for everyone. Gig workers can report their earnings with greater confidence, and the IRS has an easier time tracking economic activity in the gig economy. Local and state governments also benefit, as they now have access to IRS data which can result in more tax compliance from their residents.

The Internal Revenue Service expects the simplified ruling to bring more money into the government over the next 10 years. In fact, the Treasury Inspector General for Tax Administration estimated that 63% of income is misreported when third party money handling companies do not provide accurate information on customer spending. Because about 80% of gig workers earn less than $20,000 a year, many used to not receive a Form 1099-K. An $8 billion boost in tax revenue is expected within the first tax year following this decision.

Gig workers in some states have different problems

This more relaxed take on reporting requirements for gig workers is not exclusive to the federal government or the new stimulus bill. In fact, many states have been going down this path for years. Twelve states and Washington D.C. have their own varied requirements for gig workers and the Form 1099-K.

Florida, Kansas, Oregon, and Tennessee . These states meet the federal threshold ($600 as of the 2022 tax year). The 1099-K only needs to be filed at the state level, rather than local.

Arkansas, D.C, Illinois, Massachusetts, Maryland, Mississippi, Missouri, New Jersey, Vermont, and Virginia . Each has their own thresholds and must be looked at on a case by case basis.

California is creating its own 1099-K form.

As for states without their own 1099-Ks, the IRS is willing to share tax data in order to increase tax compliance.

If you have any concerns about these changes to the tax code, are worried about potential back taxes which you may need to pay, or if you have any questions, ask a tax pro today. If you are in a hurry and need a tax professional as soon as possible , call or text “YOKE” to 210-980-0355.

Last Minute Taxes - What You Need to Know

Tue, 11 May 2021 17:16:05 GMT

The Internal Revenue Service (IRS) is well aware that 20-25% of all Americans are prone to waiting until the last minute to file their taxes. They often wait until the last two weeks before the deadline to prepare their tax returns. The more danger-chasing of taxpayers will even wait until the last week before filing. Last minute taxes are a dangerous game to play with the IRS. If you’re not up to date on when your taxes are due, you might experience several fees and consequences. To get help on your last minute taxes as soon as possible, call or text “YOKE” to 210-980-0355.

What is the new last minute tax deadline?

The new tax filing deadline for Americans is May 17. This extension only applies to individual taxpayers and individuals who pay self employment tax, however. In addition, this extension applies only to federal taxes. You can postpone your federal income tax payments until May 17, 2021 without fear of penalties or interests. The amount owed does not matter. Penalties, interest, and other additions to these taxes will begin to accrue on any remaining unpaid balances after May 17.

To qualify for this new tax deadline, individuals do not need to file any forms or call the IRS. Simply file your taxes as you normally would within the new tax period. This relief does not apply to estimated tax payments that are due on April 15, 2021. Those payments are still due at their normal time. To learn more, click here .

Because the IRS has changed so much in its tax policy due to the COVID-19 pandemic, there is still a lot of information that average people don’t know. There are more opportunities to save money, and even more ways to maximize tax returns. Call or text “YOKE” to 210-980-0355 in order to consult with a tax professional. Let us handle the numbers.

What makes Texas different?

Unlike the rest of the country, the IRS has made a special provision for Texas taxpayers. Frigid temperatures and winter weather have severely impacted residents of Texas and surrounding regions. Power grid failures have left millions without electricity and heat, water treatment plant failures have resulted in contaminated water, and burst pipes have left many pipes running dry.

The IRS has decided to extend that April 15 tax deadline to June 15 so Texas taxpayers can address the current crisis. Taxpayers in other states affected by the winter storms will automatically receive the same filing and payment relief. Only some Texans are covered by this change, however. Others have specialized forms which they must fill out to qualify.

There is still time to file your last minute taxes. To retain peace of mind, utilize professional tax services to ensure these taxes are done accurately while maximizing tax benefits. If you are in a hurry, call or text “YOKE” to 210-980-0355.

Tips for last minute taxes

While there is nothing inherently wrong with waiting, filing last minute taxes should be done right. Prepare in advance by keeping yourself organized throughout the year. Keep all of your important documents and receipts in one place. One way that this can be done is by copying and storing them digitally.

Last minute tax filing mistakes are also inevitable if you work without a professional’s help. Some of the most common mistakes include math errors and incorrectly written account numbers and other financial information.

You can receive refunds faster if you use a direct deposit. The IRS has developed the Where’s My Refund? Tool. With it, taxpayers can check when their refund is due back to them. Because the data is updated daily, it is a very convenient tool for checking your tax refund.

Many American taxpayers are unaware that they can reduce their tax liabilities by paying themselves first. Simply contribute to your tax-exempt retirement accounts, such as Roth IRAs and Roth 401 (k)s. For tax-deferred accounts, consider traditional IRAs and 401 (k)s. Learn more about them here.

If you need more time to pay, there are a multitude of options available. Consult with a tax professional to see if you qualify for an installment agreement with the IRS. You may qualify for a short-term payment plan (paying your taxes within 120 days). Others will qualify for a long-term payment plan (paying in more than 120 days).

Last minute taxes? Hire a pro!

2020 has been a mess for pretty much everyone. The IRS most of all. Since last year, the IRS has been experiencing massive changes in its approach to taxing the American people. Most of these changes stem directly from the COVID-19 pandemic. These are only a few, but a tax pro will be able to identify more and maximize your return. Simply sign up for a free consultation today.

Cryptocurrency Taxes. The rise of crypto over the past year has led the IRS to realize that it must clamp down on this sector. Individuals who have invested in crypto are expected to pay their taxes in full to the federal government. This is also the case for individuals who purchased crypto before 2020.

