What is your familiar tax preparation experience?
“Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”
~ Judge Learned Hand
Periodically we share this quote, or a similar version of it, from Judge Learned Hand. It is an interesting quote and typically generates a variety of responses.
From one perspective, it is important to understand that tax laws are meant to be integrated into tax preparation and that these laws offer us citizens approaches to minimize our tax obligation. Integrating tax laws into tax preparation is tax planning. Tax planning happens while preparing tax returns and throughout the year as personal events and economic events arise.
Other perspectives on the quote give us a broader, dare we say better, view on taxes and what occurs for most of us this time of year.
When you think of taxes, how do you feel?
- Do you feel warmth, ease and deeply satisfied, signaling gratitude for how taxes support our society and democracy in operation?
- Do you feel tight, contracted, and scared, adding oh goodness, I hope I will be okay?
- Do you feel confused and begin to retreat into thoughts of despair, lethargy and this is so hard, saying I should not have to pay this much in taxes?
- Do you feel a combination of all of the above depending upon what day it is?
- Do you feel none of the above and wonder what these questions are about?
Recently I listened to a friend of mine reveal her tax preparation story and how her past challenging tax experiences, which no longer exist, were carried with her as she gathered her information for her tax professional to prepare her 2022 tax return.
She dreaded her task to gather her tax data, like many of us, and procrastinated thinking she would need a minimum of 4 hours to get it all together, and another several hours to verify her bookkeeper’s numbers. She scheduled a weekend process with several “bitesize” hours to complete her task.
To her surprise, she completed all of her work in 40 minutes. She did not need the full first hour, releasing the other hours on her calendar. And she noted that her bookkeeper was on top of her business reports, P & L statement and unlike earlier experiences in her life, she could trust her system and professional support.
Upon reflection, she realized that she carried old news, beliefs, experiences, feelings, and behavior into her tax preparation process. If we think and have experienced taxes as hard, unfair, confusing, scary (fill in your words), it is possible we repeat that experience even when our situation has changed, and even when a different experience is possible.
What is true for you?
Colman Knight chooses to create a confident, clear, consistent, and easy tax preparation experience, for you.
Colman Knight wants you to love, appreciate and enjoy tax preparation season!
We know. How silly is that? How can anything like preparing tax returns be fun? Gobs of information is required, detailed data in many forms, receipts, confusion, questions and not to mention the looming deadlines.
All of the above is true and we choose to hold an inviting space for this service and requirement for all people who must file tax returns.
When we intend for the process to be enjoyable, our reminders, conversations, tax work, tax strategies are infused with the positive experiences we express above.
As we enter the final few weeks until the April 17th deadline, we offer these reflection questions to support your expanding perspective and enjoyment of the annual task of tax preparation.
When you think of taxes, what thoughts, feelings and sensations arise?
- Do you feel scared and inadequate and automatically shut down?
- Do you get pumped with confidence and vigor ready to get them completed?
- Do you procrastinate with lethargy and one more task to give energy you don’t have?
- Do you resent paying taxes and feel angry and treated unfairly?
- Does your stomach feel tight and queasy?
- If the above questions do not resonate for taxes, what word would you replace for taxes (e.g., investments, spending plan, retirement)?
What might you be holding onto from your past tax preparation experiences that is no longer true?
How can we assist you in creating a different, more satisfying, tax preparation experience?
Kiplinger Tax Letter on the
Taxation of Cryptocurrency
Rich subscribes to the weekly Kiplinger Tax Letter, always educating himself on updates to tax laws and strategies. He thought this article might be of interest to some of you.
Washington, D.C. – March 2, 2023
With the rise in popularity of cryptocurrency… We decided to delve into the taxation of crypto. Virtual currency is treated as property for tax purposes. This includes bitcoin, ether and other forms of similar digital representations of value that act as a substitute for real currency.
Let’s first look at sales or exchanges.
People who sell crypto that they hold for investment will recognize capital gain or loss. That gain or loss is long-term for crypto owned more than 12 months before the sale. Otherwise, it is treated as short-term.
People who sell crypto at a loss needn’t worry about the wash-sale rule.
This rule bars a capital loss write-off if you buy substantially identical securities up to 30 days before or after a sale, with the disallowed loss added to the tax basis of the replacement securities. But the definition of securities for this purpose doesn’t include crypto. So, for example, if you own crypto that sharply falls in value, you can sell it, recognize a capital loss and buy the same digital currency the next day.
If your crypto becomes worthless, you can’t take a worthless securities write-off on your return. That’s because crypto isn’t a security, so the capital loss write-off for worthless securities isn’t available to individuals who invest in cryptocurrency. IRS recently released a memo on this topic, which we wrote about in our Feb. 2 Letter.
If you receive crypto for services, you will have ordinary income that you report as wages if employed, or as Schedule C income if you are in business for yourself. The amount of income you report is the crypto’s value in U.S. dollars on the day you receive it, regardless of whether you get a W-2 or 1099 from the payer.
A hard fork crypto may be taxable.
A fork occurs when there’s a change in the underlying blockchain’s protocol. In a hard fork, those software changes result in a complete blockchain overhaul that causes a split in the cryptocurrency, leading to new crypto. If that new crypto following the hard fork is airdropped or otherwise transferred to you, meaning you receive new crypto units, then there is a taxable event resulting in ordinary income. If, on the other hand, you don’t receive new crypto in an airdrop, etc., then you won’t have income.
A soft fork is not a taxable event because it doesn’t result in new crypto.
One open issue is the taxation of staking awards, specifically the timing of when the rewards should be taxed…when they’re created or when they are sold. This was at the heart of a 2022 court case, in which a couple filed a refund claim alleging that token awards they received through staking are created property that is not taxed on receipt, but instead on disposition. The court tossed the case on procedural grounds without even addressing the substantive tax matter.
A 2022 Senate bill would clarify that crypto rewards received through staking are taxed when sold. But that proposal, even if reintroduced in the current Congress, isn’t likely to gain much traction. So it’s up to IRS to issue guidance in the area.