It finally happened; Bitcoin has hit the $100,000 mark. From its humble beginnings in 2009, when it was valued at zero, to this historic moment, the road has been filled with tons of volatility, breakthroughs and global adoption. This is great news for the wallets of those who own Bitcoin, but it may mean something different when it comes time to complete their tax return.

First things first, let’s talk about how Bitcoin is taxed in general. The IRS treats Bitcoin as property, which means its subject to capital gains when sold or traded. The sales transactions will be reported on Form 1099-B. If Bitcoin is held for longer than a year, the taxpayer will be subject to long-term capital gains.

If Bitcoin is held for less than a year before selling, then it will be taxed at a short-term capital gain rate, which can be as high as ordinary income tax rate. Now, you may have received emails or phone calls from clients who are considering selling Bitcoin now that has hit the $100,000 mark. What would you tell your clients when they asked about the tax consequences of selling Bitcoin right now, and how much in taxes would they have to pay?

If the client is ready to sell Bitcoin because it reached the mark of $100,000, beware that selling it will be a taxable event. Long-term capital gains are taxed at 0%, 15% or 20%, while short-term capital gains are taxed at regular income tax rate 10% to 37% in 2024 depending on taxpayer’s income.

Let’s take a look at an example. Your client Cooper bought Bitcoin for $5,000 back in 2015 and sold it for $100,000 in 2024. Cooper made a $95,000 profit. If Cooper held the Bitcoin for over a year, that profit will be taxed as long-term capital gains, which could be anywhere from 0% to 20% depending on Cooper’s income bracket. Now, let’s assume Cooper’s taxable income is $25,000.

Since Cooper’s taxable income is $25,000, you need to add the $95,000 Bitcoin profit, making Cooper’s total taxable income $120,000. This amount determines the capital gains tax rate Cooper will pay. The first $44,625 of Cooper’s income will be taxed at 0%, since it falls within the 0% bracket. The remaining income above $44,625 ($120,000 - $44,625 = $75,375) is taxed at 15%. Therefore, Cooper is taxed at 0% of his $44,625, and 15% for his $75,375. How much tax will he need to pay, based on these calculations?

Cooper will pay $11,306.25 ($75,375 x 15%).

Bitcoin’s rise to $100,000 is a game changer, but with great profits come great tax responsibilities. The popularity of Bitcoin now and in the future provides tax preparers with more opportunities to help existing and future clients make the best of their financial situations.

To learn more about reporting virtual currency and digital assets like Bitcoin, attend NATP’s on-demand webinar, Introduction to Digital Assets.

Year-End Tax Planning for Individuals

As the year draws to a close, add value to your services with last-minute opportunities to lower your client’s tax liability or boost refunds. With expertise in the latest tax laws, you’ll guide clients in areas such as deductions, capital loss utilization, retirement account contributions and HSA contributions.

Below, you’ll find a few of the top questions from a recent webinar on year-end tax planning for individuals and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: How many years can the client claim the residential clean energy credit?

A: Limits on the credit are not a number of years. Rather, you can claim it for different components of a solar energy system on the same property in different years. So, if you install one element like solar panels, and then install different equipment that qualifies, you can take it multiple times.

Q: Can a taxpayer contribute to an HSA through their employer and have one on their own (assuming they don’t over-contribute)?

A: Yes, the major requirements of an HSA are that the individual is covered by a high-deductible health plan (HDHP) and that the annual contribution limit is not exceeded over all HSAs.

Q: Can a QCD be made from an employer pension system?

A: No, the contribution must be from an IRA. However, a pension that otherwise does not qualify can usually be rolled over tax-free into an IRA that can then complete the distribution.

Q: If you sell a business in the year you retire, can you protest the IRMMA due to a life-changing event?

A: Yes, it can be appealed; the instructor attested that he successfully appealed and won when his client sold their business.

Year-End Tax Planning for Businesses

Meeting with clients before the end of the year allows you to increase your per-client revenue by providing value-added services, such as tax planning. This also provides the opportunity to let clients know what steps they should be taking before the end of the year to both reduce their tax bills and make the 2025 filing season less stressful.

Below, you’ll find a few of the top questions from a recent webinar on year-end tax planning for businesses and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: How does an S corporation shareholder account for a home office deduction on their Form 1040?

A: There is no direct way to expense a home office deduction per se on an S-corp return that would flow through to the individual shareholder. That is why the accountable plan is valuable for S-corp shareholders, where a reimbursement plan can be set up for many expenses used for a home office.

Q: Is the accountable plan income included in Form W-2, Wage and Tax Statement?

A: No, it is not. The S-corp can deduct the payments, and the reimbursement is not included in the shareholder’s W-2.

Q: Can a SEP-IRA be an employee contribution-only plan?

A: No, only the employer can contribute to a SEP-IRA plan by statutory design.

Q: Can a single-member LLC taxed as an S-corp contribute to a SEP-IRA?

A: Yes. This IRS guidance has many links for setting up and contributing to a SEP-IRA plan: https://www.irs.gov/retirement-plans/retirement-plans-for-small-entities-and-self-employed.

To learn more about year-end tax planning for individuals and businesses, you can watch our on-demand webinars. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.

UPDATE: On Dec. 26, 2024, the 5th Circuit Court reversed an earlier stay, reinstating a preliminary injunction that prevents the Financial Crimes Enforcement Network (FinCEN) from enforcing the BOI filing requirements:

“However, in order to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments, that part of the motions-panel order granting the Government’s motion to stay the district court’s preliminary injunction enjoining enforcement of the CTA and the Reporting Rule is VACATED”

This ruling concludes that, while the court considers the appeal, the injunction stands, and BOI reporting is not required until a court decision is reached, providing a clear status update. 

We’ll continue to provide updates on this evolving issue.

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Dec. 23, 2024: The 5th Circuit Court of Appeals has granted the government’s emergency motion to stay a Texas district court’s nationwide injunction against the Corporate Transparency Act (CTA). CTA requires nonexempt companies to report their beneficial owners. Before the Texas court’s injunction, specified businesses formed prior to 2024 were required to file their initial beneficial ownership information (BOI) report with the Financial Crimes Enforcement Network (FinCEN) by Jan. 1, 2025, and new businesses were required to file within 30 days.

The stay means the CTA is now in effect. The court found that the government is likely to succeed on appeal, that leaving the injunction in place could cause significant harm, and that the public interest in preventing financial crimes outweighs any harm to the plaintiffs. The case will proceed quickly to the next available oral argument panel. FinCEN has yet to issue a response to the 5th Circuit’s order.

In its budget discussions of last week, Congress did not extend the BOI compliance deadline for existing businesses to Jan. 1, 2026, so the original deadline of Jan. 1, 2025, remains in place. As a result, the 5th Circuit’s decision has immediate implications for affected businesses.

As we previously advised, it is best to file these reports as soon as possible given the few remaining days left before the Jan. 1, 2025, due date. If you need education on this topic, we have an on-demand webinar available: Corporate Transparency Act: Reporting the BOI with FinCEN. This webinar is free for Premium level members. Professional level members can use code FREECPE at checkout to redeem a 1 or 2 CPE webinar per membership period.

We will continue to monitor developments and alert you to any changes or updates as they occur.