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1040 tax form change meant to target cryptocurrency transactions

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Posted at 10:48 AM, Dec 18, 2020
and last updated 2021-01-08 12:14:23-05

The IRS added a new question to the top of the 1040 tax form, aimed at identifying people who make money on cryptocurrency transactions. Cryptocurrency, or virtual currency, includes things like Bitcoin and is a digital representation of value that functions as a medium of exchange, according to the IRS.

The question asks: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” The only options to answer are yes or no.

The question is similar to one that was added to the form for 2019 tax filings. At the time the question was on a section used to report certain additional income or adjustments, called Schedule 1. However, not a lot of people file Schedule 1 forms with their return. In 2014, the IRS issued a notice that virtual currency should be treated as property for tax purposes.

Tax experts say the move, putting the question on the main form, may signal that the IRS is serious about going after virtual currency investors who under-report their holdings.

“In my view, the IRS is treating omitted virtual currency transactions in the same manner it pursues foreign bank accounts of U.S. taxpayers,” Lewis Taub, a certified public accountant and director of tax services at Berkowitz Pollack Brant Advisors + CPAs told Yahoo Finance. “By asking the question on the top of the first page of the return, the IRS is making it clear that any income from gains or losses from virtual currency must be reported on the return.”

The question will appear at the top of the 1040 form, right below a person’s name and address.

The IRS has increased their investigations into cryptocurrency investments, getting digital currency exchanges to release information about investors activity.

Among recent high-profile cases was software mogul John McAfee, who was accused of tax evasion using cryptocurrency in October, according to FOX News.

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NEW TAX LAW

If you’re wondering how you’re affected, not to worry, we have your back. We’re doing the work to make sure our products are up to date and that you can use them to file your taxes with complete confidence.

That said, many folks are wondering what’s in the bill and how it might affect them. Here’s a recap of some of the major tax provisions in the new tax bill and how they may impact you.

Increased Standard Deduction: The new tax law nearly doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes (the ones you file in 2019). Married couples filing jointly see an increase from $12,700 to $24,000. These increases mean that fewer people will have to itemize. Today, roughly 30% of taxpayers itemize. Under the new law, this percentage is expected to decrease.

Increased Child Tax Credit: For, families with children the Child Tax Credit is doubled from $1,000 per child to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400. The bill also adds a new, non-refundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000.

Personal and Dependent Exemptions: The bill eliminates the personal and dependent exemptions which were $4,050 for 2017 and increased to $4,150 in 2018. State and local taxes/Home mortgages: The bill limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible. The bill also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000 down from $1,000,000 in current law.

Health Care: The bill eliminates the tax penalty for not having health insurance after December 31, 2018. It also temporarily lowers the floor above which out-of-pocket medical expenses can be deducted from the current law floor of 10% to 7.5% for 2017 and 2018. So for 2018, you can deduct medical expenses that are more than 7.5% of your adjusted gross income as opposed to the higher 10%.

Fastax Has You Covered

Don’t worry about memorizing these tax changes the majority of which are for 2018 taxes that you file in 2019. Fastax has you covered and will be up to date with the latest tax laws. Call us for tax help at 661 493-8512