Q&A: April 18 marks the end of tax filing. Experts answer Nevadans' taxing questions
Twelve days from now, you need to file your tax forms. Most of you will get a refund — the number changes, but the IRS says about 75% of tax filers got a refund in 2020.
But even if you do the EZ form, or you use some supposedly easy online program, the whole process is fraught with anxiety.
People with many properties and holdings will hire someone. Others are in between EZ and that — they have a rental property, they have their own small business, they’ve been buying and selling stocks.
In that situation, doing taxes by yourself can almost make you catatonic—afraid not to do something but too afraid to move forward.
But rest easy. If you have questions, we have two people with answers.
Raphael Tulino is a spokesman for IRS, and Todd Cox is a Las Vegas certified public accountant and a former gaming control board agent.
This transcript has been edited for clarification.
JOE SCHOENMANN: With days left, who should go to somebody like you and who should be up all night wearing a green visor in front of one of those adding machines with a slot machine arms?
TODD COX: There is a lot of complexity in the in the tax season this year. Thank goodness, the complexities have gone down a little bit from last year. But you know, there's the vast Child Tax Credit going on out there. Everybody needs to put that on form 88-12 If you got it. If there's the stimulus payments, if you missed the stimulus payments or, if there's all kinds of dislocations with the stimulus payments. Even if you have just a simple tax return with just a W-2, and no itemized deductions, you're just going to take the standard deduction, you might still want to look at getting a tax return preparer to help you prepare your tax return just to make sure that you file it right. If you file your tax return wrong, and you don't properly include your advanced Child Tax Credit, right, the IRS is going to send you a notice, immediately reject your return, then they'll hold up your refund until you get that fixed and handled properly.
How do I can contact the IRS? I have questions about an audit. It seems like they're understaffed because I'm having a hard time talking to someone.
RAPHAEL TULINO: He is kind of stating the truth. To be quite honest, contacting this agency is not easy, it hasn't been easy because of resources using the search. So we have been saying to try irs.gov as much as you possibly can to get answers, anything that has a task based kind of a part to it such as, you know, logging into your account or getting an EIN or checking on the status of your refund or filing and checking out free tax filing and all that from us is the best way to go.
This Saturday, at the Las Vegas office, we will be open the office will be open from 9 a.m. to 4 p.m. And that is for tax help, free tax help. It's not tax preparation, but it is tax assistance. If you need help in any way, shape, or form. You don't need an appointment, which you normally do to go to an IRS office.
If you do get a notice from the IRS. There is a number on there to call. And from what I understand that number is inundated as well. So we're asking for up not begging for patients in terms of trying to get through to this agency to get help you need and and we'll see where things go. But that's kind of where the status is and has been the last couple of years.
A couple of years ago, I got into options trading, and I did well enough to get into it more, which was a mistake. And I have a bit of a loss. And I just had a question on Schedule D. You can deduct, I think it's up to $3,000 a year off your balances. My question is, when you're done with the short term losses on the top of the part one of Schedule D, can you deduct the long term losses on the bottom? Or do they just allow you the short term losses?
COX: The way you should do it is you should come up with the overall -- you should net them together. For your losses, you can keep the losses separate, and then you just keep deducting them in $3,000 increments every year. You can net it against any capital gains you got. So, 2021 was a pretty good year, and a lot of people have capital gains. If you have any capital gains that you otherwise would be reporting, you can offset that those losses that you're carrying forward against those, you want to net out the long term with the long term and the short term with the short term, and then carry it forward.
TULINO: The instructions for form Schedule D might help you there's instructions there. It'll tell you what to do.
SCHOENMANN: If you make money on crypto, it's stored in the cloud. It's not in a bank where there's a statement that shows the amount which can be taxed. So how does the IRS know if someone is making money on crypto or do they know?
TULINO: Well, they do and on the form 1040, there's a question there that was added last year on the 2020 tax year form. That is a question with a box that basically says, “Did you or do to engage in virtual currency transactions or functions of virtual currency” You have to check the box, “yes or no?” If yes, then there may be a tax obligation there for you. But you have to think about the sale and exchange of virtual currencies. If you pay for goods and services, or you hold them as an investment, generally, there are some tax consequences, but we're talking about capital gains and losses kind of thing.
I had a question on the qualified business tax. I'm wondering, as a 1099, contractor, as a realtor, would that make me eligible to take it? And then also to find out where you would get the figure for the qualified business income or loss? Is that just coming right off the schedule?
COX: What you're getting is the QBI, that the qualified business income deduction is the 20% that you get to take if you're a non-specified service trader business, which means that you're not a doctor and a lawyer and something like that, as a real estate professional. What you do is you take your net income and essentially 20% of what your net income is, is your qualified business deduction. That's the basic calculation on it.
Is there any tax advantage to donating government bonds to a charity? Rather than sending a check?
