IRS tax deductions

Congress Mulls Extending Tax Deductions

Congress Considers Extending Tax Deductions

IRS tax deductions
Bringing your deductions back

There have been significant recent efforts in Congress to renew tax extenders which expired at the end of 2013. All indications are that these provisions will likely be retroactively reinstated to January 1, 2014. The bills should be finalized by no later than November after the mid-term elections.

Key extended tax deductions would include:

· Above-the-line deduction of up to $250 for expenses of elementary and secondary school teachers

· Exclusion from income for mortgage debt forgiveness on primary residence

· Deduction for mortgage insurance premiums

· Deduction for state and local general sales taxes

· Above-the-line deduction for higher education expenses (Tuition & Fees Deduction)

· Tax-free distributions that go directly from Individual Retirement Accounts (IRA’s) to charitable organizations

· 10% credit for purchases (up to $500) of energy efficient improvements to existing homes
Business Provisions

· Research and experimentation tax credit

· 50% bonus depreciation on purchases of new equipment and fixed assets (with special rules for vehicles)

· Increased section 179 expensing limits ($500,000) (Currently only $25,000).

Not surprisingly these are among the most popular of the tax deductions that benefit both businesses and individuals.

Stay posted.

Ari Good, JD LL.M. is a Miami tax attorney advising clients in income tax, employment tax, aviation tax, entertainment tax and IRS tax law issues.  A top tax attorney in Miami, Mr. Good fights the IRS and Florida Department of Revenue in tax litigation and tax negotiation matters.

Call me now: (786) 235-8371

Bitcoin

Bitcoins Are Property, Sayeth The IRS

Bitcoin
IRS says Bitcoins are property

IRS States Bitcoins Are Property

So the IRS has issued a Notice on the virtual currency known as Bitcoin:  It’s not a currency, it’s property. Jolly good, you say, so what? Well, that decision has some major tax implications for the future of what adherents will insist is a virtual currency, or “cryptocurrency”.  That has a number of important tax considerations, but for the uninitiated let’s start with the basics, that is, what the heck is Bitcoin?

For these purposes let’s ignore the IRS and grant Bitcoin respect as a “virtual currency”, that is, a medium of exchange, something intangible asset that people can trade for other goods or services (or, other Bitcoins). It owes its existence to computer programmer Satoshi Nakamoto, who created the algorithms related to Bitcoin in and around 2009.  It has no tangible existence – one cannot carry a Bitcoin in one’s wallet – but rather depends upon two types of technology for its existence:  “peer to peer networking” and “public key encryption”.  If you find the technical stuff boring, skip down to “Bitcoins Are Property” below.

Bitcoin Technology

Peer to peer communication is, put simply, stuff that lots and lots of different people on lots and lots of computers do in a “distributed” or decentralized manner, that is, there is no single computer or person that controls what goes on.  Napster was one of the first and best known peer to peer networks for sharing music.  Millions of different people had songs on their computers.  These people used Napster’s software, which you could download onto your computer for free, to share the files over the internet with anyone else also running Napster.

No one was in charge – you simple stood up to be recognized as a “node” on the Napster network, sort of like establishing your own bus stop along a busy route.  Then you shared what you had in the same way as you might conduct a pot luck dinner at your local church.  The church opens its doors, provides the meeting space (and perhaps one of those big silver coffee makers), and everyone brings their own dishes to share.  There are rules:  clean up after yourself, don’t show up empty handed, but otherwise no one is in charge of the event.  Simple.

Then there’s part two – public key encryption. The deep specifics of this system are beyond the scope of this article (and my comprehension), but in simplest terms PKI is a system by which people can share information securely using a “public” key, an external reference that functions a bit like a PO Box, combined with each user’s “private” key, like the key to that box. You send someone a private letter by referencing their PO Box (which is public), but only the owner can open (or “decrypt”, in the computer world) the letter by using their private key.

These technologies are critical to Bitcoin in that its creators needed a system that allowed them to be traded and exchanged using a decentralized (peer-to-peer) secure (PKI-based) system. When Mr. Nakamoto created his alogrithm he set a finite limit on the number of Bitcoins that will ever exist: 21 million. There are currently around 12 million in circulation, with about 9 million more to be discovered. They are created just as virtually as they are traded: anyone so inclined, and with the computer resources and knowledge to do it, can “mine” Bitcoins by verifying existing Bitcoin transactions. The miners get a commission, in essence, for adding value to the entire virtual monetary world.  So, whether you bought your Bitcoins, received them in exchange for goods or services, or mined them you have created or received something of value.

