Avoid IRS Trouble by Reporting Bitcoin Cash

Tax and Financial News September 2017

Avoid IRS Trouble by Reporting Bitcoin Cash

IRS guidance on the tax treatment of cryptocurrencies already exists. Right now, the IRS considers cryptocurrencies to be “intangible assets.” As a result, they are subject to capital asset treatment. However, recent developments complicate matters.

On Aug. 1, Bitcoin split into two separate cryptocurrencies – Bitcoin and Bitcoin Cash. The currently issued guidance does not address cryptocurrency splits, also known as fork transactions.

How to Report Your Bitcoin Cash

At the split, Bitcoin Cash’s initial price was set at 9.5 percent of Bitcoin’s unit price of $2,801 – or $266. Holders of Bitcoin received one Bitcoin Cash unit for every Bitcoin they held at the time of the split, making Bitcoin Cash a separate financial instrument. As a result, this makes it taxable – so recipients of Bitcoin Cash should include the transaction on their 2017 income tax returns.

Since a cryptocurrency is not technically a security or a debt-like interest, the transaction is considered neither a dividend nor interest income. So how should you report the transaction? While there is no clear-cut guidance as of yet, the best place to report the transaction is as “Other Income” on Form 1040, since this is where you can report transactions that do not neatly fit anywhere else.

Another reporting alternative is to use Form 8949, where you report the sale of capital assets. If you use this form you would report $266 per unit and offset it with a corresponding 9.5 percent of your Bitcoin cost basis. By transferring a proportional amount of your basis from the original investment you will reduce your taxable income. This reporting method also has the advantage of allowing you to offset the capital gains with capital losses and carryovers. Beware however, that this method is less likely to be accepted by the IRS.

What to Do if You Sold Your Bitcoin Cash

Selling some or all of your Bitcoin Cash means you’ll need to treat it as a capital gain and report it via Form 8949. If you sell any Bitcoin Cash, make sure you report your receipt as “Other Income” per above, since this will then serve as your basis for offsetting your sale. Your selling price would be whatever value you sold it for, less any commissions or fees on the sale. Also, remember that for your 2017 tax return filing, your holding period would start from the split date of Aug. 1, and therefore be short-term.

Why Cryptocurrency Splits Are Not Tax-Free Exchanges

Some will argue that cryptocurrency splits such as Bitcoin Cash qualify as tax-free exchanges; however, this view is unlikely to hold up to IRS scrutiny since none of the corporate reorganization non-recognition events under Section 368 apply. Bitcoin Cash is economically different from Bitcoin, and therefore should be viewed as a new category of financial instrument.

Beware the IRS

Over the past several years, many investors sold cryptocurrencies, including Bitcoin, but did not report any taxable income from the transactions, while others used Section 1031 like-kind exchange laws to postpone taxation. The IRS is none too pleased by all of this and is taking action.

The IRS estimates that hundreds of thousands of U.S. taxpayers failed to report cryptocurrency income sales over the past few years. Combined with the recent meteoric rise in prices, the IRS is hungry for the potential to collect billions in interest, penalties and back taxes.

Recently for example, the IRS summoned a large cryptocurrency exchange (Coinbase) to hand over its customer lists. Subsequently, they reached an agreement to disclose only transactions in excess of $20,000; however, it is clear from this case that the IRS is going to get aggressive on the matter.

Cryptocurrency investors need to be aware of the evolving nature of taxation in this space in order to avoid IRS problems. This is an emerging issue and one on which you can bet the IRS is not going to stand down. As always, consult a tax professional for details about your particular situation.




General Business News September 2017

Strategies to Run a Location-Based Marketing Campaign

The potential for localized and location-based marketing is high – especially with estimates of retail sales from “beacon-triggered messages”, which grew from $4.1 billion to $44.4 billion between 2015 and 2016, according to Statista. Coupled with 77 percent of U.S. citizens having a smartphone, based on a November 2016 Pew Research Center survey, the ability to reach consumers is the best it’s ever been[P1] . With technology and smartphones making sales ripe, how can businesses make the most of localized and location-based marketing to reach consumers and business clients?

Maximize a Localized Consumer Experience

With a mobile website, there’s no one-size-fits-all design. However, there are some common elements that provide better functionality when viewed on a mobile device. These include the ability to press a phone number for assisted dialing or an email address right on the screen to email the business instantly. Other elements include fewer but larger buttons to search the website, navigate between pages, and for easy access to the address, operating hours and social networking sites connected to the business.

