Forms schedule

I commonly hear clients tell me this time of year "I'm going to get my stuff to you early this year, as soon as possible."  For most people that don't work in the accounting/tax profession (but maybe even for some that do!), taxes are a pain.  People want to get their forms, get their return done, and move on to get ready for spring.  In an effort to anticipate when you will receive certain tax forms, here is a brief synopsis of the filing deadlines for various information returns:

You should receive the following common forms by February 2, 2015:

• W-2
• 1099-INT (interest)
• 1099-DIV (dividends)
• 1099-MISC (rent, royalties, nonemployee compensation, other misc income)
• 1099-R (retirement plan distributions)
• 1099-C (cancellation of debt)
• 1098 (interest expense)

You should receive the following forms by February 17, 2015:

• 1099-B (proceeds from broker transactions i.e. investment accounts)
• 1099-S (proceeds from real estate transactions)

A quick note about amended forms - with the increased regulation of investment companies to report wash sales on Form 1099-B, you will not receive your 1099-B until the middle of February.  This gives the investment company time to see if any sales that occurred in 2014 were subject to a wash sale as a result of a transaction in the first 30 days of 2015.  As a result, it is not uncommon for the investment company to send a 1099-B in the middle of February, and then send an "amended" form later on.  If you have several transactions in your investment account, it might be a good idea to wait until March to file in case you receive an amended form.  

Almost all of the big investment companies will publish a schedule of when their customers can expect to receive forms, like this notice I got from Fidelity a few days ago.  Check with your investment company to see if they have a similar publication.  

One final note, if you are expecting a 1099 from your bank or investment company and do not receive one, don't panic.  Companies are only required to issue a 1099 if your income exceeds certain thresholds.  For example, if your savings account did not earn more than $10 for the year, the bank is not required to send you a 1099.  You can check this quickly by looking at your December statement.  

Savings bonds

When my wife and I got married, we opened a joint checking account at our local bank.  It was a basic checking account which is all we needed, but it came with the use of a safe deposit box free for a year.  Me, believing I was now a "grown up" because I was married, owned a house and had a salary job, jumped at the chance to protect our most precious belongings in said safe deposit box.  I immediately went through our home and gathered up everything I thought, at the time, that we could not live without were our house to burn to the ground.  I took these items back to the bank and stored them in our new safe deposit box.  

Last year when our first child was born, as most parents do we began looking at our budget to find ways to make buying diapers, wipes and baby clothes less painful by cutting other expenses.  That's when we saw the $40 annual charge for the safe deposit box on our bank statement.  

Tax tip: fees paid for safe deposit boxes are subject to the miscellaneous itemized deductions in excess of 2% of AGI on Schedule A of Federal Form 1040.  If you pay a fee for having a safe deposit box, remember to give that information to your tax preparer.

Since I could not recall exactly what was in the safe deposit box, we set a reminder for one year later to clean the box out so as to save the $40 a year.  Last week, the reminder popped up and I rushed back to the bank, excited to see what was in the box before closing it out.  The contents of the box: our original signed marriage license, a copy of the title insurance to our first house, and a stack of savings bonds.  As I looked over the savings bonds, some which we had received more than 25 years ago, I started to wonder what they were worth now.  

Beginning the year I was born and for most years until I turned 18, my grandmother would give me a $50 Series EE savings bond on my birthday.  This type of savings bond is purchased with a fixed interest rate, and it earns interest for 30 years.  For example, the first bond I received was a $50 bond with a fixed interest rate of 4%.  Using the savings bond calculator at the Treasury Direct website, I discovered that this bond will mature in January, and is currently worth approximately $113.  That is a 126% return!  I used the calculator to build the entire inventory of our savings bonds and discovered that we owned $850 of bonds that had been originally purchased for $450 and are now worth $925.  This results in a total return on our savings bond portfolio of 105.75%.  

Savings bonds can be cashed in at most financial institutions.  When the bond is cashed in, you will receive a 1099-INT for the interest portion of the bond.  In the example above, I would receive a 1099-INT for $63, because that is the amount of interest the bond accrued over 30 years.  This interest is paid on government obligations and is subject to Federal tax, but in some cases might be exempt from state taxes.  

The Treasury Direct website has several resources for savings bonds and other types of US Government obligations.  However, the key to successful investing in savings bonds is to hold them as close to maturity as possible.  In January I fully intend to take my first savings bond down to the bank, cash it in, and then take my family out to a nice dinner.  If my grandmother was still with us I know that's what she would have wanted.  

Bitcoin

If you have been keeping up with new fads, you have probably noticed the growing popularity of the Bitcoin.  But, what exactly is a Bitcoin and how does it work?  

Bitcoin is a digital currency.  Bitcoin can be used to pay for goods or services (if the vendor accepts that type of payment).  But, there is no physical currency.  Bitcoin is completely electronic, and payments are made and received over the internet using computers, tablets and smartphones.

To get Bitcoin, you visit an exchange on the internet and buy them with real money (US dollars, Euros, etc.).  Then you can use your Bitcoin to pay for goods and services from vendors that accept Bitcoin.  You can also transfer your Bitcoin to another user.  For example, if you and your buddy split a cab and he pays for the ride, you can transfer him Bitcoin to reimburse him for your share.   

Sounds pretty neat right?  It's like going to the arcade and cashing in dollar bills for game tokens, except the tokens do not physically exist and they can be used all over the world.  But, there are a few other considerations that make the concept not so simple.  

First, Bitcoin has a market value, similar to an exchange rate.  As of the writing of this article, according to bitcoinexchangerate.org, 1 Bitcoin is valued at $653.42.  This value will fluctuate according to the demand for Bitcoin, similar to a stock in the S&P 500.  This creates an environment where some use Bitcoin to pay for goods and services, while others are holding them as an investment.  According to this chart from CoinDesk, the value of a Bitcoin has fluctuated between $67 and $640 in the last year.  

Second, the IRS has issued a notice and FAQ's regarding the tax treatment of Bitcoin.  In the notice, the IRS states that virtual currency is treated as property similar to other property in the hands of the taxpayer.  This means that the exchange of virtual currency for goods and services could result in a gain or loss to the buyer.  For example, if I use one Bitcoin I paid $600 for to buy a set of golf clubs for $700, the seller must report the receipt of the Bitcoin as a sale at fair market value on the day of receipt ($700).  Also, I must report a $100 gain on the exchange of the currency because I used an asset that cost me $600 to buy something worth $700.  Using virtual currency is also subject to the tax reporting rules i.e. 1099's.  If I pay a contractor $1,000 in the form of two Bitcoin, I must issue that contractor a 1099 at the end of the year since the value of the services were more than the $600 1099 reporting limit.  

In closing, I am a big fan of modern technology and moving into a "greener" world.  The use of virtual currency makes it easier for buyers and sellers to transact business across borders without the worry of currency translation.  However, users of virtual currency should make themselves familiar with the ins and outs of their transactions and any related tax consequences prior to buying or selling.  To find more information about Bitcoin, I found their website very helpful.