The Cryptocurrency Revolution and Bitcoin Tax Reporting

Before You Join The Cryptocurrency Revolution, Make Sure You Know How To Report and Pay the Taxes on These Transactions. The IRS Is Looking For You.

 

Earlier this year, the IRS issued a news release IR-2018-71, March 23, 2018 reminding taxpayers to properly report transactions involving virtual or cryptocurrency such as Bitcoin.  For tax purposes, virtual currency is treated as property, not money.  This means when you buy and sell virtual currency or use virtual currency to buy things, it is a taxable transaction on which you can recognize a gain or loss and pay tax.

More recently, the IRS Large Business and International Division announced a new virtual currency compliance campaign However, blockchain technology and cryptocurrency have grown in both popularity and complexity far faster than the IRS and other agencies can react.

IRS Notice 2014-21 ,the only significant guidance on how to properly report virtual currency transactions is roughly four years old and as the senior counsel at the Treasury’s Office of Tax Policy admits, the IRS did not consider some very significant gray areas in 2014, because they just didn’t exist.  “Hard forks” in which there is a change to the software of a digital currency that creates separate versions of the blockchain and “initial coin offerings,” similar in concept to an initial public offering of stock were unheard of at the time.  See, Treasury May Answer Some Crypto Tax Questions Soon:

Official (1), Tax Management Weekly Report (BNA), 07/02/18.

Tax practitioners have expressed their concerns that the IRS is cracking down on cryptocurrencies while little or no guidance is available on many reporting issues, such as whether an exchange of one cryptocurrency for another qualifies as a like kind exchange. See, Guidance Lacking as IRS Launches New Crypto Auditing Campaign, Accounting Policy & Practice Report (BNA), 07/06/18.

Despite a lack of guidance on several significant reporting aspects of cryptocurrency transactions, the IRS is, nevertheless, initiating a new “compliance” campaign to ensure it collects all taxes it believes are currently going unreported.  Therefore, if you are trading or using Bitcoin or other digital currency, consult with a tax professional to make sure you are complying with what little guidance is currently available.  Welcome to the revolution!

 

The following article was first seen on The Cryptocurrency Revolution and Bitcoin Tax Reporting and is available on Stephen P Stewart Law. Read more on:} Stephen P Stewart Law's website

Planning Your Digital Estate

How To Preserve and Protect Your Digital Assets

 What is your digital estate? 

Did you know that you have a digital estate?  You may think you don’t, but if you are reading this blog you probably do.  What is your digital estate?  Similar to your “traditional” estate, your digital estate is comprised of the digital assets you own.  Take a look at the following categories of digital assets:

1. Hardware: computers, external hard drives or flash drives, tablets, smartphones, digital music players, e-readers, digital cameras, and other digital devices that can be used to store date electronically
2. Data: Any information or data that is stored electronically, whether stored online, in the cloud, or on a physical device
3. Online Accounts: email and communications accounts, social media accounts, shopping accounts, money and credit accounts such as PayPal, bank accounts, loyalty rewards accounts, photo and video sharing accounts, video gaming accounts, online storage accounts, and websites and blogs that you may manage, including any content you've posted to those sites, any communication and correspondence made through and stored on those sites, your personal information, credit card information, purchase and browsing history and any credit you may have and the information necessary to access those accounts.
4. Domain names
5. Intellectual property: including copyrighted materials, trademarks, and any code you may have written and own.

How many of these assets do you own?

What happens to your digital estate?

The average American owns 90 online accounts and likely has no idea what happens to these assets when he or she dies.  Do you?  If not, don’t feel bad.  This is a very hard question to answer because the answer depends on several things, including:

1. Federal Law:  The Electronic Communications Privacy Act (“the ECPA”), as amended, specifically, 18 U.S.C. §2702 The ECPA governs the voluntary disclosure of stored electronic content to third parties other than the owner by custodians of the electronic content.  The rules are complex and there are different standards and requirements depending on, among other things, the nature of stored data and whether the account holder was the recipient or sender of the electronic communication.

2. State Law – The North Carolina Revised Uniform Fiduciary Access to Digital Assets Act (“the NC Act”) The NC Act prescribes rules and procedures by which fiduciaries such as executors and agents under powers of attorney may access stored electronic communications and content within the limits and rules prescribed by the ECPA.  The NC Act also addresses the interaction between the terms of the service agreement with the custodian and the provisions of the NC Act and where the law may override provisions of the applicable terms of service.

