Uncategorized

Tax Treatment for Bitcoin Payments

BitcoinIf you’ve paid attention to the news the last few years, you will have heard of Bitcoins. In fact, you may even have considered accepting them as payment for services or product sales. Before you do, you’ll want to make sure you have an understanding of how the IRS treats Bitcoin payments.

First, it’s important to be aware of the fact that the IRS does not consider Bitcoins, which are virtual currency, as a legitimate state-backed currency. Instead, they see Bitcoins as property.

This means that the tax rules that apply to property transactions will also apply to payments received in Bitcoins. When a person, or business acquires property, they are required to record the fair market value of the property. This will become the owner’s basis for the property.

Once the property is sold or exchanged, if the fair market value of the property has increased, then the owner will have a taxable gain. On the other hand, if it has decreased in value, the owner will have a loss.

This means that if a business owner sells a product today and receives Bitcoins worth $100 but then converts them to dollars next week and the value has increased to $120, they will have a gain of $20 that will be taxed as capital gains.

This becomes even more complicated when multiple Bitcoin transactions take place. Each transaction needs to be tracked separately and each will have its own gain or loss depending on the current valuation of Bitcoins when they are converted to dollars.  The amount of paperwork and record-keeping becomes significant.

There are a couple of workarounds for this. First, each transaction can be converted to dollars immediately. Secondly, there are now Bitcoin merchant service providers that will deal with all of the backend record-keeping that is necessary. This allows businesses to accept Bitcoins without ever actually dealing with them.

The IRS ruling treating Bitcoins as property turned the Bitcoin world and those who want to accept them on their heads, but technology and even the IRS will eventually catch up to the new reality of virtual currencies, but it may take awhile.

If you’d like to lower your tax liability legally, call 212-631-0320 and ask for Mark Feinsot.

 

Mark E Feinsot CPA is a leading New York City CPA Accounting Firm.  We service businesses of all types.  We also provide additional expertise for complex business situations like Aviation Accounting, High Net Worth Accounting, and Dental Practice Accounting.

Section 179 for NYC Business Owners

Section 179 allows a business to deduct the total cost for qualified leased, financed, or purchased equipment in the year it was purchased instead of depreciating the cost over the life of the equipment. Typically, however, Congress waits until after the first of the year to renew this section which can hurt small business owners and manufacturers as well as farmers, dentists, and medical providers.

Section 179 2Very often, Congress doesn’t get around to renewing tax breaks, such as Section 179, until well after the end of the year. Then they make it retroactive. This creates all sorts of issues for businesses who attempt to plan purchases with tax breaks in mind. Often, small businesses will miss out on the tax altogether.

While tax breaks such as Section 179 are typically renewed each year, it isn’t a given. That means businesses as well as farmers and even those in the medical profession won’t know if they are allowed to deduct $25,000 or $500,000. The final approved amount depends on whether or not the larger deductions are renewed. If not, the limit reverts to the original $25,000.

This can make a buying decisions difficult. For example if a farmer needs to buy a new combine, the farmer is looking at an investment of up to half a million dollars. If Section 179 isn’t renewed at the higher levels, this investment may need to be reconsidered. The same goes for medical or manufacturing equipment.

Still, for a small business, even the limit of $25,000 can make a tremendous difference. As off-the-shelf software also qualifies for this deduction, a small business could update their software to enhance efficiency therefore increasing their bottom line.

Tax planning is a critical component of a successful company. That’s why it is so important for Congress to act quickly and in a timely manner, so small businesses can plan for the next year while they still have the time to implement smart decisions. Small businesses are the backbone of this county and do drive the economy, and Congress shouldn’t forget that.

If you are seeking to minimize your taxes legally, then call Mark Feinsot CPA at 212-631-0320.  Our initial consultation is free.

Mark E Feinsot CPA is a leading New York City CPA firm servicing all types of businesses and high net worth individuals.

