2022 Answering tax questions from readers.
Turkey byproducts, title wins and tips bring out another “t-word” – taxes! Since “tax season” is an inevitable part of life, TAX TALK can save you a few bucks and make you scoff (sometimes), groan, or (hopefully) “go with the money – or without it.” Flow.”
Cryptocurrency TV ads and other promotions put me in FOMO (fear of missing out) mode. So, I bought bitcoin earlier this year. Now, the loss is about $7,000. Can you provide income tax advice to minimize the impact of these losses?
– SCC, email
Our grandparents were right when they told us something great might not happen. 2022 is the biggest public and dollar hit of the cryptocurrency industry. When FTX declared bankruptcy a few weeks ago, the cryptocurrency market crashed.
‘Why do we allow this?’Jamie Dimon says investing in crypto tokens is like buying ‘pet rocks’.
The Internal Revenue Service considers cryptocurrency a capital asset. Long-term capital gains are good news when it comes to profits as they may qualify for a pre-tax rate. In general, capital losses can only offset capital gains during the year. If you have any “winners” in your stock portfolio, we recommend that you start generating capital gains between now and the end of 2022.
You have a $7,000 loss that can offset a capital gain. There is limited relief under the Internal Revenue Code if there are no or no assets generating sufficient capital gains. That is, the rule that capital losses can only be deducted against capital gains gives a little “wiggle room” to individual taxpayers who qualify for an annual deduction of up to $3,000 in capital losses that exceed capital gains. If no capital gains occur between now and December 31, you can offset $3,000 of ordinary income on your 2022 tax return. It is eligible to carry over until 2023, when it can offset the remaining $4,000 of capital gains or $3,000 of other income. Best case scenario for you – sell capital gains assets in your portfolio before the year (or the start of the Gator Bowl). Gains of up to $7,000 bring your 2022 capital movement down to $0 because the capital loss offsets every dollar of capital gain. Worst case scenario – no capital gains means you have to offset the $3,000 write-off in 2022 with $4,000 in future capital gains and/or $3,000 from ordinary income in 2023.
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The above advice about cryptocurrency losses also applies to other individual capital loss situations such as the sale of stocks and/or other assets held as investments. Specifically, the capital loss is available to reduce an individual’s taxable income by up to $3,000 per year, after capital gains are realized.
Ken and Clay’s income tax bulletin board
Since 2015, the IRS, state tax administrators and tax software, and the tax professional community have worked together to improve defenses and identify people who commit tax-related theft. The IRS is warning of a recent increase in IRS-specific text scams aimed at obtaining personal and financial information for taxpayers. In the year By 2022, the IRS has identified and reported thousands of fraudulent domains linked to numerous MMS/SMS/text scams targeting taxpayers known as “smashing.” The “spoof” efforts target cell phone users and the scam messages often appear to be from the IRS. Scammers help set up fake coronavirus relief, tax credits, or an IRS online account. Report recipients of these IRS-related scams to phishing@irs.gov and refrain from responding to these fraudulent tactics.
While we’re at it, here are some non-income tax tips from the IRS. not at all Buy anything from online sellers that only accept payment with gift cards, companies like Western Union or MoneyGram, or cryptocurrency. These charges are non-traceable and non-reversible.
Rick Clay served as Director of Taxation at the University of Notre Dame from 1998 to August 2019. A retired CPA, Klee is a graduate of Notre Dame. You can reach him at rklee@nd.edu.
Ken Milani is a professor of mathematics at Notre Dame who serves as faculty coordinator for the Notre Dame Tax Assistance Program. Contact him at milani.1@nd.edu. Send questions by email.