The Paycheck Protection Program. PPP loans aim to cover varying business expenses during a covered period. Some of these expenses include payroll, insurance premiums, rent, utilities, and mortgage interest. The amount received varies based on the covered period.

Business Meal Deductions. The multitude of stay at home orders, correlating with the rise of food delivery through services such as Uber Eats or GrubHub , led the federal government to make an exception on the deductibility of takeout and delivery meals. This does not mean, however, that the rules around business meals deductions have changed.

The Child Tax Credit. Due to the COVID-19 pandemic, special rules are put into place for the 2020 tax year. The IRS is allowing Americans to choose whichever filing allows them to benefit from the largest Child Tax Credit. You can use your 2019 income or your 2020 income to calculate your tax credit.

If you are in a hurry and need a tax professional as soon as possible , call or text “YOKE” to 210-980-0355.

The IRS Crypto Tax: Are You Ready?

Tue, 04 May 2021 13:51:51 GMT

The rise of cryptocurrencies like Bitcoin has had a huge impact on our financial landscape. Spurred by concerns over the decreasing worth of the U.S. dollar, as well as stories of memes creating overnight millionaires , more people are getting into crypto. This is all well and good, but having so many people take USD out of the general economy is a problem for the federal government. The IRS has been tracking the rise of cryptocurrencies in the past few years. A IRS Crypto Tax seems inevitable.

How Cryptocurrency Works

Cryptocurrencies are virtual currencies which take the form of tokens or coins. Each cryptocurrency is based on blockchain technology, and issued independently of any centralized body. This makes crypto free from government interference.

Blockchain technology is powered by an anonymous network of computers. Each crypto transaction is recorded into this blockchain, which acts as a public ledger. Your personal information is not shared on this ledger.

The IRS plans to tax all virtual currencies, be they digital currencies like NFTs or cryptocurrencies like Bitcoin. To the IRS, if a particular asset has the characteristics of virtual currency, it will be treated as one.

How the IRS Crypto Tax Works

As of May 2021, the IRS sees virtual currencies as property . That means that general tax principles which apply to regular property transactions also apply to cryptocurrency transactions.

When you sell your crypto, you must recognize any capital gain or loss from its sale. In addition, that sale is subject to any limitations on the deductibility of capital losses. These will be the primary considerations of a IRS Crypto Tax.

Holding on to your cryptocurrency will determine whether your capital gain or loss is short term or long term. If you only held onto your crypto for a year or less before selling it, then the IRS sees it as a short term capital gain or loss. The same applies for if you only exchanged your currency for another in that period of time. The length of time in which you hold a cryptocurrency is considered a “holding period.” This period begins the day after you acquire the currency, and it ends on the day you sell that currency.

IRS Crypto Tax FAQ

Because the IRS is creating these new taxation laws so quickly, a lot of things can change in a few months. For that reason, it will always be a safe move to consult with a tax professional before making any major moves with your cryptocurrency. YokeTax professionals keep up to date on all IRS changes in order to save you the most money.

What if I get paid in crypto?

The growing adoption of crypto has also led to more people using it as an alternative to USD. This has several interesting questions for individuals who use cryptocurrencies in their day to day lives.

You might find yourself getting paid in crypto one day. In such a situation, the IRS considers that crypto to be taxable income . When you receive property in exchange for performing a service or providing a good, then that property is recognized as ordinary income. This applies whether you perform the service as an employee or not.

If you get paid in crypto and it rises in value by the time tax day comes, don’t worry. The IRS will determine its taxability based on its fair market value at the date of receipt. For example, if you got paid $500 USD worth of Bitcoin today, and its value rose to $1,000 USD by April 15, then the IRS could only tax you for that initial $500 USD.

This also applies if you paid someone for their goods or services.

Does the IRS Crypto Tax apply to hard forks?

A “hard fork” in the crypto world describes a protocol change in a given cryptocurrency. This results in a permanent diversion from the currency’s legacy distributed ledger. There is a chance that a hard fork will result in the creation of a completely new cryptocurrency on a new distributed ledger.

If you hold a cryptocurrency which has gone through a hard fork, there are two implications for your taxes:

You have taxable income . This occurs if you received new crypto through an airdrop. An airdrop is a distribution of crypto to multiple holders’ addresses.
Your income is not taxable . Your cryptocurrency went through a hard fork and you didn’t receive any new crypto through an airdrop.

Do I pay taxes on crypto gifts?

If you receive cryptocurrency as a bona fide gift, then it will not be recognized as income. If you dispose of that currency through sale, exchange, or other means, then the resulting income will be taxed.

The taxation differs depending on if you have a gain or loss when you sell or dispose of it. Be sure to connect with a taxation professional before reporting anything to avoid taxation penalties and fees.

Does the IRS even KNOW that you own crypto?

Many people think that crypto is anonymous. After all, there’s no centralized body. How could the IRS possibly issue a crypto tax if they don’t know I have crypto?

The answers lie in Forms 1099-K and 1099-B. The information on these forms are reported to the IRS by cryptocurrency exchanges, such as Coinbase. These forms describe who bought crypto, and how much, throughout each month of the tax year. The IRS then compares the information on this form with any taxes which you file. If there’s a mismatch, then the IRS will find it!

In March 2021, the IRS announced Operation Hidden Treasure to find taxpayers with unreported income from currency transactions. The operation is a collaboration of IRS Criminal Investigation and its Fraud Enforcement Office.

Because of exchanges reporting their finances, the IRS is well aware that people are making money. The lack of reporting on the part of individuals, however, is suspicious.