Bretton Woods participants
Tea time at Bretton Woods

What is Currency?

In addition to technology what makes up a currency is, put simply, that people think its a currency, or a “medium of exchange”.  If I give you a dollar for a lollipop there’s an immediate understanding that what I am giving you has some intrinsic, quantifiable value (that is, a dollar is worth, surprisingly, $1), that the dollar has an equivalent value in goods or services (lollipops), and that the recipient of my dollar can reuse it to exchange for something else that he might want (say, balloons).  This latter part is important.  Part of what makes a currency a currency is not only what the original two transacting parties think (our agreement to exchange dollar for lollipop), but that everyone else understands that what both of the parties got has some measurable value.  In monetary terms the dollar is therefore not only our “medium of exchange”, but is also recognized as “legal tender” for the transaction.  Who decides what is “legal tender”?  The simple answer is the government, in part because of the United States Constitution and in part under policies that have evolved over the years.   For a fascinating history on what makes money what is it (and who gets to decide that) read up on the exceptional Heritage website.

IRS Rules Bitcoins Are Property

As the use (and trading) of Bitcoins has grown so has the government’s interest in them.  Part of why the IRS would care involves whether someone has “acceded to wealth” when they create, sell or exchange a Bitcoin.  In other words, has someone to the transaction gotten richer by dealing in Bitcoins rather than a “true” currency?  It is a longstanding principle of tax law that such accessions to wealth are “income” which might be taxable to the recipient.  I have acceded to wealth, for example, if someone gives me a dollar (for nothing in return), a share of stock or a piece of real estate

Having looked at the issue the IRS came down to the conclusion that Bitcoins are property, not a “currency”.  In so doing the US government made using Bitcoin as a medium of exchange much more complicated.  This is because, put simply, you, the Bitcoin user, must now keep track of what you paid for your Bitcoin, where it came from, and whether you have tax consequences when you use it to purchase something.  This is a whole host of worries you never have to deal with when you use a “true” currency.

The Tax Consequences of Using Bitcoins

So what exactly do you have to track and bother with?  The answer, in short, is your “basis”.  Basis is just a word.  It means “what is my investment in this thing”.  If  you paid $10 for a share of stock, that is your basis in it (more technically, your “cost basis”).  If that stock appreciates to $15 and you sell it, you have “acceded to wealth” by $5, on which you pay tax.  So, when it comes to Bitcoins, according to the IRS, go forth and buy, sell and exchange it however you like, however, be sure you track your basis and report your gain (or loss) each time you do it.

This is a huge pain, perhaps by design.  Tracking one’s basis in readily exchangeable, intangible things like stock, or now Bitcoins, is extremely complicated.  Stock brokers use highly sophisticated software that tracks stock transactions, accounting for all of the Byzantine and upside down rules that govern these transactions.  Few, if any, Bitcoin users are prepared for this level of reporting.  Figuring out your gain or loss also assumes that you are able to trace exactly which Bitcoin you purchased to use for your cup of coffee.  This is similarly difficult given that Bitcoins are “tumbled” into “blocks”, that is, virtually sliced and diced so that it is unclear which Bitcoin you got, or who created or received it.  This serves to protect Bitcoin users’ privacy, something the government is viewing with increasing hostility.

Philosophically I am disappointed, though hardly surprised, with this decision.  Our entire banking system, really, the entire global economy is in large part based on the dollar as a medium of exchange.  That serves an important purpose in that it lends predictability to how oil, carrots or lollipops are priced.  There are many “data points”, that is, places to compare, contrast and get an idea of what something should cost.  The downside, however, is that it preserves a government’s monopoly on how you do business.  Again, this is desirable in many ways, but has a dark side:  the government, not you, decides what the currency is worth.  The more currency the government prints, the less it can buy or earn in the form of interest.  You, the buyer, might not see that the dollar you had yesterday is not the dollar you have today, but those who are exchanging their oil, carrots and lollipops do.  Words you hear a lot like “purchasing power” and “inflation” can be tricky to grasp, but are very important to how people live.

