Archives for March 2022

What about the fees that crypto traders sometimes incur when they buy or sell digital assets on exchanges or other platforms? Can that reduce your taxable gains?

So let’s say I’m buying Bitcoin on Coinbase. Coinbase charges me, let’s say, a 3 percent fee. That fee can be added to my basis of the asset that I purchased. If I purchased $100 worth of Bitcoin but I also pay this $3 fee, now my basis in that Bitcoin is actually $103. When I turn around and sell it, that is advantageous for me: I’m not incurring as much gain, because my basis is higher.

What are the questions that you hear about most?

A lot of people ask, “Hey, this is only taxable once I cash out to fiat, right?” And the reality is, “No.”

When you’re disposing of assets, whether or not you actually come back to U.S. dollars, you can still incur a tax bill.

So even if I use my Bitcoin to buy another cryptocurrency like Ether, I can still be taxed on any gains I’ve seen from my initial investment?

Let’s say you buy Ethereum on Coinbase for $1,000, and you hold that for a few months and it rips — it’s at $2,000 now. You sell it to buy stable coins, or Bitcoin. If it was at $1,000 at the time you bought it, you’ve realized $1,000 in capital gains

What about evading taxes? Are there already tax lawyers specializing in cryptoshelters — or whatever it would be in the blockchain world?

There are a lot of tax lawyers who have carved a niche out into the digital asset world. And a lot of those folks can definitely help from a tax planning and tax avoidance perspective. No one we work with is helping with tax evasion — that’s illegal. But there’s a lot of smart people who can help you reduce your taxes through proper planning.

Do you have any sense of the overall tax compliance rate?

In our survey, we found that over 50 percent of crypto investors were reporting their digital asset activity on their taxes. And we’ll see the number continue to drastically go up in the years to come.

Article source: https://www.nytimes.com/2022/03/26/your-money/taxes-crypto-nfts.html

The current high rate of inflation will help some Medicare enrollees avoid surcharges, since the bracket definitions are adjusted annually for inflation. “It does look like we’ll have fewer people paying the surcharges,” said Ron Mastrogiovanni, chief executive of HealthView Services, a Boston-area maker of health care cost-projection software.

The two-year lag effect can create unpleasant surprises when you first enroll in Medicare. It is possible to appeal premium surcharges if your income declined owing to any one of a number of defined “life-changing” circumstances — and one of those is stopping work. File your appeal using Form SSA-44 from the Social Security Administration.

State taxes

Many states exempt retirement income, although the specifics vary widely. Eight states have no personal income tax, but among those that do, about three-quarters fully exempt Social Security benefits from taxation, and most others have partial exemptions for lower-income retirees, according to research by the Institute on Taxation and Economic Policy, a nonpartisan nonprofit group. Many states also have partial or full exemptions for pension income, and extra personal exemptions or reductions.

“It’s very common for some part of pension income to be exempted at the state level,” said Aidan Davis, the group’s acting state policy director. “And we’re seeing a major trend this year with more states cutting taxes for retirees,” she added.

Strategies for tax efficiency

Careful planning before retirement can help minimize or even avoid some of the knock-on effects that taxes on Social Security and Medicare surcharges can create. The objective is to reduce taxable income wherever possible by diversifying your holdings outside tax-deferred accounts.

Saving for retirement in a Roth I.R.A., or a Roth 401(k) offers one path to achieve this goal, as can Roth conversions, especially in the early years of retirement before you claim Social Security.

For workers enrolled in high-deductible health insurance plans, a Health Savings Account can help. These accounts can be used to pay out-of-pocket health care costs in retirement; contributions are tax-deductible, and investment growth and interest are tax-exempt, as are withdrawals spent on qualified medical expenses. Contributions to these accounts generally must stop six months before your Medicare enrollment becomes effective.

Article source: https://www.nytimes.com/2022/03/25/business/retirement-taxes-social-security.html

There are steps you can take, however, to reduce the amount of your gain that is taxable.

First, you can subtract costs associated with the sale of the house, like real estate commissions and transfer and appraisal fees.