3. The Terms of Service Agreement for each online account, such as Facebook, Google, and Yahoo!, have specific procedures for handling your account upon your incapacity or death and vary greatly in their flexibility, ease of use and degree of access granted to third parties, such as executors and agents under powers of attorney. For example, Google provides an Inactive Account Manager tool which allows you to designate persons to receive notice and/or access your stored content after a specified period of inactivity.  You can also direct that the stored content be deleted.  Other providers such as Apple and Yahoo provide that neither the account nor the stored content is transferrable at death.  Rather, the account will be closed and the content deleted once they are notified of the death of the account holder.

How do you plan for your digital estate?

Having established that (1) you have a digital estate; and (2) the rules governing your digital estate are complex, what do you do?

1. List all of your digital assets and how to access each and every one.
2. Decide what you want done with each digital asset you own, including whether they should be deleted, archived, or transferred to specific persons, such as family members or business partners.
3. Determine who you want to be responsible for managing and transferring your digital estate.
4. Determine what will be required to transfer, close, delete or otherwise manage your digital assets in each account. You should also provide for access to all devices such as computers, tablets and smartphones on which digital content is stored.
5. Consult with a qualified estate planning professional to formalize your digital estate plan and/or coordinate it with your traditional estate plan. In order to take advantage of some of the protections offered by state law such as the NC Act, you must include specific language in a will, trust, power of attorney or other document.  TIP:  Do not include usernames and passwords in a will, power of attorney or other document that may become part of the public record.
6. Store this information in a secure, but accessible place.
7. Review and update this information regularly.

In order to ensure that your digital assets are properly managed and preserved in the event of your incapacity or death, you need to make special advanced arrangements so your executor, trustee or agent will know what to do and will have the legal authority to do it.  If you fail to properly plan for your digital estate, your loved ones will have a difficult time accessing your digital assets and, in some cases, access to accounts will be terminated and all digital content lost.  Be proactive.  Plan now.  Get help.

If you need help planning your digital estate, please call me.

The following article was first published to Planning Your Digital Estate and is courtesy of Stephen P Stewart Law. Find more on:} Stephen P Stewart Law

Joint Ownership of Real Estate and the Law of Unintended Consequences

Joint ownership of real estate is often a substitute for or a result of estate planning.  Typically, people either create joint tenancies during their lives with children and other heirs as a means to pass title to the real estate without the necessity of a will; or they create joint tenancies by giving a blanket gift to a class of beneficiaries.  For example, “I give all of my property in equal shares to my children,” when used in a will creates a joint tenancy among the children in all of the deceased parent’s property.  Unfortunately, joint ownership often has unintended, unexpected and undesirable consequences in either context.

For purposes of this discussion, I will be dealing only with joint tenancies with individuals other than a spouse.  A joint tenancy between husband and wife is called a tenancy by the entirety and it has certain characteristics and benefits not available to other joint tenancies.

Joint Tenancies Created with Others During Life

There are several potential problems that may arise when you create joint tenancies with others:

1. You lose control of the property. Generally, in order to sell or refinance jointly owned property, you must have the consent of all of the owners.  When you give away a joint interest in property, you give away the ability to sell or refinance the property without the consent of others.  A joint tenant may simply disagree, or he or she may become incapacitated and unable to agree.  In that case, a guardian or conservator would have to be appointed and he or she may determine that selling or refinancing is not in the joint tenant’s best interest.

It gets better.  Joint tenants each own an undivided interest in the whole property, not a designated portion of the property.  Recognizing joint tenants may not always agree on how to use the property, the law grants joint tenants a right of partition, meaning they can have the property physically divided into shares or, if that is not practical, say in the case of a house or building, they can have the property sold and the proceeds of the sale divided according to each joint tenants respective interest.

We are not done, yet.  A joint tenant may sell his or her undivided interest in your property (now, their property, too) to an unrelated third party who will also have the right to partition the property.

2. Their creditor problems become yours. If a creditor has a judgment against a joint tenant, the creditor can execute upon and attach the joint tenant’s interest in the property and force the division or sale of the property through a partition proceeding in order to satisfy the judgment against the joint tenant.
3. You might trigger unnecessary capital gains taxes. If you create a joint interest in real estate as a way to pass the property to your heirs, you may create unnecessary capital gains taxes for them.  Currently, the first $11,000,000 in property is exempted from the federal gift and estate tax.  North Carolina abolished its gift and estate taxes.  Most individuals will, therefore, not pay any gift or estate tax regardless of when they give their property to their heirs.  However, the timing of the gift could make a big difference on how much capital gains tax your heirs pay.