The IRS Crypto Tax is here to stay. In fact, the agency is already identifying how to get taxpayers to pay back taxes, interest and penalties.

Save yourself the stress of angering this beast. The IRS will tax your crypto, but a smart tax pro can lower how much it takes from you.

Business Meal Deductions for 2020 and 2021

Mon, 26 Apr 2021 23:31:11 GMT

It has been said that a business only lasts as long as its network. Taking out your customers, vendors, or employees for a meal every now and then is a great way to build and refine that network. The IRS considers meals and entertainment purchased for such business purposes to be legitimate tax deductions. There are limits to what are considered business meal deductions, however.

What Are Business Meal Deductions?

Business meal deductions are considered “deductible business expenses.” Business owners can deduct such expenses at a dollar-for-dollar rate. For every dollar that you spend, you can subtract that amount from your taxable business income. In the case of business meal deductions, meals are usually deductible for up to 50 percent of the cost. This limit applies to both your business and your employees.

The rules on what constitutes a business meal deductible are as follows:

The expense is ordinary and necessary
The meals are not extravagant
You or an employee must be present at the serving of the meal
The meal must be provided to a business associate (a customer, client, supplier, employee, partner, or advisor) with whom you intend to engage in business with.

Examples of Business Meal Deductions

Business meeting meals which include business stakeholders are deductible. These stakeholders include employees, stockholders, agents, and directors. The meal must be reasonably linked to a business function, such as an office meeting or sale meeting, to qualify for this category.

Business travel meals are a bit more fickle. Any meal related to the business function of the trip can be deducted from taxes. However, because business trips often include personal time and activities, the expense will also be considered personal for that length of time. Thus, it is non-deductible.

Reimbursed business meal deductions can be a little more confusing. For example, meal expenses which were incurred by an employee during a business trip, even after being fully reimbursed by the business, are still only deductible at 50 percent. In the case of reimbursing an independent contractor, the business meal will be added to their 1099 income.

Tax professionals which specialize in business taxes are more knowledgeable of the red tape around deductible business meal expenses. To learn how to best maximize your deduction, set up a free one hour consultation with a tax pro.

How Does Entertainment Affect Your Deduction?

In previous years, entertainment expenses were considered to be just as deductible as a business meal with a client. This all changed with the 2018 Tax Cuts and Jobs Act , which cut entertaining clients from being 50 percent deductible to 0 percent. If you take a client or employee to an entertainment venue, then only the meal will be considered a deductible expense. That meal should be charged separately from any activities.

For example, taking a client to a sporting event would allow you to expense the food and beverages sold at the venue. The amount charged on the bill must reflect the usual selling cost of those items. At the very least, it should offer a reasonable value for them.

Another stipulation of the 2018 TCJA was more clarification on the parameters of what is considered a business meal and entertainment event. If you pay for your client’s night out, but you don’t actually go with him or her, then the meals are nondeductible. If you take a client to a restaurant and bring friends and family, then the cost of the meal for those additional people are nondeductible. The client’s bill, however, can be written off.

The Difference Between 2020 and 2021

As a response to the COVID-19 pandemic, the Consolidated Appropriations Act of 2021 ( CAA ) was signed into law on December 27, 2020. The CAA includes a variety of provisions which may benefit your business greatly. Because each business is unique, it is highly encouraged that you speak with a tax professional before making any decisions on these tax deductions. Yoke Tax professionals are always available for your tax needs.

What makes CAA notable is its deduction of “food or beverages provided by a restaurant.” The multitude of stay at home orders, correlating with the rise of food delivery through services such as Uber Eats or GrubHub, led the federal government to make an exception on the deductibility of takeout and delivery meals. This does not mean, however, that the rules around business meals deductions have changed.

In addition, a new notice by the Treasury Department and the Internal Revenue Service has added a temporary exception on food and beverages from restaurants. Beginning January 1 to December 31, 2021, businesses can claim 100 percent of meal expenses to restaurants. This holds so long as the aforementioned business meal deduction rules are acknowledged and followed.

How Do You Prove a Business Meal Expense?

The IRS requires adequate evidence of a business meal expense. A receipt must be provided. It must include the name and address of the restaurant or entertainment venue, the date of the meal, and the amount spent on the meal. Of the people served, their names and their relationship to your business must be cited at the bottom of the receipt.

If you do not have adequate evidence for a business meal deductible, you may need to provide a written statement and supporting evidence. For example, having a history of taking employees out for a team building meal each month may not require a receipt for each meal throughout the tax year.

As always, it is better to consult a tax professional before making any final decisions.

Summary of the Most Common Business Meal Deductibles for 2020 and 2021

Due to the COVID-19 pandemic, the IRS has been more lenient with the amounts which can be claimed for a business meal deductible. Be sure to take advantage of these new opportunities! Yoke Tax can help you maximize your deduction in just three days.

Get Your Child Tax Credit for 2020 and 2021

Sun, 25 Apr 2021 19:57:20 GMT

What is the Child Tax Credit?

The Child Tax Credit is a refundable tax credit which applies to any qualifying child under 18. As a tax credit, it reduces your tax bill on a dollar-for-dollar basis. Because the Child Tax Credit is refundable, it may be what you need to reduce your tax bill to zero. Perhaps you will be able to receive a tax refund check from anything left over!

How to Qualify for the Child Tax Credit (2020 Tax Year)

Whether or not you can take advantage of the CTC depends on your adjusted gross income (AGI). Taxpayers who are "married filing jointly" must have an AGI of under $400,000. All other taxpayers need an AGI of under $200,000 to qualify.

