Latest news with #1040
Forbes
23-05-2025
- Business
- Forbes
IRS Says To Disclose Aggressive Tax Positions, Is It An Audit Trigger?
A stock photo of a Red Audit stamp on a 1040 US individual income tax return. Photographed at 50mp ... More with the Canon EOS 5DSR and the 100mm 2.8 L lens. The IRS wants you to 'disclose' if you do not have at least ''substantial authority'' for your tax position. Disclosure is more than the usual listing of income or expense. It is simply an extra explanation. How much extra varies considerably, not only in legal requirements but also in practice. Sometimes, the IRS says disclosure is required. You might be claiming legal expenses for a fight with your siblings over an heirloom. Or you might be claiming that you had an ordinary loss rather than a capital one when stock became worthless. There are almost infinite circumstances in which disclosure could be required, yet many people do not want to draw attention to their tax returns. Disclosure sounds like it exposes you to extra audit risk, and no one wants a tax audit, since extra audit attention is the last thing anyone wants. Ironically, though, disclosure can actually reduce risk in some cases. So what is disclosure anyway? Suppose that you are writing off the cost of getting your law degree. Almost all case law is against that deduction because a law degree qualifies you for a new profession. So, if you claim it and you want to avoid penalties if the IRS disallows it, you must disclose it. You do so because your position is weak, and you are pointing out to the IRS that you are claiming it nevertheless. Yes, that sounds like you are asking for the IRS to audit you or to disallow the deduction. Technically, you do not have to disclose. But disclosing is a way to get out of penalties, and it can also prevent the IRS from extending the usual three-year limitations period for assessment of income tax. No one wants to be audited, and it pays to know the rules. The IRS audit period is usually three years, but it can be six or more in some cases. If you omit more than 25 percent of the gross income from your tax return, the normal IRS three-year statute of limitations is extended to six years. However, in determining whether you omitted income from your return, the IRS counts what you disclosed too, even if you say it isn't taxable. So, you help yourself by disclosing. There is also a penalty for a substantial understatement of income tax. An individual who understates his tax by more than 10 percent or $5,000, whichever is greater, can end up with this penalty. One way to avoid the penalty is to adequately disclose the item. All you need is disclosure plus a reasonable basis for your tax position. How do you disclose a tax position to be sure you aren't hit with a substantial understatement penalty? The classic way, which the IRS clearly prefers, is by form. There are two disclosure forms, IRS Form 8275 and IRS Form 8275-R. Form 8275-R is for positions that contradict the law, so it is best avoided. Form 8275 (without the R) is a common form and is commonly filed. Most tax returns attaching Form 8275 are not audited, so the form does not automatically trigger an audit. Check out the IRS views about Form 8275. But how much detail to provide is another matter. Some people go on for pages on Form 8275, and even send attachments. Some proposed Forms 8275 are long-winded arguments about the law, sometimes all in capital letters, citing many legal authorities. That is not appropriate material for a disclosure, nor are attachments. If the IRS wants your legal agreement or contract, the IRS will ask for it. In short, going overboard in a disclosure seems unwise. You are required to disclose enough detail to tell the IRS what you are doing. But keep it short and succinct.
Forbes
24-04-2025
- Business
- Forbes
Experts Reveal 3 CommonTax Mistakes That Could Cost You Big
Frustrated shocked african man having problems, feel confused looking at laptop screen at office As tax season comes to a close each year, many Americans rush to meet the April 15 deadline and celebrate when they received a big refund. But according to tax experts, these popular strategies might actually be costing you money. Mark J. Kohler, C.P.A., J.D.,Founding and Senior Partner at KKOS Lawyers, specializing in tax, legal, wealth, estate, and asset protection planning and Timothy Wingate Jr., an IRS-certified tax specialist and founder of G+F Business & Financial Consulting, say taxpayers often fall for three common traps — and correcting them can lead to smarter financial decisions all year long. Here's what people get wrong about taxes and how you can take a more strategic approach. While the April 15 deadline is real, filing your return on that day isn't always required — or even wise. 'Contrary to popular opinion, it's not the end of the world if you don't file your personal 1040 tax return by April 15,' Kohler said. 'In fact, it can be very strategic to not file and instead submit an extension. Getting an extension gives you time to get all your records in order.' Timothy Wingate Jr., an IRS-certified tax specialist and founder of G+F Business & Financial Consulting, agrees—and offers practical advice for how to do it right. Here's how to file an extension the smart way, according to Wingate: Filing an extension gives you until October 15 to submit your return—but remember, it doesn't delay the deadline to pay any taxes owed. To avoid penalties or interest, it's smart to send a payment by April 15, even if your paperwork isn't ready. Most people celebrate a large refund check — but Kohler says that mindset needs to change. 'Our number one cost in life is taxes,' he said. 'If we can minimize that, we can deploy that money in other areas that make us money. That's the concept of tax planning.' Rather than aiming for a big refund, aim to owe nothing — and keep more of your paycheck throughout the year. Talk to a tax advisor about adjusting your withholdings, contributing to retirement accounts, or making strategic investments to reduce your taxable income. With nearly 40% of Americans working a side hustle, treating that income seriously is more important than ever. 'Side hustles aren't just income streams — they're tax planning opportunities,' Kohler said. 'But too many people miss out because they don't keep records or claim expenses.' 'Keep separate accounts, track all expenses, and consult a tax professional,' he said. 'That way, you can legally deduct business expenses and potentially lower your overall tax bill.' Accurate record-keeping is essential to claim these deductions — and to protect yourself in case of an audit. Don't wait until tax season to think about your tax strategy. Avoiding these common mistakes — filing blindly by April 15, celebrating big refunds, and ignoring your side hustle's business status — can help you keep more of your money. Instead, work with a trusted tax advisor, file smarter (not faster), and take full advantage of deductions and planning strategies year-round. Your future finances will thank you.
