 Income tax 2022-2023, digital assets and presidential election campaign fund. Let's do some wealth preservation with some tax preparation. Most of this information comes from the form 1040 instructions tax year 2022 line instructions you can find on the IRS website irs.gov irs.gov looking at the presidential election campaign fund not a very complex part of the tax return support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a youtube page we also include added resources such as excel practice problems pdf files and more like quickbooks backup files when applicable so once again click the link below for a free month membership to our website and all the content on it but it's typically a question if you're doing tax preparation that you would have to ask any new client do you want to check this box off or not and you're going to have to answer some questions in terms of what it means to check the box off or not so this fund helps pay for presidential election campaigns the fund reduces candidates dependence on large contributions from individuals and groups and places candidates on an equal financial footing in the general election that's the general idea at least the fund also helps pay for pediatric medical research so if you want three dollars to go to this fund check the box if you're filing a joint return your spouse can also have three dollars go to the fund if you check a box your tax or refund won't change so then we're going to look at the digital assets so the irs has been more and more concerned with the digital assets if we think about the basic structure of the income tax it's an income tax that means that income is basically bad from a taxpayer perspective if you have to report it because you're likely to pay taxes on it expenses are generally good the irs's aim is to try to kind of double check and look over everyone's shoulder to see if they're reporting the income when you're looking at business transactions you're usually have a payer side of things and someone who's who's doing the goods and services and receiving a payment that means that the irs has to leverage on the payer of the transaction because they're getting the good thing from a tax standpoint a deduction if they're able to deduct it so they're going to go to the payers like the employers or the people that are hiring contractors force them to issue w2s 1099s giving the irs the information about the revenue that's going to the other side of the transaction so that they can double check that the income's being reported now certain areas make it a little bit more difficult so historically cash type businesses that deal with an end user like restaurants hair salons massage parlors have been a problem for the irs with them trying to double check the income with like 1099s and w2 forms because someone that gets their haircut can't really be forced to issue a 1099 to the person that cut their hair because they're not getting a deduction for the haircut and then other businesses have been springing up with these new platforms that have been put in place that are kind of like a new silk road in a way connecting people that have services to people that want the services in such a way that you're you don't really have an employee employer situation and some of the digital asset resources forms of payments are also becoming kind of issues with the irs in terms of of payments happening that they cannot track as easily and possibly having gains and losses with the trading of these digital assets therefore you have them questioning you know the digital asset space in general at least that's my overall interpretation okay so digital assets are any digital representation of value that are recorded on a cryptographically i get that messed up let me say that again recorded on a cryptographically secured distribution ledger or any similar technologies technology so for example digital assets include non fungible tokens those are the nfts and virtual currencies such as cryptocurrencies and stable coins so these are those these kinds of assets that are a little bit more exotic still uh these days that are becoming more and more in use we want to be careful uh when dealing in that space because of the newness of them but hopefully as time passes they'll sort out where these kind of new tools new technologies can fit well so if a particular asset has the characteristics of a digital asset it will be treated as a digital asset for federal income tax purposes so obviously when you're making transactions or trades for goods and services usually the unit of trade is is the us dollar so if it's the us dollar then uh you can that's basically the measuring tool of the trade if you're making trades for things other than a us dollar even if it was like a bartering type of situation then like if you traded goods and services for someone else's goods and services from an income tax perspective you would still have income and you would have to still measure that income somehow in us dollars because that's the measuring tool to pay income taxes similar kind of thing is happening here but instead of facilitating the transaction even making a transaction with dollars you're using something else which might be like another kind of currency like a virtual currency or something like that or you're buying something that has digital value which would be similar to buying any other kind of asset where you'd have to basically value the transaction that took place see if there's any gains or loss see if there's any income that needs to be recorded value that income not in in units of the digital assets virtual currencies bitcoin or something like that but value it in dollars because we're trying to record taxes in the units of dollars so it's not some of the transactions aren't really unlike other transactions when you buy and sell like stocks and bonds of course you have to then value the stocks and bonds in terms of dollars dollars like money so you can record gains and losses in the sale of the stocks and the bonds okay so check the yes box next to the question on digital assets on page one of form 1040 or 1040 SR if any time during 2022 UA received as a reward award or payment for property or services or be sold exchanged gifted or otherwise disposed of a digital asset or any financial interest in any digital asset so the IRS actually wants a little checkbox to basically say did you have any of these types of transactions happening at this point in time as in a couple rational why would they do that you might have well why would they need to know that added information because if I had income then I would report it as income in the in the required area possibly as a capital gain on a schedule D or something like that or whatever the transaction was that took place but I would suspect that the rationale here would be that people could claim that they didn't know because it was a digital asset that they had to record it as income and so the government wants this checkbox here basically saying yes or no I had these types of transactions so that in the in in the event of the audit it's it's going to be less likely that someone can basically claim that they didn't know that that kind of transaction might be subject to income taxes because you checked this box off I think that's the rationale so for example check yes if at any time during 2022 you received digital assets as payment for property or services provided so again you can kind of think about that as similar to a bartering situation obviously if you received money for property and services that you provided that would be a form of income that would be like doing business right you might might have a schedule C business where you receive like cash for the things that you do but if you received something other than cash a bartering situation someone paid you in the form of their goods and services the iris would still want to record that as income and if you receive something like a digital asset same thing right you receive something other than the standard us unit of dollars and therefore you'd have to record it basically as income because you have a business you just got paid and something other than us dollars receive digital assets as a result of a reward