Due to the COVID-19 pandemic, special rules are put into place for the 2020 tax year. The IRS is allowing Americans to choose whichever filing allows them to benefit from the largest Child Tax Credit. You can use your 2019 income or your 2020 income to calculate your tax credit.

If you are using a tax professional, be sure to ask them to check both! You can set up a one hour free consultation with Yoke Tax professionals today. We will crunch the numbers and maximize your return in three days or less.

Another restriction on the CTC is the qualifying age of the child. In the 2020 tax year, the child must be 16 years old or younger by December 31, 2020. Dependents who are older than 16 cannot be counted towards a CTC in your tax forms.

The maximum Child Tax Credit for 2020 is $3,000.

Getting the Child Tax Credit (2021 Tax Year)

Qualifying for the Child Tax Credit in the 2021 tax year is slightly different from the 2020 tax year. Most notably, there are more specified limits on AGI for different taxpayer types.

The AGI of married filing jointly taxpayers must be under $150,000 for the 2021 tax year. Single filers have a $75,000 AGI limit, and head of household taxpayers hold a $112,000 AGI limit.

For the 2021 tax year, the qualifying age of the child is 17. If the child is not 17 years or younger on December 31, 2021, that child is not eligible for the CTC.

The maximum Child Tax Credit for 2021 is $3,000. There is a $3,600 credit for children under 6 years old.

Does the ARPA impact things?

The American Rescue Plan Act of 2021 ( ARPA ), also called the COVID-19 Stimulus Package, is stimulating the economic and health recovery from the COVID-19 pandemic. The bill was passed on March 11, 2021, and is worth $1.9 trillion. It builds upon many aspects of the 2020 CARES Act .

What does this mean for you? It means that parents are able to receive monthly checks throughout 2021. These checks act as advanced payments of the Child Tax Credit. The goal is to put money back into Americans’ pockets as soon as possible.

When you complete your 2021 taxes in April 2022, you will have two options:

You take 50% and save the rest for later. The U.S. Treasury will send you six monthly payments from July to December 2021. Those six payments will consist of 50% of your CTC. Qualifying for a $3,000 credit means $1,500 will be split into six payments of $250. The remaining $1,500 will be claimed later.
You claim 100% now. You can opt out of the monthly payment program through the U.S. Treasury. You will receive your CTC at the regular time of filing.

W e can help you. Yoke Tax professionals are always available to get everything done quickly and smoothly. Let us handle the numbers while you rake in the cash.

Frequently Asked Questions

If you have any other questions, Yoke Tax is ready to help you. Set up a free one hour consultation with a tax professional today.

Who counts as a “Qualifying Child?”

A child qualifies for the Child Tax Credit if the child meets these conditions:

Your descendant (stepchildren and adopted children included) is under 17 years old
The child didn’t provide for more than half of his or her own support in the tax year
Lived with you for more than half the tax year
He or she doesn’t fill a joint return for the tax year
The child is legally residing within the U.S. (citizen, national, or resident alien)

Changes to your family or income.

If you earned less income in 2020 than in 2019, don't worry. The IRS generally bases eligibility for the credit and advanced payments based on previously filed tax returns. First, the IRS will look for your 2020 tax return. If you have not filed your 2020 tax return, they will check your 2019 return. The IRS will assume that the number of children you have remains the same, and simply adjust the age of the children based on previous information.

New babies born in 2021

These babies will be eligible for the Child Tax Credit in advance thanks to ARPA. The IRS is developing an online portan with which you can inform them of your qualifying children. There, you can choose to receive your CTC in monthly installments.

Do you have to pay taxes on the payments?

Any payments which you receive in advance for the 2021 Child Tax Credit are not taxable. This is because the money is already owed to you by the federal government.

When you file a Form 1040 for your 2021 tax return, you will be able to reconcile the advance payments you received with the CTC that you’re actually entitled to.

For example, if you received $1,500 in monthly payments, you should receive the other $1,500 with that tax return. To make sure that everything is in order, the IRS will send out a notice of all Child Tax Credit payments made to you during 2021. The IRS will mail it out by January 31, 2022.

The Paycheck Protection Program and Your Business

Tue, 13 Apr 2021 02:53:25 GMT

What is the Paycheck Protection Program?

The Paycheck Protection Program is a provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Specifically, it makes loans available for small business owners. The intent is that business owners will be able to support their employees throughout the pandemic. This is done by either retaining them, or rehiring those employees who were furloughed as a result of nationwide shutdowns.

The Paycheck Protection Program Extension Act was signed into law on March 30, 2021. This extended the deadline to apply for a PPP loan by two months, meaning that the new deadline to apply is May 31, 2021. Yoke Tax can help you apply fast, and work with banks to help you get the loan forgiven.

Some provisions of the Paycheck Protection Program have been revised since it was originally conceived in December 2020.

What kind of expenses does the Paycheck Protection Program cover?

The Paycheck Protection Program’s loans aim to cover varying business expenses during their covered period. Some of these expenses include payroll, insurance premiums, rent, utilities, and mortgage interest. The amount received varies based on the covered period. Under the CARES act, the original covered period was eight weeks. The PPP Flexibility Act lengthened the covered period to 24 weeks.

For payroll, the PPP covers employee salaries, commissions, hazard pay, bonus pay, and other similar forms of compensation. Each employee is able to receive a maximum cash compensation of $100,000. This pay is annualized for the covered period. For example, an employee with an eight week covered period would receive a maximum of $15,385 in cash compensation. Benefits which employers pay, such as insurance premiums and retirement contributions, are also covered by the PPP loan.