Forbes
26-03-2025
- Business
- Forbes
Crypto Tax Season: 5 Must-Know Tips And 3 Smart Moves For Next Year
Bitcoin resting on a calculator beside IRS Form 1040, symbolizing cryptocurrency trading and ... More individual income tax obligations. Concept: it's time to pay taxes on crypto transactions. Tax season is in full swing, and if you've touched crypto—whether through buying, selling, staking, or trading NFTs—you need to know: the IRS is watching. In recent years, the Internal Revenue Service (IRS) has increased its scrutiny of digital asset activity. It classifies cryptocurrencies and other digital assets, including non-fungible tokens (NFTs), as property—not currency—for tax purposes. This distinction carries significant implications: property is subject to capital gains taxation when sold or exchanged, unlike traditional currencies. So even though 'currency' is in the name, crypto is treated more like stocks or real estate than dollars or euros in the eyes of the IRS. For anyone who owns or transacts in digital assets, proper tax reporting is no longer optional. Let's break down the five key things you must do before the filing deadline of April 15, 2025, and explore three proactive steps you can take now to make tax time next year significantly easier. If you are a bookkeeper, CPA, or enrolled agent preparing returns or advising clients who touch crypto in any capacity, you must get up to speed—immediately. Digital assets are no longer a fringe topic; they are increasingly mainstream financial instruments with complex and unique tax implications. Failure to ask the right questions, understand the mechanics of digital asset transactions, or properly classify and report these events can expose your client to penalties, audits, and unnecessary scrutiny. More importantly, it may expose you to professional liability. Some exchanges issue Forms 1099-B, 1099-K, or newer iterations like 1099-DA, while others do not issue tax forms at all. Inconsistent reporting standards mean that relying solely on client-provided tax documents from platforms like Coinbase, Binance, or Kraken may lead to major gaps in reporting. In 2026, mandatory broker reporting requirements will further complicate the landscape; but they won't necessarily simplify it. That's why using crypto transaction tracking tools—especially those that integrate directly with professional tax preparation software like UltraTax, Drake, or Lacerte—is more than a convenience. It's a necessity. Tools like CoinTracker, Koinly, and TaxBit can aggregate wallet and exchange activity, classify transactions, and generate compliant tax reports that reduce the burden on your practice and improve audit resilience. If you haven't yet built crypto fluency into your tax prep workflow, now is the time. A new generation of clients is already there, and they are counting on you to be ready. Right near the top of your individual tax return (Form 1040), the IRS now includes a critical question: 'At any time during the tax year, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?' This question is not rhetorical. You are required to answer it, and accuracy is essential. You must check 'Yes' if you: If, however, you only purchased and held digital assets without using, trading, or selling them, you may check 'No.' But when in doubt, consult a tax professional who understands the nuances of digital assets. Taxable events involving digital assets are not limited to profitable trades. The IRS clearly states: 'If you have digital asset transactions, you must report them whether or not they result in a taxable gain or loss.' Key taxable events include: Capital gains or losses should be reported using Form 8949 and Schedule D, while income from crypto-related activities may appear on Schedule 1 (for supplemental income) or Schedule C (if you're self-employed). Importantly, even receiving a digital asset without selling it (as in the case of airdrops or staking rewards) can generate a tax liability because it is treated as ordinary income upon receipt. Non-fungible tokens, or NFTs, represent unique digital assets often associated with art, music, or digital media. IRS guidance (Notice 2023-27) clarifies that certain NFTs may qualify as "collectibles" under the tax code. This matters because gains from the sale of collectibles are subject to a maximum 28% capital gains tax rate, which is higher than the typical long-term capital gains rate for other assets. So, whether you're flipping a profile picture NFT or holding a tokenized piece of digital art, you must report any gain or loss. And if the underlying asset is considered a collectible, the tax rate may be higher. If 2024 was a difficult year in the markets for you, you may be able to reduce your tax bill through tax-loss harvesting. This strategy involves realizing losses to offset realized gains. You can: This applies to: The IRS also issued guidance in 2023 that may support claims of loss for worthless or abandoned assets, though you should speak with a tax advisor about how best to apply these rules. One of the most overlooked aspects of crypto taxation is recordkeeping. You, as the taxpayer, are responsible for tracking the following: This information is required to calculate your gains or losses and to determine your tax liability. 