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National Tax Resolution Blog

Congress introduces new bill regarding digital currency

As digital currency is not the same as real currency, taxing of digital currency transactions is complex. Since digital currency can go up and down in value, exchanges and sales of digital currency trigger capital gains tax treatment.

Because the price of digital currency has gone up dramatically in recent months, Congress is hoping to simplify the reporting process. If passed into law, a bill called “The CryptoCurrency Tax Fairness Act” would create an exemption for digital currency transactions of less than $600.

FATCA requirements and foreign insurers

Passed in 2010, the Foreign Accounts Tax Compliance Act (FATCA) continues to be controversial. FATCA requires specific foreign financial institutions to report on assets belonging to American citizens. Reporting under FATCA is complicated. And the consequences for noncompliance with FATCA are severe.

Some assume FATCA concerns mainly bank reporting. However, Department of Justice officials have been using FATCA to request information from foreign insurance companies also.

Congressional bill designed to curb IRS abuses

There have been a large number of complaints from farmers and business owners facing unjust IRS prosecution. Such complaints involve the IRS accusing farmers and small business owners of making transactions under $10,000 to avoid the Bank Secrecy Act rules.

In response to such complaints, the U.S. House of Representatives recently passed the Clyde-Hirsch-Sowers RESPECT Act. This bill’s aim is to curb the power of the IRS to seize personal property. If this bill was to become law, it would prevent the IRS from using civil asset forfeitures to seize property from taxpayers.

FATCA challenge may move to the Supreme Court

Congress passed the Foreign Account Tax Compliance Act (FATCA) with the idea of collecting more tax revenues from U.S. citizens living outside of the country. By implementing a series of complex reporting requirements on foreign financial institutions, authorities were hoping to identify accounts and assets belonging to such individuals.

FATCA has faced a great deal of opposition, however. Not all taxpayers or financial institutions understand the reporting requirements. Also, penalties for not reporting offshore assets are severe.

Tax breaks for those searching for jobs

Individuals owing back taxes often are dealing with other issues as well. Many times Michigan taxpayers who owe the most to the IRS also are unemployed or underemployed. Such people have enough problems simply paying the bills and keeping their families fed – let alone having to deal with tax obligations.

Fortunately for those who are looking for work, the IRS allows for certain job-hunting expenses to be deductible. Such expenses may be deductible, even if the taxpayer is unable to locate a new job.

Proposals could mean certain tax write-offs will vanish

Changes to the tax code that some politicians propose could actually hurt many individual taxpayers. This is because simplification of the tax code could eliminate a large number of tax write-offs. Such changes in turn could eliminate incentives to itemize deductions on tax forms.

Currently, approximately 30 million Americans reduce their taxable income through the mortgage interest. Such deductions total around $70 billion. However, under proposed rules, over half of all homeowners would discontinue itemization concerning the mortgage deduction.

Penalties due to underreporting of estimated taxes

Most tax reporting that does not comply with IRS regulations will result in penalties. Yet because there are so many forms to fill out and procedures to follow, Michigan taxpayers may not even understand the requirements to follow.

In recent years, the IRS has been penalizing taxpayers for underpayment of estimated taxes. Under federal and state laws, many taxpayers need to make quarterly estimated tax payments. This requirement especially applies for self-employed individuals and employees whose wages are not subject to withholding. It can also apply to salaried and hourly employees who made additional amounts of money not subject to withholding.

Alimony payments and tax deductions

Seemingly straightforward tax deductions may prove to be not so simple when it comes to tax reporting. For example, as a Michigan resident it is allowable to deduct alimony payments from your taxable income. Yet as easy as this may sound, there are a number of federal requirements one must follow before taking such a deduction.

As alimony is an above-the-line deduction, it does not require itemization. However, for the payer of the alimony to deduct payments, the recipient of the alimony must report such payments as income. If the deduction on the payer’s return does not match up with the reporting of income on the recipient’s return, there are chances that both the payer and recipient may face an IRS audit.

The risky streamlined filing procedure for foreign accounts

When you as a Michigan resident have combined balances of foreign accounts exceed $10,000, you will need to file a disclosure statement with tax authorities. Failure to do so could result in tax evasion charges, and this can bring with it criminal penalties.

However, in 2009 the IRS began offering opportunities to disclose this unreported foreign account information with the promise of reduced penalties. The IRS then offered the offshore voluntary disclosure program (OVDP).

Tax deductions due to losses from disaster

Should you as a Michigan resident suffer damage to property due to a storm, there may be ways to deduct such losses on your tax returns. However, this is not always a simple matter. The IRS warns that to be available such deductions must be major and not covered by other reimbursement such as insurance.

According to an IRS bulletin, the full amount of such losses generally is not deductible. There must be a connection to such loss and an event or casualty. It must also involve some sort of unexpected or unusual event like a fire, tornado or flood.

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