Advising Business Owners During Volatile Economic Times

November 6, 2022 by David Moseman

The landscape of accounting and taxation has been very dynamic over the past several years. Tax reform, the adoption of digital currency, pandemic-induced debt, supply chain disruptions and workforce changes are layered upon an already complex and regulated industry.

The purpose of tax planning before you are in the throes of tax season is to minimize your tax liability. At CironeFriedberg, our experienced CPAs take a holistic view of the impact of new and existing tax programs and regulations that can be implemented to optimize your tax situation.

CironeFriedberg clients are C corporations, S corporations, Limited Liability Companies (LLCs), partnerships, and sole proprietors across various industries. We assist business clients to structure transactions in the most advantageous tax manner to help minimize the tax impact and take advantage of tax benefits.

“Our business clients in all industries are working to improve product and service delivery while controlling costs in a very challenging economic environment. We listen to them and approach each client as a having a unique set of needs and challenges. Our team collaborates in ways to find and implement creative approaches to deliver the best solutions possible.”

– Tony Cirone, CPA

Business Mergers, Acquisitions, Sales, and Expansion

Business owners and family businesses rely on us to advise them on business structure, acquisitions, sale of a business, and compensation plans for management and owners. When faced with growing through acquisition or transferring a business to family members, they seek our advice. They know CironeFriedberg has their back.

At CironeFriedberg our Certified Valuation Analysts offer specialized knowledge and expertise in valuations as required for purchase, sale, merger, gifting or tax election requirements. Our valuation professionals are trained in current professional standards and hold Certified Valuation Analyst (CVA) and Accredited in Business Valuation (ABV®) certifications.

Our unique expertise in Litigation involving shareholder and partner disputes, dissenting shareholder actions, and related expert testimony is also in high demand.

Continually Changing and Evolving Tax Laws

Our experienced tax CPAs stay up-to-date and informed on complex and constantly changing tax regulations. David Moseman, CPA, is one of the partners in charge of tax services at CironeFriedberg and oversees a team of experienced accounting professionals with excellent critical thinking skills.

Tax laws are complex and continually changing. Our CPAs specialize in Federal and state tax laws and regulations and are committed to delivering accurate and timely tax filings. At CironeFriedberg, we put our clients’ needs front and center. We listen. Our team has the technical expertise and experience required to ensure efficient tax compliance and effective tax planning for each client.

“We are constantly expanding our knowledge to proactively meet our clients’ needs. There are new IRS regulations affecting many areas such as cryptocurrency and digital currency taxation. We stay on top of these changes and are continually expanding our expertise and capabilities to serve the needs of new clients including those stepping into the Cannabis industry.”

– David Moseman, CPA

Careful tax planning is critical for business success in today’s volatile economy. In a complex regulatory environment with global pressures and challenges beyond our control, strategic tax planning is necessary to achieve business success and preserve and grow wealth.

The Impact of Virtual Currency on Income Tax Reporting

October 1, 2022 by David Moseman

According to Insider Intelligence, in 2021, cryptocurrency accounted for $6.10 billion worth of transactions worldwide. That represents an increase of 177.3% over the year before. The transaction value is expected to surpass $16.16 billion in 2023 as more businesses accept digital currencies as forms of payment.

As the use of virtual currency explodes, the IRS is adapting tax forms to record taxes due for related transactions. As we enter the last quarter of the year, the IRS has started drafting the new tax return forms for 2022. While not final, we have seen some of the changes on Form 1040 from last year. One significant difference is the use of the phrase “digital assets” instead of “virtual currency.”

On the 2021 Form 1040, the question was asked “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”

The draft 2022 Form 1040 asks, “At any time during 2022, did you: (a) receive (as a reward, award, or compensation); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)? (See instructions.)”

In 2021, the IRS used the term “virtual currency” to describe various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency. Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it is treated as virtual currency for Federal income tax purposes.

In 2022, changing the phrase “virtual currency” to “digital assets” indicates that the IRS seeks to include other forms of assets besides cryptocurrency, such as blockchain and nonfungible tokens (NFTs). However, even though the IRS is changing the phrase to “digital assets” for the 2022 tax forms, the IRS website is still continuing to use the phrase “virtual currency” at this time.

A more detailed definition of digital assets will likely be included in the 2022 Form 1040 Instructions, which have not yet been published. Also, the IRS may revise the draft 2022 Form 1040 prior to issuing the final version.

The purchase of digital currency is not necessarily taxable. However, once it is sold, you must report the gains or losses to the IRS on the required forms and pay the taxes associated with the transaction. The tax rates will depend on how long you owned it in addition to your income level and tax filing status. Transactions, like selling digital (virtual) currency or using it for purchases, are considered capital gains or losses for tax purposes.

For more information on this topic, read our article, Overview of Blockchain and Cryptocurrency.

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.