'Keep records. Calculate your capital gain or loss. Determine your basis. Report on the correct form.' IRS Digital Assets FAQ To make this easier, consider using digital tools such as CoinTracker, Koinly, or TaxBit to aggregate and reconcile your transactions across wallets, exchanges, NFTs, and decentralized finance (DeFi) platforms. Many tax preparation headaches can be avoided by syncing your wallets and exchanges with crypto tax software early and often. Most tax platforms allow you to: Choose software that supports: The goal is to eliminate year-end surprises and automate data entry to the greatest extent possible. Your method for calculating capital gains can significantly impact your tax liability. The IRS allows several options: For tax year 2025, Revenue Procedure 2024-28 clarifies how to assign basis across wallets and exchanges. Planning with your CPA or tax advisor can help you make the most of this flexibility. Beginning with the 2025 tax year, crypto "brokers" will be required to file Form 1099-DA or similar tax documents with the IRS. These reports will include: Although this requirement is not mandatory for the 2024 tax year, some platforms have already begun issuing 1099 forms voluntarily. Going forward, discrepancies between your self-reported transactions and third-party reports may trigger IRS inquiries. If you receive a 1099 form, make sure it matches your own records. If you don't receive one, you are still obligated to report your gains, losses, and income. Final Thoughts Crypto is no longer a niche corner of the financial system, and regulators have taken notice. The IRS has expanded its enforcement capabilities, hired experts, and built tools to monitor digital asset activity. If you're a: then, you are subject to tax rules that are growing in complexity and scope. Your best defense? Education, preparation, and (well informed!) professional guidance. All tax advisers are NOT created equally, so choose wisely. Start by keeping detailed records, staying updated on regulatory developments, and consulting tax professionals who understand the evolving crypto landscape. Visit the IRS Digital Asset Resource Page for the latest publications and FAQs. And remember: what you don't know can hurt you—but what you do now can save you next April.
Yahoo
22-03-2025
- Business
- Yahoo
Form 4684: How to Claim a Casualty and Theft Loss Deduction
SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. Form 4684 allows individuals, businesses and estates to claim deductions against any unexpected losses due to theft or disasters. These deductions can help reduce taxable income, but they come with specific eligibility requirements and limitations. In most cases, only losses caused by federally declared disasters or qualified thefts can be deducted. A can help you claim tax deductions for disaster or theft losses using Form 4684. Form 4684, titled Casualties and Thefts, is used to report financial losses that result from unexpected events, such as natural disasters, accidents or theft. The IRS distinguishes between casualty losses - caused by sudden and unusual events like hurricanes, earthquakes or fires - and theft losses, which result from criminal acts such as burglary or fraud. The deduction amount is limited by insurance reimbursements and a required $100 reduction per event for personal-use property. Additionally, the deductible portion of the loss must exceed 10% of the taxpayer's adjusted gross income (AGI). If you want to claim deductions for disaster or theft losses, here are seven general steps to help you get started: Download Form 4684 from the IRS website or obtain it through tax preparation software. Calculate the cost basis of the property, which refers to its original value before the loss. Determine the fair market value (FMV) before and after the event to assess the financial impact. Subtract any insurance reimbursement or compensation received from insurance claims, government assistance or settlements. Apply the $100 reduction per event and further reduce the loss by 10% of adjusted gross income (AGI) for personal-use property. Transfer the calculated loss to Schedule A (Itemized Deductions) if claiming a personal deduction. Attach Form 4684 to Form 1040 and submit it with your tax return. The loss must result from a federally declared disaster as designated by the Federal Emergency Management Agency (FEMA). The loss must be sudden, unexpected and beyond the taxpayer's control (e.g., floods, wildfires, tornadoes, earthquakes) and the damaged or destroyed property must be personal-use or business property that was not already compensated by insurance or other relief programs. Additionally, tax laws allow affected individuals to claim losses in either the tax year the disaster occurred or the previous tax year for potentially greater tax benefits. Examples of qualified disaster losses include: A home destroyed by a wildfire in a declared disaster area. A vehicle damaged by flooding in a FEMA-designated flood zone. A business property impacted by a hurricane, resulting in structural damage. Non-qualified losses, however, would include: Property damage due to wear and tear or gradual deterioration (e.g., termite damage). Losses from personal negligence (e.g., leaving a car unlocked and experiencing theft). Property damage without a federally declared disaster designation. No, except for qualified disaster losses, casualty and theft loss deductions require itemizing on Schedule A. However, for federally declared disasters, taxpayers may claim a standard deduction increase