Non-payroll expenses which are covered by the PPP loan are more selective. Business owners may cover mortgage interest if it can be shown that the mortgage obligation was incurred before February 15, 2020. Payment for rent under a lease in force prior to that same date can be covered. Utilities payments can also be covered by the PPP loan if the services began before February 15, 2020.

What about Sole Proprietors, the Self Employed, and Partners?

Those who have self-employment income must file a Schedule C, as PPP loan amounts will reflect what was noted on their 2019 Form 1040 Schedule C. The loan will be limited to an eight week share of 2019 net profit (up to $15,385). Qualified sick leave is excluded if a credit has been claimed for it under section 7002 of the Families First Coronavirus Response Act (FFCRA)

What doesn’t the Paycheck Protection Program cover?

There are three primary exclusions for the PPP loan.

Individual employee compensation in excess of an annual salary of $100,000 during the covered period ($15,385 for 8 weeks, $46,154 for 24 weeks)
Compensation in any form for an employee whose principal place of residence is outside US borders
Wages for qualified family leave or sick leave under the FFCRA

Who qualifies for a PPP loan?

To receive the loan, a financial institution must confirm that the borrower was in operation as of Feb. 15, 2020, had employees, and determine the maximum amount of the loan.

Small businesses with 500 or fewer employees are eligible for the Paycheck Protection Program. This includes 501(c)(3) nonprofits, 501(c)(19) veterans organizations, tribal group business concerns (sec. 31(b)(2)(C) of the Small Business Act), self-employed individuals, sole proprietors, and independent contractors as well.

As of April 4, 2021, there have been 9,140,946 loans approved for a total net dollars of $745,822,791,609. Of those, 3,997,635 (43.7%!) were approved in 2021. Yoke Tax can help you get the money you deserve before loan funding runs out.

If you have more questions, the U.S. Small Business Administration (SBA) compiled a list of frequently asked questions which can be accessed here . The SBA also addresses some frequent concerns- such as PP loans only being sent to large corporations- in their myths vs facts section.

Why you should apply RIGHT NOW for a PPP Loan

Funds will run out soon. Partick Kelley of the SBA’s Office of Capital Access explained in a March 24, 2021 Senate hearing that he expected the Paycheck Protection Program to run out of funding by mid-April. By March 4, there was just $68 billion left (out of an original $291 billion). Even after its replenishments, the available funds are still drastically plummeting. As of April 4, $60 billion of round three PPP funding remains- just 21%.

In addition, there have been many cases of small businesses getting “stuck on hold” for the PPP loan. The increase of fraudulent checks and technological stress on the automated system which determines loans has been devastating to the honest Americans who need help. Although the SBA is working to implement machine learning in order to address these errors, as many as 100,000 borrowers remain without their loans.

The best way to avoid missing out on the Paycheck Protection Program (and try to avoid a confused automated system) is to apply right. Yoke Tax has professionals with over 20 years of experience ready to help you get the money you deserve. Simply sign up for a free consultation today.

Some More Good News

Did you know that you can apply for a second-draw loan? The SBA has recently ruled that small business owners can apply for a second-draw PPP loan, even if they haven’t waited eight weeks after receiving their first-round checks.

Previously, borrowers would have to wait the required eight weeks AND spend most, if not all, of the loan’s cash in order to access a second draw. Now, businesses with 300 or fewer employees need only to prove that they have experienced a 25 percent or more revenue cut due to the COVID-19 pandemic. There are, of course, a variety of stipulations when working with the government. However, working with a professional accountant can make a major difference in the amount you receive. Yoke Tax is equipped to complete all of your applications for the Paycheck Protection Program, and we can work with banks to help you get the loan forgiven. Let us handle the numbers.

Roth IRA, 401(k), and Your Taxes - 2020 Guide

Mon, 05 Apr 2021 05:02:00 GMT

Individual retirement accounts (IRAs) and employer-sponsored 401(k) plans are designed for your long term saving and investment. It is important to ready your finances for your retirement as soon as possible. Unfortunately, nearly a quarter of American adults do not have any retirement savings. Part of this is due to lack of education on this topic. The Roth IRA and Roth 401(k) are great tax-advantaged vehicles for your retirement which you can take advantage of today.

Is a Roth IRA Worth It?

While both the Traditional IRA and Roth IRA have their similarities, they also have some key differences. Specifically, the two differ on tax deductions, eligibility standards, and access to their funds. To better understand which IRA is the best choice for you, you must understand these distinctions.

Understanding the Traditional IRA

A Traditional IRA allows you to direct your pre-tax income towards tax-deferred contributions. That is, you don’t have to pay taxes on any of the money which you use to invest into your IRA until you withdraw it. The IRS will not charge you any capital gains taxes or dividend income taxes on your earnings until you withdraw your earnings.

For 2020, you can contribute $6,000 to your Traditional IRA. If you are age 50 or older, you can contribute up to $7,000. The contributions can be deductible from your federal income taxes if you qualify. Some qualifications are allowed if:

Your employer offers no retirement plan. In which case, you may deduct your IRA contributions in full!
Your employer offers a retirement plan. The amount which you can deduct varies depending on your financial situation. It may be best to consult a tax professional for help.

If you withdraw any of your contributions or earnings from a Traditional IRA before you reach the age of 59½, you will face early withdrawal penalties. These include the taxes which had been deferred when you originally contributed, as will as an additional 10% tax on the amount withdrawn.

How is the Roth IRA Different?

The Roth IRA has similar contribution limits as the Traditional IRA. However, your contributions are not deductible from your federal income taxes. This is because the Roth IRA is founded on income which has already been taxed (after-tax dollars). This means that your earnings can grow tax-free, and qualified withdrawals are tax- and penalty-free.

