Oct 15 final 2017 tax deadline: Share your tax horror story with BlockTrades
Celebrating the end of our 2017 tax return nightmare
I’m happy to say that my partner and I just completed and filed our personal tax returns for 2017, just in front of the Oct 15 deadline. April 15th is the regular deadline in the US for calendar year filers, but you can get an extension for 6 months, and we really needed it this year due to the drastic changes made to the US tax code very late in 2017!
Note: As a way of celebrating the successful completion of the forms, we'll be upvoting the scariest and most interesting tax horror stories people leave as comments on this post.
New Tax Rules, New Headaches
These 2017 tax changes are formally known as the “Tax Cuts and Jobs Act” or TCJA for short, but are also referred to as the Trump Tax Plan although the plan was most written by corporate lobbyists rather than by Trump himself. There were moderate changes for most everyone in America, but the primary direct beneficiaries were companies, since the corporate tax rate was significantly lowered.
So for most Americans, I don’t think the new rules caused many headaches, but if you owned over 10% of a foreign company like we do, your tax computation got super complicated due to a new tax that our humorous overlords (or maybe their mischevious vassals) decided to call the “GILTI” (pronounced “guilty”) tax and another related tax generally referred to as a "Toll Charge". Despite the threatening names, the tax rates aren't that bad, but the computation of these new taxes can be enormously complicated, especially because, even as of this date, there aren’t clear guidelines for many of the implications of the new taxes.
Ambiguous new tax rules: tax accountants to the rescue...
All of this meant that for the first time we decided to hire an outside accounting firm to help us do our taxes and I can say with certainty it was the right decision. I’m sure I would have been tripped up on several subtle points associated with the new rules: to get these rules right, you really need someone who is full-time focused on tax accounting.
Even with an outside accounting firm helping out, we still had an enormous burden to compute our taxes properly, just processing the accounting books themselves to hand off the final data to the accountants (this wasn’t something that it was feasible to outsource to the accountants as the data is in a proprietary database and consists of millions of financial transactions spread across multiple database tables, plus their's crypto-specific issues to account for).
Steem accounting problems: computers to the rescue...
To process all the transactions from our service, we first reviewed the automated crypto-accounting system that I posted about earlier and then spent a few more man-months making further improvements to it, including speeding up the calculations by about a factor of 10, as it was starting take quite a few hours to run a report with all the transactions we have to handle.
We also had to make updates to the software based on changes to the way the most recent Steem wallet generates info about blockchain operations (e.g. reward operations, etc). As I think I mentioned in my previous post about our automated accounting system, Steem generates a lot of different forms of income (author rewards, curation rewards, power downs, SBD interest, SBD->Steem conversions, SBD/Steem trades, to name a few), and while that is good per se, it also increases tax complexity. Our accounting system was invaluable in tracking all those income streams.
Another thing we did was improve automated matching of transactions in our crypto wallets versus deposits and withdrawals from exchanges, because exchanges often don’t give you transaction hashes for your deposits and withdrawals that you can match against. Once we get a chance to analyze that data, I suspect we’ll be contacting some more exchanges for failed payments, if past history is any indicator.
The final product of our labor
So how complicated were our personal taxes this year? Around 80 pages each (that’s not counting worksheets, that’s just actual forms being sent to the IRS). Note these are not corporate taxes (those have always been complicated), this is personal taxes! If you are wondering how it can be so many pages, consider that in one case where we sent ~$150 to a foreign company we own to pay for some legal expenses, we had to file a 2 page form to declare it. Trees are probably screaming somewhere (yes, we electronically filed, but we also needed paper copies for other purposes)…
Lesson learned
The clear lesson the US government seems to be teaching via the tax code is that it doesn't want US citizens owning 10% or more of a foreign company (the rules are quite different for companies owning foreign subsidiaries, at least in terms of the effective tax rates). If my partner and I had each owned under 10% of BlockTrades, none of these taxes would apply. I had been planning to do an IPO for BlockTrades for a couple of years now (in retrospect, I'm glad I waited), but going thru this latest tax nightmare has convinced me that it's time to diversify our holdings, so we're going to start actively moving towards an IPO within the next year.