instead. To report a theft loss, taxpayers must provide proof of the event, including police reports, insurance claims, and fair market value changes. The same calculation method applies as for casualty losses, subtracting reimbursements before applying the deduction. If insurance payments exceed the original property value, the excess may be considered taxable income rather than a deductible loss. Taxpayers should report this on their tax return as a capital gain, if applicable. For personal-use property losses, there is generally no carryforward option beyond the year the loss occurred. However, business or investment-related losses may qualify for a carryover under different tax provisions. Filing Form 4684 allows taxpayers to claim a deduction for financial losses caused by sudden disasters or theft. But eligibility is often limited to federally declared disasters for personal-use property. To complete the form, you must calculate the total loss, subtract any insurance reimbursements, and apply the deduction limits set by the IRS. Accurate records and supporting documents are essential for a successful claim. Given the complexity of tax rules governing casualty and theft deductions, working with a financial advisor can help you navigate the filing process and maximize tax relief opportunities. SmartAsset's free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now. If you want to know how much your next tax refund or balance could be, SmartAsset's tax return calculator can help you get an estimate. Photo credit: ©Department of the Treasury Internal Revenue Service, © The post Form 4684: How to Claim a Casualty and Theft Loss Deduction appeared first on SmartReads by SmartAsset.
Yahoo
23-02-2025
- Business
- Yahoo
I'm an Accountant: 3 Tax Tips Everyone Should Follow in 2025
Tax seasons is upon us, and while there are no drastic overhauls this tax year, it's still wise to be aware of the current deadlines, changes to credits and deductions, and common reasons your tax return could be rejected. Find Out: Read Next: GOBankingRates spoke with Sherri Laudenslager, a CPA and expert with TurboTax, about the tax tips you should follow this tax season. 'An important item to keep in mind during this time of year is tax due dates,' Laudenslager said. 'This is important for every taxpayer, but especially important for small-business owners. 'The first step for a business owner is to understand the entity type of your business,' she continued. 'A limited liability company (LLC) can be one of four entity types, and this is determined by your state and IRS registrations. Tax due dates are different based on entity type.' Here are the tax dates individuals and business owners need to keep in mind for 2025: March 17: Due date for partnerships (Form 1065) and S corporations (Form 1120-S). 'Keep in mind, the due date is generally the 15th day of the third month, unless the due date falls on a weekend,' Laudenslager said. April 15: Due date for C corporations operating on a calendar year (Form 1120), sole proprietorships and single-member LLCs (Form 1040 – Schedule C). April 15: Due date for all personal tax returns (Form 1040). Learn More: 'Tax changes for 2024 primarily relate to increased limits based on taxpayer filing status,' Laudenslager said. Here are a few limits that have changed for this tax year: Increased standard deduction: Single and married filing separate: $14,600 ($750 increase) Married filing jointly or qualifying surviving spouse: $29,200 ($1,500 increase) Head of household: $21,900 ($1,100 increase) Taxpayers who are 65 and older or are blind increase standard deduction as follows: Single or head of household: Additional $1,950 Married filing jointly or qualifying surviving spouse: Additional $1,550 Earned Income Tax Credit: The maximum amount for 2024 is $7,830 for qualifying taxpayers who have three or more qualifying children, an increase from $7,430 for tax year 2023. Income thresholds and phase-outs still apply in calculating taxpayer EITC. Marginal rates: 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly) 35% for incomes over $243,725 ($487,450 for married couples filing jointly) 32% for incomes over $191,950 ($383,900 for married couples filing jointly) 24% for incomes over $100,525 ($201,050 for married couples filing jointly) 22% for incomes over $47,150 ($94,300 for married couples filing jointly) 12% for incomes over $11,600 ($23,200 for married couples filing jointly) 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly) For a more comprehensive list of changes, Laudenslager recommended visiting the IRS website. A common reason for your tax return being rejected when you file electronically is that you are missing Form 8962, Laudenslager said. 'Form 8962 is required for all taxpayers who have health insurance coverage through a health insurance marketplace,' she said. 'Form 8962 is required if the taxpayer, their spouse or anybody they claim as a dependent is enrolled in this type of health insurance. Form 1095-A (health insurance marketplace summary) summarizes important information about the coverage provided.' More From GOBankingRates10 Home Features That Have Decreased the Most in Popularity (And How Much Homes with Them Cost)Are You Rich or Middle Class? 8 Ways To Tell That Go Beyond Your Paycheck This article originally appeared on I'm an Accountant: 3 Tax Tips Everyone Should Follow in 2025 Sign in to access your portfolio