COX: Yeah, you can do you can do an in-kind contribution for securities and I think maybe the government bonds would qualify under this, where you donate it directly to the charity, and then the charity will cash those in. What that'll allow you to do is instead of you redeeming that security are that those bonds and recognizing the gain on them, you remember, we were talking earlier about gains and losses and how to calculate those. If you donate it directly to the charity, you get to deduct the fair market value on the date of donation without having to actually pull it into income.
My question is due to small businesses, the startups that have occurred as a result of the pandemic. On Schedule C, basically, if you have more expenses than income, or no income at all, is that like an audit? Does it create an audit?
TULINO: When you file returns the IRS, you have to kind of understand the difference between a hobby and a business. First of all, if you're in a business, we assume the IRS assumes you have a profit motive. So if you start off with some losses, that's fine. I think if you start doing that, and maybe for two, three years in a row, you have all these losses, you're not generating profits, you might get a knock or a letter in the mail or something. And the IRS saying, “Well, look, you're able to take advantage of all these deductions for your losses, and this or the other, but you're not really generating any profits, what's going on here.”
COX: If you've got a legitimate business, and you can demonstrate that you're engaged in a for profit enterprise, and if you're having some trouble getting it off the ground, or you just have to work for a year or so you have to make some investments in the business that generate losses. But if as long as you can demonstrate that it's a for profit entity, that it's viable, or it doesn't even have to be viable, but it's at least at some point, you expect to make a profit, you know, then that's kind of that's kind of like the criteria for it, you want to make sure that that in good faith that you're filing a tax return.
If a person is an employee and has a W-2, the tax on that income is self-explanatory. But if the person also gets paid by the employer for services as an independent contractor, and the amount of that money is small, compared to the W-2 but not insignificant, should your tax form be marked as an employee, or an independent contractor?
COX: If you got W-2 employee wages from an employer, and that same employer is giving you a 1099, like a non-employee compensation, that might be a red flag, that's something that employers aren't encouraged to do.
TULINO: He's getting both. Yeah, income from salary and wages. But then he's doing some maybe consulting work on the side, but from the same employer, I would have to get more information to offer something on that to be quite honest. I, it's too. It's too little to know.
I would assume that if he's getting more in salary, then you're going to click the employee button as opposed to the 1099 button.
I have a question on Earned Income Tax Credit. And my wife and I are both retired. Almost all of our income are from pensions and retirement accounts and Social Security. From my understanding, the only earned income we may have are maybe some capital gains if we sell some stocks. And so because of this, I just wonder if we can benefit from the earned income tax credit when we file income tax and get some cash credit in return from the IRS?
COX: Well, unfortunately, none of the income that you've identified, even the stock sales and that kind of thing, none of that's not going to be considered earned income. Earned Income is income that you either received as an employee or as a self-employment income. Like if you're independent contractor or you own your own business, that kind of thing. Investment Income, rental real estate income, that's typically considered passive in nature. And by virtue of that, it's not eligible to be included in the calculation of your of the earned income credit, it's excluded.
Over the last couple of years, I spent about $10,000 in a combination of music recording equipment, photography equipment for what was essentially my hobby. I retired in October. And this year, I've got a job with a theatrical production. How can I deduct the money I spent in the last couple of years?
COX: If you're going to be using this for a profit enterprise, you can calculate what your historical cost of your equipment is. think you'd want to hire somebody to help you prepare the tax return and make sure you do it right.
I’m 79 years old, and I'm receiving Social Security. But I had a small job and was getting an unemployment benefit. It only totaled about $7,000 last year. But combined with the Social Security, my total income was under $25,000. I'm curious whether I need to pay taxes on the unemployment benefits that I received or should I need to file at all I guess I'm wondering?
COX: I think certainly I would recommend that you file. The unemployment compensation is still taxable. It's at a low enough amount that it probably won't bring any of your social security into tax ability. But if you file it, like I was saying earlier, if you file it now and get it in on time, in three years, the tax year will be closed and the IRS won't be looking to look at it anytime in the future.
On the flip side, quickly on the flip side is going to say you have Social Security income, that's the only income you have for a senior citizen, chances are you don't have a filing requirement.
I had a refund in 2018 that I never received. And recently this year, I received a letter from the IRS saying they got the refund check back for me. And I was asking what I wanted to do with it. And I sent them the letter back, and they keep sending me a letter that they're taking 60 days to give me a response and I tried to keep trying to call them and can't get to them.
TULINO: It's the unclaimed monies in 2018. That's going to go away in 12 days because you got three years to do it. Otherwise, it comes a treasury if you don't file a return for a refund that you're owed, it sounds like you filed and therefore it's undelivered. Unclaimed is different. You have 12 days to do that for 2018.
I have a question about filing as a C Corp. We have for years failed as an S Corp. and want to change and file as a C Corp. What are the deadlines for doing the change? And what is the process?
COX: In your circumstances, I would file an extension probably at this point. I've never gone through the process of somebody converting an S Corp to a C Corp. So, I'd probably hope you have a tax return preparer that's helping you handle this issue because it's far more complex than I can answer it in two minutes.
Raphael Tulino, IRS spokesman; Todd Cox, CPA and former Nevada Gaming Control Board agent