Monthly Tax Update
Welcome to June, and with this, the celebration of Father’s Day and the start of summer. This month, I bring clarifications to address confusion and issues that have arisen in the 2025 individual tax season.
I will start with digital assets. Most problems were for clients answering the digital asset question incorrectly, incomplete information required for gain/loss reporting from exchanges done during the year, missing or unreliable cost of basis documentation for gain/loss reporting, taxpayers assuming wallet transfers were taxable events and greater IRS matching activity tied to third-party reporting. Many taxpayers still don’t recognize the difference between holding, transferring and disposing of digital assets. Also, sometimes software imports masked incomplete transaction histories, leading to under-reporting. For next tax season, let your tax preparer know if you invest in any digital assets and they will determine your filing requirements.
Next, reporting amounts on Form 1099-K for card payments received by your business. Some taxpayers prepared their Form Schedule C for their business income on their personal tax returns, reporting the gross sales without filing Form 1099-K. In those circumstances, the IRS may send you a letter adding the amount from 1099-K to your total gross income and increasing your tax liability. The solution is to file an amended tax return and allocate the correct amounts. Remember, Form 1099-K only reports gross card transactions; you will need your sales summary to deduct fees and expenses.
Moreover, as you may have heard many times, buying a vehicle and using it for business expenses may not result as you plan. The amount deducted is only the portion used for business. For example, if you drove a total of 10,000 miles during the year and only 1,000 for business, then only 10% of your vehicle expenses, including depreciation, can be used as a deduction. The IRS required you to keep a mileage log tracking your personal vs. business miles, including the miles driven, date, destination and business purpose.
Next, as the IRS continues to expand its data analytics capabilities, matching programs are becoming more sophisticated. This tax season has seen an increase in IRS CP2000 for matching notices and information return mismatches, especially on Forms 1099’s. I encourage you to wait for consolidated brokerage statements before filing your taxes. Many clients have been receiving corrected 1099s at the end of March, after their tax returns were filed.
Lastly, taxpayers receiving social security income need to evaluate how the sale of a property, stocks or an additional retirement distribution may increase the taxability of their social security income.
More good tax stuff next month. Remember, this is a very brief overview. It is your responsibility to discuss any tax and financial changes with your professional advisor for assistance in evaluating your situation.
For details and specific assistance in applying the general information in this article, call us at your earliest convenience or contact your tax advisor. Provided by Pedro L. Baldeon, E.A., 321-632-5726, a member of the National Society of Tax Professionals.
