You may have noticed that there is a virtual currency, or “cryptocurrency”, question at the top of your 2021 tax return. It asks, “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” and it requires a response of “Yes” or “No.” If you’ve used or held Bitcoin, Etherium, or other crytocurrencies in 2021, it’s important that you talk to your tax preparer so that your return can be completed correctly.
When you can check “No”
If you owned virtual currency during 2021, you can still check the “No” box if you have not engaged in any transactions involving virtual currency during the year, or their activities were limited to:
- Holding virtual currency in your own wallet or account.
- Transferring virtual currency between your own wallets or accounts.
- Purchasing virtual currency using real currency, including purchases using real currency electronic platforms such as PayPal and Venmo.
- Engaging in a combination of holding, transferring, or purchasing virtual currency as described above.
When you must check “Yes”
The list below covers the most common transactions in virtual currency that require checking the “Yes” box:
- The receipt of virtual currency as payment for goods or services provided;
- The receipt or transfer of virtual currency for free (without providing any consideration) that does not qualify as a bona fide gift;
- The receipt of new virtual currency as a result of mining and staking activities;
- The receipt of virtual currency as a result of a hard fork;
- An exchange of virtual currency for property, goods, or services;
- An exchange/trade of virtual currency for another virtual currency;
- A sale of virtual currency; and
- Any other disposition of a financial interest in virtual currency.
If you disposed of any virtual currency that was held as a capital asset through a sale, exchange or transfer, you must check “Yes” and report your capital gain or loss on Schedule D (Form 1040).
If you received any virtual currency as compensation for services, or disposed of any virtual currency that you held for sale to customers in a trade or business, you must report the income as you would report other income of the same type.
Cryptocurrency and its tax treatment can be confusing. If you hold cryptocurrency and are unsure how your position should be treated for tax purposes, please contact our office. We would be happy to help.
Rent is any amount paid for the use of property that a small business doesn’t own. Typically, rent can be deducted as a business expense when the rent is for property the taxpayer uses for the business. Here are some things small business owners should keep in mind when it comes to deducting rental expenses:
Lease or purchase
- Sometimes a business must determine whether its payments are for rent or for the purchase of the property, because different tax rules may apply.
- Businesses must first determine whether an agreement is a lease or a conditional sales contract.
- Payments made under a conditional sales contract aren’t deductible as rent expense.
Businesses can’t take a rental deduction for unreasonable rents paid. Rent is unreasonable for the purposes of deduction when it is higher than market value or a professional appraisal.
- Usually, unreasonable rent becomes a problem when business owners and the lessors are related.
- Rent paid to a related person is reasonable if it’s the same amount a business owner would pay to a stranger for use of the same property.
Office in the home
A business owner’s workplace can be in their home if they have a home office that qualifies as their principal place of business.
Business owners who rent their home and have a home office as their principal place of business may also qualify for a deduction.
IRS Publication 587, Business Use of Your Home, Including Use by Daycare Providers, has more details about this deduction.
Rent paid in advance
Rent paid for a business is usually deductible in the year it is paid.
- If a business pays rent in advance, it can deduct only the amount that applies to the use of the rented property during the tax year. The business can deduct the rest of the payment over the period to which it applies.
- Business owners can review Publication 535, Business Expenses, for detailed examples on rent paid in advance.
Canceling a lease
A business can usually deduct the costs paid to cancel a business lease.
Even though the IRS issues most refunds in less than three weeks if you file electronically and choose direct deposit, some refunds may take longer to process. Many different factors can affect the timing of a refund after the IRS receives a return. For example, a refund may be delayed when:
- A return has errors or is incomplete
- A return might be affected by identity theft or fraud
- A return needs to a correction made to the Child Tax Credit or Recovery Rebate Credit amount
- A return includes a claim for the Earned Income Tax Credit
- A return includes a claim for the Recovery Rebate Credit
- A return includes Form 8379, Injured Spouse Allocation
As always, the fastest way to get a tax refund is by filing electronically and choosing direct deposit.
If you are due a refund and you’re wondering where it is, you can use the Where’s My Refund? tool on the IRS website. Information for the most current tax year filed is generally available within 24 hours after the IRS acknowledges receipt of your e-filed return. If you filed a paper return, you should allow four weeks before checking its status.
2020 tax returns
Waiting on a 2020 tax return to be processed? If your tax return from 2020 still hasn’t been processed, you should still file your 2021 tax return by the April due date or request an extension to file.
People who file their 2021 return electronically will need to provide their their Adjusted Gross Income, or AGI, from their most recent tax return. If you are one of those who are still waiting on your 2020 tax return to be processed, make sure to enter $0 (zero dollars) for last year’s AGI on the 2021 tax return.
Finally, if your 2020 return has not been processed or if you used the Non-Filers tool in 2021 to register for an advance Child Tax Credit payment or third Economic Impact Payment in 2021, there are special instructions that apply to your 2021 tax returns. You should review those special instructions on the IRS website.