There are income limitations to the Roth IRA:

2020: Modified Adjusted Gross Income (AGI) married $206,000/single $139,000
2021: Modified AGI married $208,000/single $140,000

Yoke Tax can help you find the best ways to save your money and build on your investments. Book a free one hour consultation now.

Traditional IRA and Roth IRA Comparison Chart:

Source: Inter nal Revenue Service, 2021

Should I Get a Roth 401(k)?

Many companies offer employer-sponsored Roth 401(k) retirement accounts alongside traditional 401(k) plans. These give employees another way to save for retirement. Should you consider opening a Roth 401(k)? Before answering that, you should know what the difference between the two accounts is.

Understanding the Traditional 401(k)

The Traditional 401(k) retirement plan is simple: employers contribute pre-tax dollars into several investment options. Then, those contributions earn you tax-deferred earnings until they are withdrawn. You don’t usually have to pay taxes on these earnings until retirement.

If you withdraw money from a traditional 401(k) plan before you turn 59½, you will have to pay taxes on that withdrawal. In addition, a 10% penalty will be levied against you. For example, if you withdraw $10,000 early, then you would have to pay a penalty of $1,000.

In a traditional 401(k) retirement plan, you can contribute up to $19,500 a year as of 2021. In addition, there is no income limitation set to participation.

What Makes the Roth 401(k) Different

What separates a Roth 401(k) from the traditional is the timing of when Uncle Sam takes his cut of your earnings through taxes. Roth 401(k) contributions are made with money which has already been taxed. This then means that your earnings grow tax-free, and you pay no taxes when you start making withdrawals during your retirement.

W ith the Roth 401(k), you can withdraw your contributions without fear of extra taxes or penalties. However, if the distribution is not qualified , the earnings will be taxable and potentially subject to the 10% penalty. A qualified distribution is one which occurs five or more years after the first Roth 401(k) contribution. It must also be made:

On or after attainment of age 59½,
On account of the employee’s disability,
A first time home purchase, or
On or after the employee’s death.

I n a Roth 401(k) retirement plan, you can contribute up to $19,500 a year as of 2021. If you are age 50 or older, you can contribute $26,000 per year. There is also no income limitation set to participation.

Traditional 401(k) and Roth 401(k) Comparison Chart:

Source: Inter nal Revenue Service, 2021

This is, or course, a very simplified explanation of the Traditional and Roth 401(k) retirement plans. What makes a retirement plan right for you can vary based on a number of factors. In order to decide on the best plan, consult a tax professional. Book a free one hour consultation now.

Business Tax 101

Wed, 31 Mar 2021 18:35:56 GMT

With the ratification of the US Constitution, Benjamin Franklin famously said, “In this world, nothing is certain except death and taxes.” It is as true now as it was then! Both are unpleasant realities of life. As a business owner, you’re very familiar with Uncle Sam, the IRS, and the business tax rates you have to pay. You want to give your customers a great service, earn great profits, and keep as many of those profits out of the hands of the tax man!

What is Business Tax?

When it comes to business tax, the taxes you pay and the way which you pay them all depend on the set up of your business. Because each business tackles the problem of tax season in different ways, there is no “one size fits all” approach to paying business taxes. However, there are still three generally agreed upon types of business taxes.

Income Taxes are the first type of business tax. They are also one of the most simple to understand. All businesses must file an annual income tax return to the IRS. C corporations pay income tax at the corporate rate, while all other businesses are taxed at the individual rate. Those businesses are considered to be Pass-Through Entities. More on this soon.

Estimated Taxes are the next most common type of business tax. With the rise of “hustle culture,” the amount of people who fill out these taxes has grown. These include freelancers, contractors, and small business owners who expect to owe at least $1,000 in taxes by the end of the tax year. They will need to estimate how much they will owe the IRS and pay it in quarterly taxes. Those who fail to do so, or those who simply don’t pay enough- will be hit with penalties and interest fees.

Employment Taxes are the final type of business tax. Even the self-employed must contribute to Social Security and Medicare through taxes. You must pay self-employment taxes if your net earnings are $400 or more. If you work for a religious organization and make more than $108 in wages, you must also pay these taxes. This tax does not apply to ministers or members of the religious order, however (such as nuns).

Self-employed people who have their own employees must also pay employment taxes:

Social Security and Medicare taxes
Federal Income Tax Withholdings tax
Federal Unemployment (FUTA) tax

This simple overview has not even gone over “sin taxes,” which tax anything from selling alcohol to purchasing heavy-duty trucks. Because business taxes can be confusing, consider hiring a tax professional. YokeTax will match you with a professional with 20 years of experience and get your taxes done within three days. Book a free one hour consultation now.

What is the Business Tax Rate for 2020?

The business tax rate which is paid depends on the type of business and how it is set up. C Corporations and Pass Through Entities are the primary choices businesses choose to pay their taxes.

C Corporations

C Corporations have an income tax rate of 21% as of March 2021. What makes C Corporations notable is that they are taxed twice for their profits, but through their shareholders! The IRS sees the dividends which shareholders earn as personal income, and so these shareholders must pay taxes on them. Shareholders have two types of dividends:

Qualified: These dividends are derived from shareholders who hold onto a stock for 60 days or more. They are taxed at long-term capital gain rates, which are more favorable than the process used for nonqualified dividends.
Unqualified: Dividends are considered ordinary and thus are taxed at the shareholder’s regular income tax rate.

Pass-Through Entities

Pass-Through Entities have a business tax rate which is the same as the owner’s personal income tax rate. The business tax depends on the type of business structure used.