Share your Tax Horror Story
Now despite the time spent on this year’s taxes, I’m not sure this was the biggest “tax horror” I ever experienced, because there weren’t many moments of actual terror (there was a brief moment when I made an error in a spreadsheet and some numbers looked pretty ugly). So I guess the biggest scare I got was much earlier in my career when I got a letter from the IRS telling me I owed them $30K (which wasn’t too far from my total yearly salary at that time). Fortunately, that turned out to be I had added one too many zeros to a number on the form, so I just filed an amended tax return (one of the easier things to do in the US tax system as it turns out) and all was right in the world again.
If you made it thru this long post on our tax problems, then I'm guessing it's possible you probably have one or more of your own tax horror stories to tell. Share them below in the comments and I’ll upvote the best ones to combat the pain and suffering you went through.
EDIT: Shout-out to our accountant here on Steemit
I didn't want to mention him previously without his express permission, but we met our accountant (@cryptotax) here on Steemit. After some back-and-forth here, I became convinced he was our best choice to help us through the new tax regulations. If you're in the market for a crypto-savvy accountant, especially one who knows the ends-and-outs of Steem, I highly recommend him! Very competent and pleasant to work with as well.
Hey, @blocktrades.
Worst tax story happened roughly 13 years ago, so I might be a little hazy on the details. Here goes:
In February, 2005, we moved into a new home. Our taxes for 2004 were filed sometime after that, with our new address. In September of 2005, we ended up with a notice from the IRS that we owed back taxes on another year (1999, 2000—something like that). They'd conducted an audit of this previous year and decided they wanted to see proof of our donations, since the amount exceeded what they figured was normal.
The notice we actually received was like the third or fourth notice, since the previous ones had been sent to our old P O Box, but apparently not forwarded onto us. They were sent there despite the fact our new address was already in the system as early as mid-March. Apparently the change finally took place because this latest notice came to our new address.
Most of what we had claimed as donations went to the church we belong to in form of tithes and fast offerings. We couldn't just give them receipts or a print out—we had to do that, plus get the leader of the local church to sign an affidavit that we had actually made those donations.
Fortunately, the church keeps very good records, and so the bishop was able to sign the letter with absolute guarantee that we had paid that much to the church.
Not allowing the deduction caused us to owe a few thousand dollars in taxes, and since we had not replied the previous times they'd sent the notices, we also owed penalties and late fees. I think the total came in above $5,000.
Fortunately, a couple of months into this, I was able to get a hold of a local IRS agent and set up an appointment to see them. They were in a nondescript building (no signage whatsoever) with the drabbest decor I've ever seen (outside of an ICE office). He went over the proof and within a few minutes determined that we were good. All of the taxes, along with the penalties and fees they said we owed were rescinded. I think this was early 2006 when it was finally resolved.
All because the agent conducting the audit decided it wasn't possible for us to pay so much in donations based on my earnings. :)
That is both scary and sad. All that wasted effort and the tax agent responsible probably didn't miss a minute of sleep for all the trouble he caused you. It's lucky your church was so responsible in their record keeping!
I agree. It was very fortunate. Seems like the audit department was in Cleveland or some place like that, and they were only accessible by mail. So insulated they weren't going to even talk to me on the phone. As you said, probably never missed a wink, and probably never knew of the reversal, either.
That was an extremely generous upvote. Thank you for the chance to share the story. :)
@blocktrades,
I was once audited for an additional 6k owed in taxes. My tax agent said that was absurd and to wait it out with the IRS, 6 months later they said i owed 5k instead, 9 months later 4k, and finally by the end of the following year having sent in receipts that i had to xerox to them limited to 4 per page, which was roughly about 2000 pages in the end they reduced it to 1800 and took it out of the following year. what a painful nightmare dude.
