Spiegel Accountancy

Taxpayers now have more time to compile their 2020 income taxes as the Internal Revenue Service (IRS) moves this year’s tax-filing deadline to May 17th, offering taxpayers and their accountants a huge sigh of relief. This extension is absolutely necessary to give Americans some needed flexibility in a time of unprecedented crisis,” said House Ways and Means Oversight Subcommittee Chairman Bill Pascrell Jr., D-N.J., and House Ways and Means Chairman Richard Neal, D-Mass. This move by the IRS and the U.S. Treasury Department comes following the $1.9 trillion stimulus package passed last week that added even more changes to an already complex tax-filing year. Jeff Spiegel, CPA and Founding Principal of Spiegel Accountancy Corp. says, “The IRS and tax software systems still have not completed their programs and forms for all of the changes from the many bills that have passed over the past 12 months.

The $11.7 million exception is temporary and only applies to tax years up to 2025, at which time it will revert to the $5.49 million exemption (adjusted for inflation). For example: If an individual gives his or her entire estate of $11.7 million to their children today, those assets could increase in value over time. At a growth rate of 5% per year for 10 years, that $11.7 million gift could end up being worth over $19 million, and the heirs will have received the entire amount free from gift or estate taxes. For example, it is possible to pay $50,000 tuition for a grandchild’s medical degree by making payments directly to the university, while also gifting an additional $15,000 per year tax-free.

In addition to declaring capital gains, the IRS also expects a report to be made on gains and losses attached to crypto investment activity or purchases made using cryptocurrency such as Bitcoin. The IRS expects a calculation based on the value of the Bitcoin at the time of the transaction and recognize any capital gains or losses relative to the cost or fair market value. Whether or not an investor sold or retained cryptocurrency in 2020, for federal tax purposes, all virtual currency is treated as property; therefore, general tax principles applicable to property transactions also apply to transactions using virtual currency. Any charitable deduction made would be recognized as being equal to the fair market value of the virtual currency at the time of donation, provided the investment has been held over a period of one year.

There are a variety of reasons for filing a tax extension; however, having an extra six months to complete the filing process would be at the top, particularly for the 2020 tax year. It is so simple to file a tax extension that millions of taxpayers file personal or business extensions every year. Plus, filing an extension might help prevent mistakes on tax forms made by rushing through a tax return while also allowing the taxpayer time to review the return with a tax professional. Keep in mind that filing for an extension of time to file your tax return does not also extend your time to pay any tax liability you may have.