You can also increase your “basis” — the dollar amount on which the gain is based — by adding to your purchase price the cost of any improvements made to your home over the years. The improvements must be projects that add to the value of the house and extend its useful life. Replacing the pipes in your house would qualify, but swapping out a shower head would not, said Michael Durant, a senior accountant at Prager Metis in Manhattan.

If you added a room, remodeled your kitchen or replaced a roof, all those costs can be added to your basis, which helps to shrink your gain and the associated tax, said Isabel Barrow, director of financial planning at Edelman Financial Engines, a financial planning and wealth management firm.

Ms. Barrow suggested that homeowners maintain a spreadsheet showing the date and cost of any improvements. Homeowners should save receipts, invoices and design plans to justify an increase in their property’s basis.

Here’s how it could work, continuing with the hypothetical single seller who exceeds the $250,000 cap by $50,000. Say you paid a 6 percent real estate commission ($36,000). You would subtract that from the selling price, reducing it to $564,000. Perhaps you spent $15,000 to upgrade a bathroom; you would add that to the price you paid for your home, raising your basis to $315,000. The gain would then be $249,000 ($564,000 minus $315,000), below the exclusion for a single filer — so you’d owe no tax.

Most people who have lived in a home for a long period have made significant improvements, whether it’s building a swimming pool, installing blinds or adding a generator, said Melanie Lauridsen, senior manager of I.R.S. advocacy and relations with the American Institute of Certified Public Accountants. The improvements count, she said, “even if you paid for it a long time ago.”

If you don’t qualify for the full exclusion, there are exceptions that may make you eligible for at least part of it. Say you bought a home but have to sell it within two years because of a job relocation, an illness or disability, or another unforeseen event that forces a move. You may be able to claim a partial exclusion. The I.R.S. provides a worksheet, but it’s best to get professional advice to make sure you get the details right, Ms. Barrow said.

Article source: https://www.nytimes.com/2022/03/25/your-money/home-sale-tax.html

Other fund vehicles hold crypto directly, but they’re grappling with different structural problems and carry higher fees, which are a drag on returns.

Grayscale Bitcoin Trust, the largest Bitcoin vehicle, with $27 billion in assets, costs 2 percent and trades on the “over the counter” market. But these trusts don’t have the flexibility of regular mutual funds and E.T.F.s to balance supply and demand, so their share prices may deviate from Bitcoin’s price. Another provider, Osprey Bitcoin Trust, became available (for a fraction of Grayscale’s cost) in February, but it faces the same challenges.

Grayscale, Bitwise and other providers have said converting to an E.T.F. structure would solve these problems, but they haven’t received the green light from regulators, who worry that the underlying coins may be subject to manipulation and fraud. (E.T.F.s that hold actual coins do exist elsewhere, though — the Fidelity Advantage Bitcoin E.T.F., for example, is available in Canada.)

Investors seeking professional guidance may find that more financial advisers now have firsthand cryptocurrency experience — some of which may be driven by an effort to educate themselves and field questions with more confidence. About 47 percent of advisers reported owning crypto assets in 2021, according to the Bitwise/ETF Trends survey, which polled 619 advisers. That was nearly double the result the previous year.

One adviser, Ritholtz Wealth Management, has gone as far as introducing, with partners, a crypto-related index providing broad exposure for its clients through a separately managed account. It charges 0.50 percent annually, and has a sign-up fee of 0.70 percent.

Crypto is “hard to ignore at this point,” said Michael Batnick, Ritholtz’s director of research.

Cristina Guglielmetti, a financial adviser in Brooklyn, called the vast majority of her clients “prime crypto-curious”: “mid-40s, familiar with tech/pop culture — it’s all around them.” She tries to understand why they want crypto, while making sure they’re aware of its place in their investment mix.

“Are we putting off other goals so you can do this?” she said. “Or have we handled everything else that needs handling, and now you’re in a good place to be doing more speculative things?”

That makes cryptocurrencies just like any other boom-or-bust investment, Ms. Guglielmetti said.

“We just have to understand what role it’s playing for you,” she said. “Having some fun and exploring new things is a perfectly valid role.”

Article source: https://www.nytimes.com/2022/03/24/your-money/bitcoin-investing-cryptocurrency.html