Sliding Door Injury Results in $21.5M Trial Verdict

Holland AmericanA federal jury trial awarded $21.5 million in damages to a Springfield, Illinois man who was injured by an automatic sliding-glass door on a Holland America Line cruise ship dating back to 2011.

The personal injury damages awarded by the jury were $5M, which are tax free.  The punitive damages were $16.5M which means a windfall for the IRS.  That’s right, the entire $16.5M is taxable and the attorney fee, which is normally contingent for personal injury cases (30-40% contingent fee), will be challenging to deduct.  That means the IRS will get the largest share of the $16.5M and the attorney will get a large cut as well.

Shockingly, it pays to evaluate the tax implications into your legal decisions when the punitive awards could create a huge tax bill.

As you might suspect, Holland America Cruise has appealed the verdict so a settlement for a amount less than $21.5M, but a higher award for personal injuries (higher than $5M) may be a win win solution.

Craft Brewery Sells for $1 Billion

Ballast PointWhen a craft brewery that most of us have never heard of sells for $1 billion dollars, then you realize that it’s no longer a tiny niche business.

Craft beer accounted for 11% of U.S. beer sales in 2014 and market share is rapidly increasing. Just this week, the owner of Corona and Modelo, Constellation Brands in Upstate NY, purchased Ballast Point for roughly $1 billion.

Ballast Point started selling beer commercially in 1996 and growing at a rate of 80% over the past two years. According to Brewer’s Assn, it is the 31st largest craft brewer in the country. Ballast Point is available for sale in 30 states and Sculpin IPA is their hot seller. Overall, Ballast Point produces approximately 300,000 barrels annually and the sale does not include Ballast Point Spirits, which makes rums and whiskeys.

Ballast SculpinTo put this into perspective, Constellation Brands will be paying 20 times Ballast’s revenue in 2014. And if Ballast’s revenue increases 100% in 2015, then the multiple is 10 times revenue, which is still a stiff premium.

And while demand for craft brews explodes, demand for watered down national brands like Bud, Miller, and Coors is flat which is creating a trend towards consolidation. For example, AB InBev’s takeover of SABMiller for $107B.

While the acquisition of craft brews is nothing new, the valuation on this purchase is eye opening.

Mark E. Feinsot, CPA is a New York City CPA Firm servicing business owners that would like to eventually sell their business for more than $1B.  If you are searching for an accountant to help with your new growth phase, call 212-631-0320 and ask for Mark Feinsot.  Our initial consultation is free.

Tax Benefits of Health Savings Accounts

While most people are familiar with tax benefits for other types of investments, often times, they are less familiar when it comes to the tax benefits of health savings accounts. There are three such benefits that you should know about and take advantage of.

Health Savings AccountPerhaps the largest tax benefit is that the money that goes into the account is tax-deductible. Also, if the money is invested through a company payroll deduction, all contributions are made pre-tax.

The second tax benefit comes on the interest side. Health savings accounts, do earn interest, and this interest is tax free. This allows an individual to use the account for long-term appreciation as the money does grows tax free. In that regard, it is very much like a Roth IRA with the added benefit of a current tax deduction.

The third tax benefit is that the owner of the account has the option of taking tax free withdrawals for medical expenses. These expenses must quality, but they do include almost all services provided by licensed health providers as well as substance abuse treatment and prescriptions.

Currently, in 2015, an individual can contribute up to $3,350 and a family can contribute up to $6,650. For those over the age of 55, an extra $1,000 contribution per year is allowed.

Finally, it is important to note that health savings accounts do not have a limit on carry-overs or a requirement on when the funds must be used. This is what enables them to be used for long-term savings to offset increased health-care costs or additional costs after retirement.

While health savings accounts haven’t always been on the forefront of investment options, with health insurance policy’s current rising deductibles and out-of-pocket expenses, more individuals are qualifying for the accounts, and with the tax benefits, it’s wise to give them a look.

If you are tired of overpaying taxes, call 212-631-0320 and ask for Mark Feinsot.