Yep, that sounds pretty unpleasant.
My worst story is when two years after the fact, I got a notice that I was being audited by the IRS and I owed them like $2500. After panicking, I realized it was because THEY didn't count my student loan interest deduction. So I spoke to a human on the phone who was like ...yeah, you're right, don't worry, that was a stupid mistake on our part ...but I still had to go back and forth in the mail for months freaking out every time, even though the IRS guy right there on the phone the first time admitted it was an IRS mistake and I had done my taxes correctly.
Whee, beurocracy!
I know how painful it can be to get something corrected in the IRS's system. We had a similar experience on corporate taxes for SynaptiCAD, the first company we started. We opened up a second version of the company to switch from S corporation (passthrough tax entity) to a C corp (files taxes separately from its owners). That all went fine, but there was a brief period when both the old company and the new company were operational. On a tax filing for one company, we accidentally used the tax ID of the other company (I think this was for employment taxes we collected for the IRS, but it's been a while ago, so not sure). This was the only mistake on the form (we had the correct company name, etc), but I think it took many phone calls and almost a year to get it fully straightened out. Everything would seem good, then we'd get something else from them which made it clear it wasn't fixed everywhere. It's amazing how long it can take them to fix these kinds of minor errors.
Exactly that. The guy on the phone would say all fixed, then I'd get a letter saying otherwise, then I'd send in more forms, then I'd get another letter, then...
It seems all government works that way. The right hand doesn't know what the left hand is doing.
I have doing tax filing since year 2011 but this year it became horrible for me. I usually do tax return filing in July month after getting tax documents from my employer. As usual i did the same this year too. But in aug month I got a notice from tax dept with some transactions detail of Crypto purchase. Want to inform you that i did buy bitcoin and some other coins which i am still holding because now market is down. So basically there is no income from these transactions. Instead of tracking the income tax dept questioned me to explain why i didn't pay tax for Crypto transactions. I replied them mentioning the reason but they were not convinced and it was totally horrible experience for me. They asked me to visit their office along with all documents and evidences. I visited thier office with all the requisite documents and had a meeting and made them understand. But the problem is that they must understand if there is no income then why should I pay tax. From mid aug to early sep month was harrasment for me. From the time i received notice from tax dept and till the time i explained reason to them took almost 20 days of time and it was worst time for in tax filing till now since beginning. Though things are sorted now but i seriously hope next year i dont get something like this. This is my story @blocktrades
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That sounds worse than here: it sounds like they are actively persecuting you for just holding crypto.
Yes dear friend @blocktrades it was truly a torture. But after discussion of 2 hours I explained them about crypto and they agreed with my opinion. I was relaxed when they issued me no due letter. Have an amazing day.
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Dear @blocktrades thank you so much for full vote and considering my story worth it. It means a lot for me and I thank you from the bottom of my heart. Its a great motivation. Have a great weekend.
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Here is my personal story. I am happy that the outcome was favorable.
The final year I attended school, I made a tuition payment eligible for the American Opportunity Tax Credit (which was $2,500 tax reduction, a credit is much more powerful than a deduction). There is a maximum of 4 credits per taxpayer (previously 2 under the Hope credit rules prior to expansion to 4 years). You can take the hope credit for the first four academic years of tuition. Practically, this spans 5 tax years or more sometimes as academic years are based on credit hours (most taxpayers and even accountants don't know this but I've read the hope credit regulation front to back). My parents took the credit 3 times while I was a dependent, and skipped the 4th year, and I claimed the credit on my final year when I wasn't a dependent due to having a full time job to support myself.
I received a IRS notice indicating I owed $3,000 because I did not receive a 1098-T from the educational institution demonstrating that I paid eligible tuition expenses. They billed it in the fall of the previous year and reported it on the previous year Form 1098-T.