Capital Gains and Home Sales

June 6, 2022 by David Moseman

If you are selling your home, there is a good chance that the profit or a portion of the profit from the sale will not be taxable. Thanks to the Section 121 Exclusion (commonly referred to as the home sale exclusion), provided by the Internal Revenue Code, individual taxpayers can exclude up to $250,000 in profits from capital gains tax when they sell their primary personal residences, while married taxpayers can exclude up to $500,000 in gains.

Calculating Your Capital Gain or Loss

To calculate your capital gain or loss on the sale of your residence you subtract your cost basis from your sales price. The cost basis starts with what you paid for the home plus the costs you incurred in the purchase, such as title fees, escrow fees, and real estate agent commissions. Then add the costs associated with any major improvements you made, such as replacing the roof or the furnace, you made to the home. Minor renovations or maintenance costs such as painting a room do not count. Then subtract any accumulated depreciation you may have taken over the years, if any, based on items like taking a home office deduction. The resulting number is your cost basis.

Your capital gain or loss is the sales price of your home minus your cost basis and any expenses related to the sale (commissions, fees, etc.). If you end up with a capital loss, you cannot claim a deduction for the loss under the Internal Revenue Code.

If you end up with a capital gain, you can subtract the home sales exclusion, if eligible, to determine your taxable gain. To be eligible for the exclusion, you must have lived in the home for a minimum of two of the five years immediately preceding the date of sale. The two years do not have to be consecutive, and you do not have to live there on the date of the sale.

Know the Details

You can use this two-out-of-five-years rule to exclude your profits each time you sell your main home. However, you can claim the exclusion only once every two years because you must spend at least that much time in the residence. You cannot have excluded the gain on another home in the last two-year period.

You also want to document any unforeseen circumstances that might force you to sell your home before you’ve lived there the required period of time. The IRS defines an unforeseen circumstance as an event that you could not reasonably have anticipated before buying and occupying your main home. Natural disasters, a change in employment that left you unable to meet basic living expenses, death, divorce and multiple births from the same pregnancy qualify as unforeseen circumstances under IRS rules. Any unforeseen circumstances may result in you getting a partial exclusion.

Active-duty service members are not subject to the residency rule. They can waive the rule for up to 10 years if they’re on qualified official extended duty.

If you realize a profit in excess of the home sale exclusion or if you do not qualify for the exclusion, you will report the sale of your home on Schedule D of your Individual Tax Return.

Be advised this is just a summary and there may be other provisions and exceptions applicable to you. Be sure to consult a tax professional before filing.

Overview of Blockchain and Cryptocurrency

May 24, 2022 by Nicholas DaPaz CPA

The COVID-19 pandemic disrupted life as we knew it. We are still in the midst of finding our way to a new normal, but it is not clear how long that will take or what it will look like. Some things are becoming clearer, however, and one of those things is that blockchain technology and cryptocurrency are growing in popularity. For example, Bitcoin, a kind of cryptocurrency, is often in the headlines as its value goes up and down.

Many still believe cryptocurrency is a fad, but the fact that Congress is considering legislation affecting it runs counter to that thought. This year alone, Congress introduced 19 bills that impact blockchain and cryptocurrency. The proposals range from the Blockchain Promotion Act of 2021, which seeks to define and promote blockchain, to the U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2021, which seeks to make the U.S. competitive in cryptocurrencies on the global market.

There is good reason for the level of attention that blockchains and cryptocurrency are attracting: While they are something of a novelty today, there are many ways industries are envisioning how they can be used in the future. Health care and financial services are two industries that are carefully watching how these technologies evolve.

As with most new innovations, wide acceptance takes time. Nevertheless, it is important to understand some of the basics. Here is a brief overview of some facts.

Four types of blockchain

Blockchain is a special type of database shared among a network and is essential to keeping track of virtual currency transactions. There are four major types of blockchain:

Public blockchains. Public blockchains are open, decentralized networks of computers accessible to anyone wanting to request or validate a transaction.
Private blockchains. Private blockchains have access restrictions and usually are governed by one entity. Only people who have permission from the system administrator can join.
Hybrid blockchains or consortiums. Hybrid blockchains or consortiums have both centralized and decentralized features.
Sidechains. Sidechains are blockchains that run parallel to the main chain. They allow users to move digital assets between two different blockchains.

Important features

The most important feature of these technologies is their ability to address these key, interrelated issues:

Auditability. Blockchain will make audits more trustworthy because companies will not be able to change their records. Once a transaction starts, it cannot be undone, changed or stopped.
Security. Blockchain technology produces a secure ledger of transactions. There have been numerous hacks of source codes and personal digital keys, however. In addition, the owner of the digital key is the only person with access to the cryptocurrency it unlocks, so if the key is lost, so is the cryptocurrency in that account.
Trust. The transparency inherent in blockchain technology provides an element of trust, even between parties that are not familiar with each other.

Two ways to prove that a transaction is valid

Public blockchains use consensus mechanisms to validate transactions. Two common ways to validate transactions in a blockchain’s decentralized system are proof of work and proof of stake. At their most basic, PoW and PoS can be described this way:

PoW, the technical term for mining, is based on cryptography. It is the original consensus mechanism. This method uses a lot of electricity (causing environmental concerns) and is slow (causing scalability issues).
PoS, another consensus mechanism, also uses cryptographic algorithms for validation but tries to solve some of these issues by having a chosen validator validate transactions. Validators are chosen based on their stake, or how many coins they hold.