 

Feinsot CPA is a licensed New York City CPA Firm with offices on 57th Street and 32nd Street to service clients throughout Midtown Manhattan.  Our practice services businesses and individuals.  For additional expertise, we have concentrations in Law Firm Accounting, Aviation Accounting, Dental Practice Accounting and High Net Worth Accounting and Tax.

 

Tax Credits for Electric Car Owners in New York City

Besides being healthier for the environment, purchasing an electric car can be healthy for your tax return. However, there are a few requirements that go hand-in-hand with the purchase of an electric car that one needs to understand to reap the full benefit from the tax credit.

Electric CarsPut simply, the current tax credit for purchasing an electric car is $7,500. This tax credit is not a rebate, so you will not receive it when you purchase the vehicle, nor is it a tax deduction. That means you cannot use it to reduce the amount of your taxable income.

How to Use an Electric Car Tax Credit

In the year you purchase an electric car, you are allowed to reduce the total amount of income tax you owe by $7,500. This means that if you own less than $7,500, you will lose the remainder of the tax credit. For example, if your tax liability is $6,500, then that is the full amount of the tax credit you will receive. The balance is not a refund nor can it be used to offset future tax liabilities.

Determining Which Cars Qualify for the Tax Credit

When considering the purchase of an electric car, keep in mind, it must be a new vehicle that will be used for your personal use. You cannot use the credit on a used car or a lease as the leasing company typically receives the tax credit. In addition, the car must have been manufactured by a car company and cannot be a conversion. Finally, the car must be used in the United States.

As with all things related to the IRS, there are conditions that must be adhered to when using the electric car tax credit, but the upside is that by utilizing this credit, it is possible to bring the cost of an electric car down to where it is inline with a gasoline vehicle.

If you are tired of paying so much in taxes, call 212-631-0320 and ask for Mark Feinsot.  Our firm is designed to lower your taxes legally.

Mark Feinsot CPA is a New York City CPA Firm with two convenient offices in Midtown.  One office is located in the Garment District on 57th Street and the other is Broadway on 32nd Street.

 

Tax Rules – Converting Residence to Rental Property

If you’ve made the decision to rent your primary residency instead of selling it, there are tax implications to be aware of. The tax code in this area can be complex, so it’s important to understand the rules and regulations upfront before you take the plunge.

Residential Home in NYC2First off, a residence is considered primary when you live in it full-time and it is not rented out for more than two weeks in any given year. Conversely, a residence is considered rental property if you use it personal use for no more than two weeks of the year or 10% of the days it is rented.

Tax Implications

Once you have converted your primary residency to a rental property, you will be required to report any rental income as taxable income. On the reverse side, you will also be able to deduct expenses for repairing the property as well as general maintenance.

In addition, the IRS does allow you to use depreciation of the property to offset income received on the property as well as taking other deductions such as property taxes, insurance, mortgage interest, utilities, and association fees.

Any costs over the amount of the total rental income cannot be deducted unless you meet the following conditions:

  • You actively participate in all real estate activities for the property
  • Your adjusted gross income is under $100K for the year
  • Your total losses for all real estate activity does not exceed $25K for the year

The basis for depreciation for rental property is the lower of your adjusted basis – capital improvements plus purchase price – or the fair market value. The property must be depreciated over a 27.5 year period. Also, you are only allowed to depreciate the portion of the residency that is used for income generation.

If you’d like to avoid tax consequences and are looking to hire a CPA, call us at 212-631-0320 and ask for Mark Feinsot.  We are a New York City CPA Firm with two convenient offices in Midtown.

Supreme Court Decision on Same Sex Marriage Impacts Estate Planning

Supreme CourtWhile being able to marry your partner regardless of sex may seem a symbolic gesture to some, with that right comes many new legal rights as well that have a direct impact on estate planning. These changes should be discussed with your human resource department or estate management planner.

From wills to end-of-life-documents to trusts to planning funerals and even having access to their partner in the hospital, all have changed with the Supreme Court’s ruling allowing same sex marriage in all fifty states. Before this ruling, same sex couples’ rights could come and go when they crossed state lines or be taken away by future state rulings.