Sole Proprietorship: A business where you are the only owner. As the boss, you are responsible for everything which happens in the business. To avoid tax trouble, keep your personal and business finances separate !
Partnership: Any business owned by two (or more) people. Partnerships built on a limited structure put the responsibility for company finances on a single partner. Partnerships with a limited liability structure protect all partners’ personal finances from the debts and obligations of the business.
Limited Liability Company (LLC): Personal risk is reduced by fully separating personal finances from business finances. LLCs do not typically pay corporate taxes. However, members of LLCs are still considered self-employed by the IRS. As such, they must pay self-employment taxes.
S Corporation: These businesses are structured to avoid the double taxation which C Corporations suffer from. This comes with strict filing and operational processes, as well as restrictions such as there can only be 100 shareholders, and they all need to be U.S. citizens.

High-income earners who would otherwise avoid paying these individual tax rates are subject to an Alternative Minimum Tax. For help with C Corporation business tax, Pass-Through Entity taxes, or even AMTs, book a free one hour consultation with a tax professional.

What about State and Local Business Taxes?

State and local taxes are a little bit more diverse. Some states have business taxes for every aspect of running a business, while others are more selective. The amount of taxes levied also varies. There are three major types of state and local business taxes to watch out for.

Income Taxes: There are some states which do not have income taxes . Some of these are Alaska, Florida, Nevada, and Wyoming. If you do not run a business in these states, then you owe state income taxes.
Property Taxes: Commercial properties will require assessment at the county or city level before any tax rates can be levied.
Sales Taxes: This business tax has grown more complicated due to the rise of online sales. If you sell products or services online, some states charge their sales tax on where the seller (you) is located. Other states tax based on where the buyer is located.

At Yoke Tax, we provide professional and affordable business tax preparation and bookkeeping services. Each tax expert has over 20 years of experience, and will be hand-selected for your tax needs. Let us handle the numbers. See more of what we can save you here .

Should I Hire a Tax Pro or DIY My Taxes?

Tue, 23 Mar 2021 19:21:13 GMT

In an attempt to save money, you might think that it will be a good idea to prepare your own taxes. However, you probably haven’t anticipated all of the IRS jargon, confusing tax rules, and regular tax changes which practically seem to be designed to keep you out of the loop! Can you push through this and do your own taxes this year, or is hiring a tax pro the smarter move?

Who needs a tax pro?

Hiring a tax pro might be your best option if:

You’re short on time
You struggle with understanding tax laws
Your tax situation is complicated
A “complicated” tax situation can include a broad range of situations.

Small business owners, consultants, and freelancers all have to pay their own separate taxes. These are called self-employment taxes. They even apply to any salaried employee who has a “side hustle.”

Investors who use anything from robo-advisors to traditional brokers all have to understand the tricky list of rules around their capital investments. These include their stocks, bonds, securities, and other investments. Did you know that you can deduct up to $3,000 in capital losses from your income? ...Did you also know that some limitations apply to this deduction?

If you support anyone financially, you can generally deduct them from your taxes. However, you probably can’t claim a friend or relative who isn’t a direct descendant. The government included this limitation to prevent freeloading. However, this doesn’t stop people who do their own taxes from making this mistake!

A tax pro could help you find the most beneficial tax deductions and streamline the tax paying process. Yoke Tax prides itself in providing tax pros who will complete your return within 3 days. You can book a free one hour consultation any time.

Should I do my own taxes?

“It takes the average American taxpayer 13 hours to comply with the tax code, gathering receipts, reading the rules and filling out the forms the IRS requires. . . . The tax code forces Americans to spend over $168 billion to comply and 6 billion hours.”

— Rep. Dave Camp (R-Mich.), hearing of the House Ways & Means Committee, April 11, 2013

Knowing this, if you are willing to go through the trouble of doing your own taxes, you must consider the many mistakes DIY tax preparers commit each year. This is extremely important because the IRS has severe penalties and fines for individuals. Taxes are complicated, and it’s easy to make mistakes. Some include:

- Filing too late (A 5% fine which increases the longer you wait to file)

- Filing the incorrect form (The IRS has over 800 forms)

- Claiming deductions you don’t qualify for ( Fraud Charges )

- Not reporting full income (Fraud)

- Inaccurate calculations (Harsh Penalties )

Should I hire a tax pro?

If you are in one of the following situations and you aren’t sure how they will have an impact on your taxes, hiring a tax pro might be the best choice. They will make sure that you don’t make any mistakes which trigger a call from the IRS, and they will find you valuable deductions which you might have missed.

Multi-state employment makes it very easy to confuse people. Different states’ income tax rules might contradict each other. They might just be muddled by jargon. Income allocation issues may also arise.

Adopting a child is not only a kind thing to do; it’s also an advantageous one during tax season! The IRS currently offers a tax credit of up to $14,440 per child for expenses related to adoption. Including a tax pro early on in the process will allow you to verify if your expenses are eligible for this deduction.

Marriage and divorce both have major effects on your tax filing. If you only recently got married, a tax pro might recommend adjusting your withholding amount and whether it would be more advantageous to file jointly or separately. On the other hand, a tax preparer might recommend filing separately after a divorce. This is so the IRS can’t pursue you for an ex-spouse’s unpaid tax liability. However, the advice varies from situation to situation, and it is best to give the tax pro as much information as you can.

Real estate is a major player in complicating taxes. Buying or selling a house can bring in a number of effects, ranging from increased capital gains taxes to the deductions related to selling the home. Mortgage deductions and capital gains exclusions are also aspects which a tax professional could identify and help with.

Communication is also important when it comes to working with a tax professional. With Yoke Tax , you can call or message your tax pro at your convenience.