or award so now we have the question of if you get a reward or an award is that income or not meaning is an award income so you might have some areas where there's like a small reward or something and it's part of your job or something like that and whether or not it's going to be income or not but usually if you get a reward or a word if you win a prize or something like that that might most likely be income and if you get paid in the form of a new car then you're probably going to have to include that as income even though you got paid in a new car if you get paid in cash you are almost certainly going to have to record that as income if you won the lottery or something if you get paid in digital assets you once again will most likely to have to record that as income it's not really different off you know in principle receive new digital assets as a result of mining staking and similar activities so this is the process that they set up to actually create the digital assets so if you're mining the digital assets then you're in in the system actually creating the digital assets and whatnot that of course like mining actual mining if you own the mine and you're mining stuff out of it's a business and you'd be you would think having income from the business and would have to record that in a similar way to other businesses it's just that you're dealing with these digital assets now receive digital asset as a result of a hard fork so a hard fork it's kind of a technical thing but sometimes in a hard fork when you're talking about the blockchain and whatnot how the blockchain work holders of tokens and the original blockchain will be granting tokens and the new fork as well so that means you could you know get like a benefit be kind of similar I suppose to like getting dividends or something like that you're getting more value like interest on an investment and therefore you would you would suspect that might be income then from an iris perspective disposed of a digital asset in exchange or trade for another digital asset so this would be not too dissimilar to stocks and bonds if you had the stocks and bonds and you sell the stocks and bonds then you might sell it at a gain you bought them at a lower price you sell them at a higher price then you would have the gain involved there you might be selling the stocks and bonds in order to purchase other stocks and bonds and similar thing with the digital assets you might be selling the digital assets to purchase other digital assets if you sell the digital asset then that would you would think be the point that you realized the gain on the sale not really different in nature to normal kind of rules with other kinds of assets it's just the digital assets themselves are a little confusing sold a digital asset so obviously if you just outright sell a digital asset then you would think that you'd have to cost what you purchased it for if it was an eft or whatever you bought you bought the the cards of the then you'd have to see what you bought it for which is sold it for the difference you would think and record a gain possibly a capital gain in a similar way to stocks and bonds transfer digital assets with free without receiving any consideration as a bonafide gift so most of the time when we're when we're providing transactions those transactions are going to be in the form of an exchange of some kind doing business in some kind if you have a gift then you're transferring and you wouldn't be receiving anything in return for an arm length type of transaction you may then have uh you know gift gift tax kind of situations that could be involved if you're giving a gift which is kind of tied to estate taxes and whatnot otherwise disposed of any other financial interest in a digital asset so those are those are them you have a financial interest in a digital asset if you are the owner of record of a digital assets or have an ownership stake in an account that holds one or more digital assets including the rights and obligations to acquire a financial interest uh or you own a wallet that holds the digital assets the wallet often being you know the thing that has the password and whatnot that holds the digital assets the following actions or transactions in 2022 alone generally don't require you to check yes so now we're going to go through some things where you might say hmm these are kind of things where maybe i have to check yes on this thing because i do have some digital asset type of stuff but maybe i but they weren't really covered in the last area so these are the ones that you wouldn't have to check yes even though you might consider these things kind of like digital asset stuff so holding a digital asset in a wallet or an account so notice when you're when you're thinking about whether or not there's going to be taxes related to it you would think there would be some kind of transaction happening that you're possibly realizing a game you're getting paid in digital assets you're trading digital assets you're buying and selling digital assets if you're just holding on to the digital assets in a wallet then and and there was no trade you haven't sold them then it's kind of like the stocks and bonds you would think that you have not yet realized the game on the digital asset because you're just holding on to it so you would think there wouldn't be a tax implication until the point in time you sold it and then you might have to take the you know the what you sold it for sales price minus the cost and you might have a a game transaction at that point when you realized it transferring a digital asset from one wallet or account you own or control to another wallet or account that you own or control so the wallets are the things that hold the digital assets if you sell the digital asset then you would think that might be a triggering event that would possibly cause a taxable event but if you just transfer from one wallet to another in a similar way as if you're going to transfer from one retirement account to another retirement account like a rollover situation then you would think there might not be any tax consequences because you haven't realized the the the sale of them you just you're just still holding on to them in another wallet i wanted a leather wallet and i had a cheap wallet last time made out of duct tape so purchasing did that's i'm just making that up digital asset uh using us or other real currency including through the use of an electronic platform such as paypal and venmo so if you purchase the digital assets you would think at the point of purchase that's not when you have a tax triggering event usually it's when you sell uh the digital assets that you might have a tax triggering event because that's when you would realize the gain which would be the sales price minus the cost do not leave the question unanswered so you want to check something off on that or they're not going to let you process the return if you're doing it electronically or they might delay the processing uh so they want to force you to ask answer that question you must answer yes or no by checking the appropriate box for more information you can go to irs.gov virtual currencies and so you can check that link out as well so how to request digital asset transactions so if in 2022 you disposed of any digital asset which you held as a capital asset through a sale trade exchange payment gift or other transfer check yes and use a form eight nine four nine to calculate your capital gain or loss and report the gain or loss on schedule d form 1040 uh so we'll talk more about schedule d uh when we get to the when we get to capital gains in a future presentation if you receive any digital asset as compensation for services or disposed of any digital assets 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 like for example w two wages on form 1040 or 1040 s r line one a or inventory or services on schedule c so that would be a situation where you're accepting digital currency as a form of payment where would be similar to the bartering situation if you had a schedule c then you'd have to record it in income not in units of bitcoin but exchanging the bitcoin that you got paid in two dollars right and that's so you got this exchange kind of issue