Do You Need To Pay Virtual Currency Tax In The US?

Yes! If you live in the U.S. and are involved in trading or investing in cryptocurrencies, any income you gain, known as capital gains, are subject to virtual currency tax. 

Virtual currencies, such as cryptocurrencies, have similar value to real currencies.

This article explains  virtual currency, its tax consequences, and where to get more information. 

According to the IRS – “Virtual currency transactions are taxable by law just like transactions involving any other property. Taxpayers transacting in virtual currency may have to report those transactions on their tax returns.” 

Virtual currency – Definition and tax consequences 

What is virtual currency? 

A virtual currency is a digital representation of value that serves as a means of trade, a unit of account, and a store of value. It functions in some situations like “real” currency (i.e., U.S. or foreign coin and paper money designated as legal tender, circulates, and is commonly used and recognized as a medium of exchange in the country of issuance). Still, it does not have legal tender status in the U.S. Cryptocurrency is a virtual currency that uses cryptography to validate and protect transactions on a distributed ledger, such as a blockchain.

Virtual currencies, such as cryptocurrencies, have similar value to real currencies. It can serve as a substitute for real currency, also known as “convertible” virtual currency. For instance, bitcoin owners can digitally trade coins between users. Owners can also purchase coins using any currency or exchange them into different currencies, such as U.S. dollars or Euros. 

What are the virtual currency tax consequences? 

Any action involved in the selling, trading, or exchanging of virtual currencies to pay for goods or services and investments may result in tax liability. 

The Internal Revenue Service (IRS) issued IRS Notice 2014-21, IRB 2014-16, providing guidance for individuals and corporations on the tax treatment of virtual currency transactions.

Individuals who have bitcoin as a capital asset but are not in the trade or business of selling cryptocurrency might find answers in the IRS’s Frequently Asked Questions on Virtual Currency Transactions.

Where to get more reliable information? 

You can access the IRS website on virtual currency to find the latest information. On the website, you’d be able to find frequently asked questions and related documents on virtual currency and taxes. 

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Top 3 Lessons Learned for Filing Business Taxes in 2022

If you’ve submitted your business tax returns before April 15, congratulations! You’ve successfully passed 2022’s tax season! On the other hand, if you’re still struggling with your financial records and IRS forms, no worries, we’re here to help! This article reveals the top 3 lessons learned for filing your business taxes in 2022. 

Update yourself on tax law changes

The first and foremost thing to remember when filing your business taxes is to educate yourself on the areas of taxation that affect you and keep yourself updated on tax rules and developments. It’s always a wise option to keep track of the current news because things change annually.

The changes listed below are in effect starting in 2022, so be aware of what they entail for your small business when submitting.

Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC) is a financial incentive for employers who suffered lower revenues or business disruptions due to government-imposed limitations in 2020 and 2021. Businesses and certain non-profit organizations that paid employees despite the COVID-19 pandemic’s obstacles are also eligible for the ERTC, and many beneficiaries are receiving cash refunds. 

Though ERTC expired at the end of 2021, you can still claim this tax credit in 2022. Business owners have three years after the program’s closure to review wages paid after March 12, 2020, to see if they are eligible. The requirements to claim ERTC are the following: 

  • Your business recovered from a significant reduction in gross receipts
  • You haven’t claimed this credit before. 

Excess business-loss limitation

Businesses could transfer net cash outflows backward five years or forward forever in 2019 and 2020 thanks to a suspension of Tax Cuts and Jobs Act provisions. Nevertheless, those rules have been reinstated for the 2021 tax period.

This means that taxpayers cannot claim losses totaling more than $524,000 (for couples filing separately) or $262,000 (for the unmarried). This relates to business earnings and liabilities, notably Schedule C and revenue and shortfalls from pass-through entities.

Furthermore, they cannot use W-2 wages to cover business losses. Husband and wife taxes are paid separately and may result in a tax obligation even if lost income exceeds spousal earnings.

Interest expense limitation

Another tax law suspended to assist Americans during the pandemic is the accrued interest restriction rule, which will be reinstated for the 2021 tax year. This regulation restricts taxable income to the current tax year and cuts the financing costs deduction from 50% to 30% of modified tax liability.

Set up a checklist for filing your business taxes

When you run your own business, you’ll be accountable for keeping track of various critical records and tasks. It’s a good idea to establish a checklist to collect all the data you have to monitor year-round. This checklist helps you identify and collect your important documents (such as the home office or travel expenses) and keep them for tax preparation. 

Your tax status will probably be similar year to year. Even if your tax situation changes, you can still use the discipline you set in place during the year to expand on in the future. A little effort in planning and staying organized can go a long way.