When you give property away during life, the recipient of the gift also receives your cost basis in the gift for purposes of calculating his or her capital gain on sale.  When you give property away at death, the cost basis is adjusted (usually upward) to the fair market value at the date of death.  Giving away property during life usually results in heirs paying more in capital gains taxes than receiving the property at death.

Joint Tenancies Created at Death

Joint tenancies are created at death through the language in a will or by the default statutory rules in effect when one dies without a will the Intestate Succession Act.  Whether by will or by intestacy, joint tenancies created at death, with the exception of increased capital gains, have all of the same problems as joint tenancies created during life, plus a few more unexpected wrinkles.

1. Gifts to Minors. If you give all of your property to your children and one or more is still a minor, your heirs will incur a great deal of difficulty and expense in attempting any sale of the property.  The minor cannot consent to the sale, so a guardian must be appointed to represent the minor’s interests with respect to the property.  Further, a guardian cannot consent to the sale of the minor’s interest in real property without court approval, thus requiring two separate court proceedings to appoint the guardian and approve the sale.  If there are multiple properties, the guardian, once appointed will have to petition the court each time a piece of property is sold.
2. Gifts to Charities. Giving a fraction or a percentage of your estate to your church or another worthy cause is a wonderful, noble gesture.  However, if not done properly, such gifts may result in the creation of a joint tenancy among your individual heirs and the charity.  In order to sell the property, your heirs will need the consent of the charity.  Most charities are organized as nonprofit corporations.  Corporations act through their officers and directors, meaning your heirs will have to contact the officers of the corporation who then must present the terms of any offer or sale to the directors of the corporation for a vote on whether to approve or disapprove the sale.  As with minor joint tenants, charitable joint tenants usually mean more time and more expense.

So what can you do? These decisions are too important and complex to be left to chance. Consult a law firm that specializes in estate planning. A good lawyer will help you decide the best way to manage your property to meet your needs and goals during life and how to best structure your estate to comply with your wishes and reduce the costs and expenses to your heirs at your death.  Please call or email me to discuss your goals and how best to achieve them.

The following blog post was first published on Joint Ownership of Real Estate and the Law of Unintended Consequences and is republished from Stephen P Stewart Law. See more on:} https://ift.tt/2MQpvQA

Estate Planning Basics

Estate planning can be overwhelming for anyone not familiar with this particular area of law. All that one actually needs to be fairly familiar with the entire legal niche are a few basic concepts. Once familiar with these concepts, you will have a better understanding as to what your estate plan should consist of.

Estate planning covers crucial elements that can be applied to the many stages in an individuals life. Some key decisions that estate planning covers are retirement, social security, property distribution after death, long-term care, Medicaid,  and asset protection among many other things. What items should one be familiar with before they begin preparing their estate plan? Here is a short list to better understand how to prepare properly:

Last Will and Testament: Everyone is familiar with a will. It is a document you prepare that states how your property should be distributed after you pass away. You choose an executor in the will which is a person who will manage your property after your passing. You also appoint a guardian in your will in the event you have a minor child or an individual who is mentally changed that was under your care.

Trust: Trusts come in many forms. You have revocable and irrevocable trusts which are the two main categories. Think of a trust as a company that holds onto your assets. This bank has what is called a trustee which is the individual who manages the assets. Based on how the trust is stipulated, the trustee acts accordingly and distributes the funds of the trust as directed. With a irrevocable trust you no longer own the property which helps you save on estate tax. A trust is also a great way to avoid probate. Probate is unavoidable when you have a will in place.

Durable Power of Attorney: People can sometimes be unavailable to handle their financial affairs either because of logistics in traveling or sickness. We take for granted the day to day things we are able to do like pay our bills, go to the bank, close on real estate transactions, and many other things. If you are unable to do any of these actions because of a disability but need them to be done, consider preparing a Durable Power of Attorney. This document appoints an individual to do said actions for you. We outline the exact limitations to what they can and cannot do.

Living Will: Although you see the keyword will, this document is completely different from a a last will and testament. This document stipulates what should take place during a situation where you fall into a coma. You decide ahead of time in a living will on whether or not you should be kept on life support.

Guardianship: You can appoint a guardian to watch over a minor child or an individual who is mentally impaired. As the guardian, you would be paying their bills, admitting them to an institution, and taking care of their day to day needs.

This is just a short list of what is available to you. We do recommend you get in touch with an estate lawyer to better direct you on what exact tool would best suit your personal situation.

Article Source: Estate Planning Basics