Pros and cons

Blockchain has pros and cons. The pros are that blockchains have increased transparency and transactions can be accurately tracked at a low cost.

The cons concern the unknowns surrounding blockchain technology, such as what the laws governing it will look like, how it will be taxed and how those laws will be implemented. Scalability is another concern. The system’s ability or inability to handle a growing number of transactions can affect its growth. Finally, concern about the effect of mining on the environment is impacting the industry. This is another area in which the industry needs to evolve.

Blockchain and cryptocurrency are still at a relatively early stage of becoming mainstream. Still, their journey has been compared to that of the internet in the late 1990s. It does not seem as if the technology is going away, and business owners need to stay abreast of the way the technology is progressing.

Year-End Tax Planning for Individuals

November 20, 2021 by Mike Jodon CPA CVA

In a time where many Americans have been coping with the overwhelming anxiety surrounded by the COVID-19 pandemic, adding year-end tax planning to the mix can seem downright unfair. While the below items only begin to scratch the surface of the 2021-2022 tax picture, it will hopefully serve as a checklist of items to keep in mind as we approach the New Year.

Charitable Deductions – For the 2020 tax year, a new above-the-line deduction was allowed for up to $300 of charitable cash contributions, even if you claimed the standard deduction on your tax return. The deduction has been extended through 2021, and increased to a $600 limit on a married filing joint (MFJ) return (still $300 for single and married separate filers). In 2020, a cash contribution made by an individual to a qualifying public charity was generally limited to 60% of the individual’s adjusted gross income (AGI) with excess contributions being carried forward up to five tax years. The AGI limit for cash contributions made to qualified charities has been increased to 100% through 2021.

Required Minimum Distributions (RMD) – Seniors were allowed to skip their RMD in 2020 without penalty. However, there is no waiver for the RMD in 2021. Anyone at least 72 years old by the end of 2021 must take an RMD to avoid the 50% penalty (if you turned 72 during 2021, you have until April 2022 to take your first RMD). Taxpayers at least 70 1/2 years old should consider making qualified charitable distributions (QCD) of up to $100,000 per year directly from a non-Roth IRA to a qualified charity to reduce AGI. QCDs count toward RMDs. We suggest that you review your federal and state tax withholdings that are set up with your financial institution. If you have historically not had taxes withheld from your distribution, you may want to consider having taxes withheld or making additional estimated payments by January 15, 2022 depending on your 2021 estimated taxable income. We are prepared to assist you with your year-end tax planning.

Child Tax Credit (CTC) – For eligible taxpayers in 2021, the CTC was increased and became fully refundable. Previously, taxpayers could only claim $2,000 per child under 17, and the credit was reduced as AGI went over $200,000 ($400,000 for MFJ). Only $1,400 of the credit was refundable. The American Rescue Plan Act (ARPA) increased the credit to $3,000 per child and $3,600 per child under 6. The credit is now fully refundable for all children 17 and under. The enhanced credit under ARPA phases out for those with AGI over $75,000 ($150,000 MFJ), and for taxpayers over those limits, the old CTC of $2,000 per child applies. The ARPA also called for 50% of the credit to be paid in advance for the expected 2021 CTC, based on 2020 income tax filings. These payments are spread evenly from July through December 2021. When providing your 2021 tax information, please confirm the amount of your advanced CTC.

Recovery Rebate Credit (3rd Stimulus Payment) – Earlier in 2021, the federal government issued the third round of stimulus checks for up to $1,400 ($2,800 MFJ) plus $1,400 for each qualifying dependent. When filing your 2021 return, you will need to provide the amount of your third stimulus check to determine how much of the recovery rebate is available. Similar to your 2020 return, a “true-up” calculation will be done with your 2021 return if you were eligible for more than you actually received.

Social Security Tax – Self-employed individuals and household employers who deferred half of their Social Security taxes for the 2020 year must repay half by December 31, 2021. The remainder is due by December 31, 2022. The repayment should be made with a separate tax payment and noted that is for “deferred Social Security tax” to be correctly applied. The Social Security Administration has also recently announced that the wage base for computing Social Security tax will increase to $147,000 for 2022 (up from $142,800 in 2021). Wages and self-employment income above this threshold are not subject to Social Security tax.

Cryptocurrency Transactions – The evolution of virtual currency continues on a daily basis, and the IRS is continuing to monitor these virtual assets. As virtual currency grows in popularity, the IRS is expanding its examination of these assets and transactions. If investing in these virtual assets is something you are involved in, the emphasis continues to be on record-keeping to ensure you are meeting any reporting requirements.

Advising Business Owners During Volatile Economic Times

The Impact of Virtual Currency on Income Tax Reporting

Capital Gains and Home Sales

Overview of Blockchain and Cryptocurrency

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