File your taxes as soon as possible

It might be a good idea to schedule and have all of your papers in one place to assist you in filing early and receiving your tax refund quickly. If you are getting a refund, the earlier you file your form, the faster you will receive your refund—which means more cash on hand during this difficult time.

The sooner you file your taxes, the more time you’ll have to correct any bookkeeping problems or locate lost invoices, documents, or invoices. This additional time can go a fair distance toward reducing stress throughout what can be a stressful time of year.

Additionally, filing your taxes as soon as possible might help you overcome your financial flow. It’s critical to keep track of your 2022 quarterly tax estimate requirements since they may be changing continuously. 

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The bottom line

When filing your business taxes, remember to use Shoeboxed to save you time and hustle!

Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!

What Is a Purchase Receipt and How to Make One?

As a business owner, you have to deal with numerous receipts every day. While it’s important to store and keep your receipts organized for accounting and tax purposes, many often neglect or find it difficult to systemize hundreds of documents. However, you can easily get your receipts categorized and neatly stored with some effort and the right knowledge.  For example, you might want to try sorting receipts by type such as sales receipts, travel receipts, bank receipts, etc. This article will look in detail at a very common type of receipt — the purchase receipt. 

Once you know the features of a purchase receipt, you’ll be able to distinguish them from other types of receipts, ensuring a smooth and orderly system of storing your receipts. On top of that, you will also find useful tips on how to create a purchase receipt if you are a supplier as well. 

What is a purchase receipt?

When you receive materials, goods, and services from a supplier, they will issue you a purchase receipt. This is normally done against a purchase order. However, some suppliers still give you purchase receipts without one. Purchase receipts can be printed directly from a cash register or handwritten.

What is the purpose of a Purchase Receipt?

A purchase receipt mainly serves as proof of ownership. This receipt is issued when you accept and pay for goods and services from your suppliers or from you to your customers when they buy your products.

Generally, this document includes details of a specific purchase of a service or product. It also clarifies the contract between you and your suppliers – what, how many, and how much you buy. 

Purchase receipts are also kept and recorded for accounting purposes. You can always go back to examine and double-check if the details of transactions tally. By being able to do so, you will keep track of your expenses more accurately and timely and ensure your accounting system runs more efficiently, which leads to better business results. 

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What information is on a purchase receipt?

Though it varies between businesses, a purchase receipt normally includes the following information:

  • Date and time the transaction occurred
  • Customer information: company name, possibly a contact person, address, phone number, and email address.
  • Purchase description: date, purchase order number, quantity, a brief description of each purchased item with prices
  • Payment information: payment method 
  • Additional charges: shipping fee, delivery cost, and taxes
  • Return policy. Detailed explanation on how the customer may return, exchange, and/or receive a refund for a purchase

What does a Purchase Receipt look like?

Below is a basic template of a purchase receipt:

Example of a purchase receipt
Source: Templatelab.com 

A purchase receipt is fairly straightforward, so you can easily customize a template for your business using Microsoft Excel. Many websites on the Internet also have free downloadable templates for purchase receipts. If you need a free Purchase Receipt template, check out these links below:

Another way to issue purchase receipts is to use paper receipt books. They are widely available online and easily found on Amazon. 

How do you write a Purchase Receipt?

There are two main ways to create a purchase receipt: manually (by hand) and digitally. 

Write it manually 

Make sure you have a printed template ready or a receipt book that looks professional. It’s fairly easy to create a purchase receipt this way as you only need to fill in the blanks with the relevant specific details. Keep your handwriting neat and tidy to avoid any unnecessary misunderstandings. Also, don’t forget to double-check your calculations!

Write it digitally  

If you already have a good template prepared, just type in the transaction information whenever you get a new order from your customers and have the receipt printed out. A great tip is to save your regular customer’s basic information in the template, like their company’s name, address, and contact information. Then, you won’t have to spend time typing that information all over again the next time they buy from you. 

Alternatively, you can download and use specialized accounting software like Quickbooks, Xero, etc., to create purchase receipts. It may be difficult to get the hang of it at first, but once you get used to it, you will enjoy the convenience and effectiveness it brings.  

What is the difference between an invoice and a receipt?

A receipt indicates payment of the items and that the sale is complete, while an invoice serves as a payment request. They both include details of the products ordered, prices, taxing information, contact details, and credits. 

What’s Shoeboxed? 

Are you tired of seeing paper receipts laying everywhere in the office? 

Shoeboxed can help you. 

Shoeboxed is an online application that helps you clear your piles of documents by creating digital copies in just a click. This app automatically extracts and categorizes important data from your receipts, which then gets approved by a team of data experts. You can scan their receipts, manage expenses, store business cards, and track business mileage easily, helping you boost productivity and bring in more revenue. 

Quick, reliable, and trustworthy, Shoeboxed guarantees it will organize your receipts in the best way possible! 

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