What Now?

The matter is not entirely settled.  Changing how things work depends on how good the idea is, how strong are the forces against it and who has more patience.  Congress, not the IRS, has the ultimate constitutional authority to determine what is considered a “true” currency, and in time this may be the case.  Further, the IRS may have done recent Bitcoin purchasers a service.  Where you have gains you can also have losses.  Just as you accede to wealth through appreciated Bitcoins, you can claim a loss when you didn’t buy so well.  As a practical matter, the IRS is entirely unprepared to enforce its new position regarding Bitcoins, as it is unlikely that more than a tiny fraction of this bureaucracy understand them.  So, time will tell.

I want to hear from you!  Should Bitcoin be considered “currency”?  Does the confidentiality of Bitcoin transactions outweigh the risk that they could be used for illicit purposes?  Leave a comment, or contact me for a stimulating discussion over a cup of coffee.

 

Gulfstream Jet Head On Aviation Attorney

Bonus Depreciation For 2015 Aircraft

Bonus Depreciation For 2015 Aircraft

Gulfstream Jet
Bonus depreciation may still apply

I read an interesting article in Aviation Week about the resilience of the market for the largest business jets.  Their resilience as the aircraft of choice for ultra high net worth individuals, governments and corporations is no surprise.  One reason for this were the long production cycles for these aircraft.  New Gulfstream business jets have always been “built to order” and can take a year or more to complete.  The planes on the assembly line during the crash years of 2008-2009 had been on order for some time before, and there was a healthy backlog of others waiting in line at that time.

The tax benefits for these buyers remains as well.  Aircraft bonus depreciation deductions, which have largely been phased out going forward still applies to certain large business aircraft placed in service prior to January 1, 2015.  This can occur in one of two scenarios, first, if the aircraft is considered “long production property”, or second, if the aircraft otherwise met the requirements for 50% bonus depreciation, part of which required that there was a written binding contract in place for the plane prior to 2014.

Contact me for an analysis of your tax savings.

Ari Good, JD LLM, an aviation tax lawyer is the shareholder of Good Attorneys at Law, P.A. He graduated from the DePaul University College of Law in 1997 and obtained his L.L.M. in Taxation from the University of Florida in 2005. He has helped hundreds of clients to defend themselves against the tax authorities and negotiate their liabilities, and worked with aircraft buyers, sellers and operators in complex tax transactions.

Call us at (786) 235-8371 for detailed information.

Racing cars - IRS Fast Track Audit Dispute

IRS Fast Track Dispute Resolution

IRS Institutes Fast Track Dispute Resolution

The IRS announced a new Fast Track Settlement program (“FTS”) allowing self-employed and small business owners to shorten the time it takes to resolve audit disputes.

How To Arbitrate a Tax Dispute

The new FTS program resembles a program that had been available to larger taxpayers (with assets exceeding $10M) for some time.  The program allows small businesses and the self-employed to cut the time it takes to resolve an IRS audit dispute to as few as 60 days in some cases by allowing people to dispute audit findings in arbitration while the audit is still ongoing.  This is a departure from what has been the case to now, which is that the taxpayer had to wait until the audit was over to dispute it.  This process typically meant going to the Appeals division (technically a separate division from the other organs of the IRS), and then, if that didn’t work out, to tax court.  The process could take months, if not years, with penalties and interest accruing on the alleged liability all the while.

Racing cars - IRS Fast Track Audit Dispute
Well, sort of fast

Small business and self-employed taxpayers apply to the FTS program by filing a Form 14017 along with a brief summary of the their position regarding the auditor’s findings.  The IRS then refers the tax audit dispute to an Appeals officer who, as stated, is supposed to act as a neutral third party.

Your Friendly IRS Appeals Officer

Going to Appeals in general, and especially early in the process, has some definite advantages.  First, the Appeals Division represents another “bite of the apple” on the issues presented during the audit.  Audits can be rocky, especially where the taxpayer isn’t responsive to the auditor’s requests, or conversely, where the auditor is overly demanding or intrusive, or fails to explain the process in a meaningful way.  As a practical matter the IRS often takes very aggressive positions at the audit level, leaving them room to negotiate later.  The Appeals officer is not as close to the ground and therefore may serve as a fresh set of eyes on the disputed issues.  Appeals officers can also take certain considerations into account in their analysis, such as whether the IRS faces “hazards of litigation”, that is, whether they would lose if the taxpayer went to court.