Creating a mobile optimized website is the first step to help locals and travelers find nearby businesses. While location-based marketing certainly includes targeting nearby customers as a first priority, it needn’t be limited to potential customers within a defined area. When anyone is looking on the internet for a business in a particular city or town, it is found by a search query for a product or service. For example, a targeted keyword phrase might be “Tampa coffee shop” or “art galleries near L’Enfant Plaza.”

Another way to localize a marketing campaign is to work with one’s location, along with calendar or seasonal events in conjunction with keywords. This can either take the form of marketing campaigns that take advantage of well-known events, such as Mardi Gras in New Orleans. You can target mobile users seeking Mardi Gras information with keyword optimization for, say, festive clothing or regional foods. It can also work with weather events, such as unusually warm spells during Midwest winters. This type of weather event could be leveraged to target customers for fans in the case of heat spells.   

Put the Consumer in Control

One way for retailers to take advantage of location-based marketing, especially in a store or a defined area near a retail or business establishment, is to let the consumer control his options. Whether using an app, a push notification or text messages, it’s a good idea to ask the user for permission to receive notifications in order to gain his trust. This puts the customer in control of how many messages he’ll receive and when, making them more effective.

Another way to better connect with customers through location-based marketing is to create a fast and convenient experience. Using an app, a brick-and-mortar retailer can ask if the customer would like to place an order and pay for it before he visits the store. All that’s left is to pick up the item in the store or through curbside delivery, if it’s available with the merchant.

Remember, localized and location-based marketing technology can be used effectively to target and increase sales with both local and out-of-town consumers.




What’s New in Technology September 2017

Reimagining Entire Industries with Artificial Intelligence

About a year ago, at an Artificial Intelligence (AI) Conference in Cambridge in the U.K., Dr. Stephen Hawking noted that, “Success in creating AI could be the biggest event in the history of our civilization … either the best or the worst thing, ever to happen to humanity. We do not yet know which.”

The question remains unanswered, even as the AI sector continues to boom. Most of the major advances in AI that we are experiencing originated from research centers and startups – many based in the U.K. It is interesting to note that major U.S. technology leaders like Microsoft, Google and Twitter have entered this arena by acquiring some of the U.K.’s brightest AI stars.

Simply stated, AI is changing many of the ways businesses engage with their customers – whether with “chatbots” providing customer service, or by automated virtual assistants, or using technology to power self-driving automobiles. The advances in this sector are transforming operations at businesses of all sizes. This burgeoning industry has made major strides in helping businesses – especially small businesses – operate more effectively with social media. It used to be that analyzing social dialogue to identify and prioritize consumer targets was a tedious and lengthy process. With an AI software interface, the job takes minutes rather than days.

The blossoming of the AI sector has produced tools that are both super-efficient and inexpensive, offering major benefits to many small businesses. Now, routine customer service, sales and human resource tasks can be automated. As AI takes off, we can expect to see it making major inroads into areas of specific expertise, such as law and medical diagnostics. Expect to see virtual lawyers offer cheaper solutions to traditional legal practitioners. These bots can search law files and resolve complex immigration or employment law questions in minutes – research tasks that would have taken a paralegal many billable hours. Likewise, medical diagnostic AI tools can make assessments faster and often with a greater degree of accuracy than medical professionals.

Cybersecurity is another area where expectations run high for AI applications. In the never-ending battle to counter and defeat complex computer hacking schemes, machine learning is expected to continue to play an important role in combating increasingly sophisticated plots and uncovering potential vulnerabilities before cybercrooks strike.  

Ethical Concerns

There are many issues – both ethical and legislative – that will need to be resolved as AI continues to grow and expand throughout the global business world. Some industry observers worry that AI will make many occupations in IT obsolete; others believe that AI will create new jobs by freeing human beings from routine tasks to allow them to focus on the “higher value” cognitive skills that currently elude chatbots and virtual assistants. Some find the proliferation of profiling AI tools – programs that are used to prioritize sales prospects or job candidates based on their LinkedIn profiles – unsettling. Champions of such assessment tools believe they merely speed up the interactions that take place between people, and do so with much less error and bias.  

Whether we like it or not, AI is here to stay and is likely to be a game-changer in the way we do business in the near future.