The irony here, is that educational institutions are permitted to issue Form 1098-T on an accrual basis when tuition is billed. However, the taxpayer entitlement to a credit is based on a cash basis. I can't think of a dumber rule to be honest (see sidebar at the bottom).
Long story short, the final year I made a tuition payment to claim my fourth AOTC credit (there is a maximum of four total), I received an IRS notice for $3,000 due.
It took 10 months to clear up the notice. Being a tax accountant I drafted a long powerful response with support of my payment in the final year in which I had not received a 1098-T. I wrote an explanation of why Form 1098-T was elected as accrual basis by the university and I would not be able to produce a 1098-T on a cash basis for this reason. I cited not only Form 1098-T explanations but the regulations for the hope credit (later AOTC credit) and the regulations for the 1098-T requirements.
The IRS rejected my initial letter and re-affirmed I owed.
So I had to have my uncle that is a CPA get involved (and I didn't have this designation at the time only recently graduating). My uncle put my explanation on his letterhead and sent it in. Result: 4 months later they dropped the bill.
Side Bar
The IRS is in the process of changing Form 1098-T to avoid issues like this in the future by requiring universities to report tuition on a cash basis (when paid): https://tax.thomsonreuters.com/blog/onesource/what-a-new-irs-change-to-form-1098-t-means-for-colleges-and-students/
This story is just representative of the fact that the IRS itself just doesn't "get" all the implications of its own rules. And I'm also saddened but not surprised that your explanation had to be presented as coming from a "real" CPA in order to be believed.
Also thank you for the shoutout!
Mmmm..... The Final is coming and Taxes will be handled automatically by the Monsters. No more taxes if you don't have money.
This story is really a real horror tale about control, In my country (Uruguay - South America) people will have no more worries about taxes or maybe they will.
In here we are like a kind of laboratory to check in some experiments works, and after some time they will copycat the same model all over the world. Happened with abortion, weed and now with taxes and money.
Let me explain... now the government is making a mandatory law that is running step by step to make all the sheeps obedient to the system little by little.
The Mandatory Financial Inclusion that is in here is about banning all the Cash that exist and no physical currency will be allowed, no Uruguayan Pesos, no Dollars, nor Euros, nothing. Only debit and credit cards and anything else.
Total control by the Government and the Private Banks... to take care of all the sheep's money.
For example, the money you get, now everything will go throw the bank, no exceptions, you want to buy a car? or a house? or something beyond 4.999 Usd, well you have to justify from where the money cames if not you will be in a legal trouble.
Do you want to buy milk? you will have to do it by Credit Card or debit card from your lovely bank if not you will be starving. Anything you want to do will be in that way and it's mandatory
The good thing? we will not have to make any paperwork anymore to have a tax return or inform because you will not be able anymore to move any penny without a private bank permission, so they will do the work for you, controlling everything you all the time and owning your money to make loans and extend the slave circle.
So, after all, having a Nightmare is not so bad... the worst situation can be to don't even breath!
I know this sound like a cheap tale but is not. By the way, I'm working with the Entrepreneurs Chamber of the state to change this situation and make a Plebiscite so let's see if we can wake up asap!
At least guys, if you have a nightmare is cause you are alive and in here... we are almost dead!
That sounds pretty scary. Is barter allowed?
Hehehehe...seems to be the only way that the third world will be making business.
Thank You @blocktrades, I know this one may seem trivial but back in 1989 I mailed in my Taxes in a Regular Envelope at the time about one week before April 15th Deadline and the envelope was returned back to me for .03 Postage Due on April 17th. The Moral of this Tax Nightmare is that I Never ever Mailed my Tax Forms in after that without going to the post office to make sure I had proper postage because it Cost me $159.00 in Fees and Penalties due to Late Filing. That was me trying to be Thrifty and just save some time by not going to the Post Office and paying a little bit Extra for Certified Mail and Return Receipt...........Lesson Learned. Thank God for Electronic Filing now. Maybe IRS goes away in the Future..........