This is a welcome change to a difficult process, and levels the playing field for hard working small businesses and individuals facing a very technical and burdensome process.  It takes skill and experience to use these tools, and an experienced tax lawyer can make a major difference in the audit result.

Call us for information on how to use the FTS in your tax audit and how to defend yourself aggressively against the IRS.

Ari Good, JD LLM, a tax, aviation and entertainment lawyer, is the shareholder of Good Attorneys at Law, P.A. He graduated from the DePaul University College of Law in 1997 and obtained his L.L.M. in Taxation from the University of Florida.  He has helped hundreds of clients to defend themselves against the tax authorities and negotiate their liabilities.

Contact us toll free at (877) 771-1131 or by email to info@goodattorneysatlaw.com

Public domain Sherlock Holmes

Sherlock Holmes is (Free) for the Public Domain

Sherlock Holmes in the Public Domain? Elementary My Dear Watson.

A federal judge recently ruled that Sherlock Holmes (and most of his story) belongs to the public. The legendary sleuth first made his appearance in 1887. Author Conan Doyle would go on to publish four novels and 56 stories about Holmes’ exploits until his death in 1930. All but 10 of those stories, notably, were printed before 1923. The judge, in applying U.S. Copyright law, used the 1923 year as the cut-off line for what is, and what isn’t, in the public domain when it comes to Sherlock Holmes. Anything before that year can be used by anyone. Stories after January 1, 1923, are still protected by copyright law, however.

What is the “Public Domain”?

Public domain is the simple concept that, after a certain amount of years, copyrighted work no longer enjoys protection. The public is free to use formerly copyrighted works in any way they choose and don’t have to pay an author, the author’s estate, or a copyright holder. It’s free! Federal law, however, has consistently shifted the goalposts for how long it takes a copyrighted work to enter the public domain.

The first U.S. Copyright Act in 1790 allowed a term of copyright for 14 years, and the author could renew that copyright for 14 more years. By 1909, the copyright term had doubled to 28 years with an option for a 28 year renewal of the original term. Thanks to the Sonny Bono Copyright Term Extension Act of 1998, federal law now authorizes a copyright term that covers the author’s entire life, and then 70 more years after that. A young musician or writer, for example, who publishes work in 2013 when they’re 25, lives until they’re 85, would have that work copyrighted for 130 years (or until 2143).

Why is 1923 Important to U.S. Copyright Law and Public Domain?

Public domain Sherlock Holmes
“We’re in the public domain Holmes?”
“Indubitably.”

January 1, 1923, is a date to know when it comes to copyright law. Works that authors published before this date are in the public domain and not protected by copyright. No exceptions. A complex web of laws and calculations, however, apply to works published after this date to determine whether there is still copyright protection. You can find specific details about those calculations here.

Copyright Law, Sherlock Holmes, and Public Domain.

In a nuanced decision, the federal judge held fast to this sticking point of January 1, 1923. He ruled that the parts of of Sherlock Holmes’ and Dr. Watson’s story published before 1923 are in the public domain. Parts of that story published after that date, including Dr. Watson’s background as an athlete, Dr. Watson’s second wife, and Holmes’ retirement, are still protected by copyright law and owned by Doyle’s family.

The judge rejected arguments that the Sherlock Holmes’ literature was a single story-line that couldn’t be separated before and after 1923. In other words:

1. Doyle’s publication of Sherlock Holmes literature before 1923 does not make the entire story-line public domain (Sherlock Holmes publications after Jan. 1, 1923).

2. Likewise, Doyle’s publication of Sherlock Holmes literature after Jan. 1, 1923, does not make the entire story-line protected by copyright (Sherlock Holmes publications before 1923).

This case proves that public domain domain and the term of copyright are still important issues for authors, artists, musicians and other creative types. If you have any questions on this topic, feel free to ask.

Ari Good, JD LLM, a tax, aviation and entertainment lawyer, is the shareholder of Good Attorneys at Law, P.A. He graduated from the DePaul University College of Law in 1997 and obtained his L.L.M. in Taxation from the University of Florida.

Contact us toll free at (877) 771-1131 or by email to info@goodattorneysatlaw.com

Image by timofeia