Now, all of the normal rights and protections given to opposite sex married couples are afforded to same sex couples. This includes state benefits, federal benefits as well as pension protection and spousal rights of inheritance.

In addition, same sex couples will now be able to form a joint marital trust and no longer be required to pay double inheritance taxes. Also, they will enjoy spousal rights of inheritance as well as being able to act as executor or guardian if their partner were to become incompetent before death.

Finally, for those who have children or adopt children, both partners can now sign birth certificates or adoption papers meaning that if one partner died the other does not lose custody of their children due to not legally being recognized as a parent of the child.

For years, estate planners were put in the position of telling same sex married couples that there were two sets of rules, and the protections of marriage did not apply to them. This is no longer the case. With the Supreme Court’s ruling, same sex married couples have all of the same rights, protections, and responsibilities of traditional married couples.

To learn more about estate planning changes that apply to your situation, call Mark Feinsot CPA at 212-631-0320.  Our firm provides estate planning for small business owners and high net worth individuals.

Trump Fires Shot Across Bow at Hedge Funds

Don Trump2If you pay attention to recent headlines, it may seem that being a hedge fund manager is the equivalent of being a punching bag, but while Donald Trump and others may be wagging their fingers and sparring verbally, there may be good reason to do so.

According to Trump, “The hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky. It is the wrong thing. These guys are getting away with murder.”

He goes on to say, “They are energetic. They are very smart. But a lot of them – they are paper-pushers. They make a fortune. They pay no tax. It’s ridiculous, ok?”

While one might argue whether or not hedge fund managers are paper pushers, there is much truth when it comes to using hedge funds to avoid paying taxes. Most hedge funds are limited partnerships with the investors being the partners. There is also a person that manages the fund. This person is paid a certain percent of the profits of the fund.

Due to the fact that the manager is compensated on the profits, the vast majority of the income that is generated by the fund is not taxed as compensation or salary. Instead it is taxed as a return on investment. This means that the income this person receives is taxed as capital gains instead of regular income.

The bottom line is that the fund manager is paying 20% income tax, (capital gains), instead of the typical 39.6% tax rate for those in this tax bracket. It is this loop hole of claiming regular income as capital gains and paying a much lower rate of tax instead of paying ordinary income tax rates that rightfully causes concern and scorn from some politicians and others such as Donald Trump. It is the typical argument of one set of rules for the rich and another set for the middle class.

Insurance for Data Breach – What Is It?

There are many challenges small companies face in today’s highly competitive world of business. As such, many businesses have taken actions to streamline operations, and have made the move to paperless offices and cloud computing in order to get an edge over competitors. Unfortunately, this has left them vulnerable to a risk of a different nature – a data breach.

Data BreachHackers are evolving at a more advanced pace than the software to stop them in their tracks is. They want information of any kind about your business, your employees, and the clients and customers who have trusted you with their personal and financial information.

Why Do You Need Data Breach Insurance?

For most of today’s small businesses it’s not a matter of IF a data breach will occur, but WHEN will it happen. That’s why you need to invest in adequate data breach insurance coverage for your small business.

In addition to the public relations nightmare data breaches bring to businesses, there are costs that can be quite significant. These include costs of legal defense, credit monitoring services, court fees, and even the expenses of notifying your customers that their information may have been compromised in the attack.

These costs can be particularly detrimental to your business if you’re paying for these costs completely out of pocket, without the help of insurance.

What Does Data Breach Insurance Cover?

The nature of data breaches is brutal for small businesses that are ill-equipped to defend against brute force attacks despite their best efforts. Data breach insurance helps small businesses in these events by covering the costs of:

  • Litigation defense
  • Forensic investigations
  • Crisis management and public relations
  • Notification expenses
  • Liability expenses

It’s important for you to be proactive in your efforts to avoid the scandal associated with data breach by establishing strict policies about passwords, device usage, social media, etc. and to purchase adequate data breach insurance as a backup plan for the time when data breaches do occur.