Page 31 - BusinessWest June 23, 2021

Taxes
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couple.
The Biden proposal allows for some
exempt transferees. Property trans- ferred by a decedent to a charity would be exempt. Transfers by a decedent to a U.S. spouse would be at be the carry- over basis of the decedent, and capital gain would not be recognized by the surviving spouse until the surviving spouse disposes of the asset or dies.
In addition to transfers upon death or gift to an individual, transfers of
Bitcoin
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the IRS, the gain or loss that occurred while the cryptocurrency was being held by the business is a taxable trans- action. The cost basis of the cryptocur- rency received for the sale of goods would be the FMV on the date of the transaction (the amount of income rec- ognized on the business transaction). When the cryptocurrency is used to pay for goods, this is seen as dispos- ing the cryptocurrency, which causes a gain or loss to be recognized.
This transaction would be simi-
appreciated property into, or distrib- uted in kind from, trusts (other than revocable grantor trusts) and partner- ships may be treated as recognition events for the donor or donor’s estate. Valuation is another important con- cern in regard to a partial interest. The transfer of a partial interest would be at the ‘proportional share.’ Valuation discounts for minority interests will not apply.
Under Biden’s proposal, the donor would report any deemed recognition events on the donor’s gift-tax return. A decedent would report any capital
lar to selling the cryptocurrency. The amount of the sale would be the FMV of the cryptocurrency used to pay for the goods or services. The difference between the sales price (the crypto- currency used to pay for the goods) and the cost basis (the cryptocurrency received for the sale of the goods) would be the gain or loss on the sale.
This can be covered in the follow- ing example. The business accepts 20 Bitcoins (cryptocurrency) as payment for goods. On the date of receipt, Bit- coins are worth $1,500 each, as listed by Coinbase (the exchange). There-
gains on an estate-tax return or, poten- tially, a separate capital-gains return. A decedent would be able to offset capi- tal gains against any unused capital- loss carry-forwards and up to $3,000
of ordinary income on their final indi- vidual income-tax returns. Any capital- gains taxes deemed realized at death would be deductible on the decedent’s federal estate-tax return if required.
The proposal would be effective for gains on property transferred by gift and on property owned at death by decedents dying after Dec. 31, 2021.
With a 50/50 partisan split in the
fore, the business recognizes $30,000 ($1,500 × 20) of business income. A month later, when Bitcoins are trading for $2,000 on the Coinbase exchange, the business uses three Bitcoins to pur- chase supplies for the business. At that time, the business will recognize $6,000 ($2,000 × 3) in business expense and $1,500 [($2,000 – $1,500) × 3] of gain due to the Bitcoin exchange. Since the business is not in the trade or business of selling Bitcoins, the $1,500 gain is capital in nature.
As you can see, keeping track of cost basis could be difficult if you are con-
U.S. Senate, it is currently unclear what the final proposal will end up being. Now is the time to start thinking about the how the proposed changes will affect you. Make an appointment with your tax or financial-planning profes- sional to discuss what steps you should consider taking. You may need to be willing to act quickly should these pro- posals become reality. u
Jim Moran, CPA, MST is a manager with Melanson CPAs, focusing on commercial services and tax planning, compliance, and preparation.
ducting a lot of business in cryptocur- rency. There are programs that can do this for you. As with any business trans- action where taxes are involved (just about all of them), it is good to have a conversation with your tax professional to make sure that your business is in compliance with the tax laws. u
Sean Wandrei is a senior lecturer in Taxation at the Isenberg School of Management at UMass Amherst; [email protected]
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