How to choose a reputable tax pro

When you plan to hire a tax pro, you need to organize all of your records in advance. These include W-2s, 1099s, mortgage and bank statements, any contributions you made to a charity, etc. You should also be ready to ask your tax professional some hard questions. For example:

- Do you offer a free initial consultation?

- Are you keeping up with the latest tax laws?

- What are your tax professional credentials?

- When do you require payment? How much?

- Who will prepare my tax information?

A good tax professional will always answer these questions honestly!

Why you should use Yoke Tax

The two services we provide are tax preparation and bookkeeping, but what do we pride ourselves in?

Keeping things professional and affordable.

With Yoke Tax, you get expert tax prep without going into an office. You simply upload your documents and a tax pro does the rest.

Who is this tax pro? Yoke Tax matches you with a professional who will be the best fit based on your tax situation. Not only will this person understand your state and local taxes- they will also have 20 years of experience (minimum) in tax preparation. In addition, all of your documents and communications will be handled through our secure portal. There will be no need to worry about thieves!

Book a free one hour consultation with Yoke Tax any time.

IRS Extends 2021 Tax Filing Deadline for Texas Taxpayers

Mon, 15 Mar 2021 03:43:34 GMT

The IRS has recently announced that Texas taxpayers and victims of the Texas winter storms will now have until June 15, 2021, to file their individual and business tax payments and receive tax returns.

T he IRS will waive the usual fees and requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation "Texas - Severe Winter Storms," in bold letters at the top of Form 4506 and submit it to the IRS.

Why did the IRS extend the tax deadline?

Frigid temperatures and winter weather have severely impacted residents of Texas and surrounding regions. Power grid failures have left millions without electricity and heat, water treatment plant failures have resulted in contaminated water, and burst pipes have left many pipes running dry.

Even as power is restored, many Texas residents are struggling with frequent outages. The state’s power plants were not ready for the freezing temperatures of the winter storm. As people turned up the heat, demand for natural gas increased exponentially. The Electric Reliability Council of Texas, which oversees the majority of the state’s power grid, reported that demand peaked at 69,000 megawatts on Sunday. This surpassed its planned worst case scenario by magnitudes.

Which Texas taxpayers qualify for this extension?

Any individual or entity within the covered disaster area is qualified, including:

- Individuals who live in the area

- Businesses and tax-exempt organizations whose principal place of business is located in the area

Taxpayers who are not within the recognized disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) within the covered disaster area, are entitled to this extension.

W orkers who have or are currently assisting the relief activities in the covered disaster area are entitled to relief if they are affiliated with a recognized government or philanthropic organization.

Individuals who were killed or injured as a result of the disaster are entitled to relief as well, even if they were visiting and are not residents of the area.

Individual taxpayers may want to utilize professional tax services to maximize their deductibles .

What this means for you.

Taxpayers do not need to file any additional forms because the due date extension is automatic. The IRS has noted that if it sends any late payment of filing penalty notices to a taxpayer, then he or she is advised to contact the IRS directly through a number which will be listed on the notice.

Those who are suffering from casualty-related losses to the winter storm which are uninsured or unreimbursed may deduct those losses from the previous year’s tax return. In this case, these losses can be deducted from the 2020 tax return rather than waiting to prepare and file a 2021 tax return in 2022.

Personal casualty losses are still subject to some regulation. A limitation of $100 per loss / 10 percent of adjusted gross income (AGI) may be deducted so that the portion of the loss exceeding such an amount may be deducted. A Form 4684 must be filed. Federal Emergency Management Agency (FEMA) Declaration Number 4856 should be shown on the return showing such loss.

Is the state deadline affected?

The deadline for Texas state taxes remains to be set on April 15 for most taxpayers.

A n affected farmer or fisherman will not be subject to penalties for failure to pay estimated tax for the 2020 tax year if he files the 2020 income tax return by June 15, 2021, and pays the full amount shown as due.

The Texas Comptroller of Public Accounts, Glenn Hegar, has announced that the due date for 2021 franchise tax reports will also be extended to June 15.

" To assist businesses coping with the unprecedented winter storm and resulting power outages and water shortages, we thought it appropriate to align the state's franchise tax deadline with the IRS deadline, just as we did last year when the IRS moved its filing deadline back because of the pandemic," Hegar said. "Texas businesses and business owners should be focused on recovery efforts and the health and well-being of their families, employees and communities, and I am hopeful this action gives them that added flexibility."

Franchise taxpayers who are mandatory electronic funds transfer (EFT) payers may request an extension of time to file on August 15, 2021. They must pay 90 percent of the tax due for the current year, or 100 percent of the tax reported as due for the prior year, with the extension request.

On or before August 15, franchise taxpayers may request a second extension of time to file their report and must pay the remainder of any tax due with their extension request. The August 15 extension request extends the report due date to November 15, 2021. Any payments made after August 15 will be subject to penalty and interest.

To retain peace of mind, businesses may want to utilize professional tax services to ensure these taxes are done accurately while maximizing tax benefits.

What Texas taxpayers need to remember:

While the deadline for federal taxes has been extended to June 15, 2021, the deadline for Texas state taxes remains to be set on April 15. Some businesses may extend the deadline beyond June 15. Tax deductions are available for individuals and businesses which have been affected by the Texas winter storms.

Y oke Tax has knowledgeable tax pros on hand to help with the complicated process of paying taxes, especially during a crisis. We work with you to make sure you are getting the most out of your money. Our services are specialized for individual taxes, business taxes, and bookkeeping.

U nsure about where to start? Book a free one hour consultation with our professionals. We are ready to work with you and help with your business and personal tax needs. If you have questions, we have the answers.