My partner has been a big believer in using certified mail for filing taxes for as long as I can remember (she's the pessimist in our relationship). It always annoyed me "wasting" even more money to pay the government (via the US Postal Service) to make sure they successfully delivered the money to themselves to avoid paying penalties. But I guess it wasn't wasted money as the same thing that happened to you could have easily happened to us. Agreed on the online filing, now if we could just vote online...
@blocktrades I am So Grateful for your Service that I have availed myself to many times since I started on STEEMIT. Your Kindness in Sharing with the Community is Second to None.
By the Way YES YOU GET IT !!! The American Citizen has been so Abused most of their Lives by the Govt., with a little bit of LOVE and Consideration we can effect Change and hopefully it will be a Better World for all of us. I believe Crypto is going to Create a New Freedom and of Course I do Believe in Precious Metals Physical in your Possession. We are getting Closer to True Freedom and I hope to see it in the not to Distant Future.............Thank You again @blocktrades
@blocktrades at times taxing and its problem make sick, let me share an experience, actually it's not directly on me but indirectly it's really on me ,I'll just keep it brief and simple don't want to bore you with details .
5 years ago, I and my mum had a hell of an experience with our taxes, I just thank God for you guys overseas cus it seems your government and people are more mature and contented, but Here in Africa that's an apology , take it from me.
Since my mum is a bit advanced in age I run most of her errands like that of paying taxes, so I knew the weight of funds that usually lives us for taxes Monthly, mostly because of our small business.
In my country Nigeria, I don't mean to be disrespectful or unpatriotic but I'll say boldly that corruption knows no bounds .5 years ago a new tax verification system was introduced In my country, the TIN tax identification number, we're all eligible tax payers would enrolled and get an ID number during it's introduction my mum escorted by Me, went for the registration and she got the card, she was given an option to pay her taxes via banks or still continue paying directly at the IRS but since she was used to the system she still continue with it 2years ago the IRS called our notice that we were owing so much we became very surprised and thought it was a mistake and asked that they verified the names or we sue them but there rather told us we were actually owing ,then questions were asked ;how ,when ,why? In fact we had witnesses .
but after long verification we realized that my mum was scammed, she met with a fake officer who gave her a fake card and that all we were paying had no were it was going , all the same she enrolled again officially and we started paying the debts thank God few months ago we cleared our areas and we are now free, I just hope my country gets better.....
@blocktrades am telling thats was real horror .it's just always sad when we are faced with predicaments of that nature, but all the Same its well.
Did they ever catch the fake guys?
No my dear
I don't mean to be Unpatriotic but the rate of corruption in my country is very alarming , growing from strength to strength , but all the same I still wish the best for my country
And also @blocktrades thanks for the upvote , I really appreciate .
I also find the activity done with cryptocurrencies complicated when it comes to taxes given they are treated as property. This is unfortunate because it makes it more difficult for people to adopt them for everyday payments but I am sure we will get there one day to facilitate it. This is my first year on STEEM so my excel workbook already has hundreds of lines to determine my taxable income so it will be interesting.
Regarding my tax horror story, I recently moved from a foreign tax jurisdiction back to the United States. The first year I was literally half the time resident of both jurisdictions. Despite knowing my taxes, I hired an accountant which took 5 months to prepare. I submitted them with a hefty but manageable tax liability. However, the forms included receiving a big refund from one jurisdiction with a equal payment to the other. Unfortunately, everything went fine with the payment return but the jurisdiction that owed me money sent a letter months later asking for $80k in liability instead of the refund. The issue was they did not accept a prorated share of the deductions claimed due to my partial time in two countries. After a couple of letters, they finally applied them and processed a lower refund which made my payment higher. What was worst is that it took almost a year to get the refund! Imagine the Steem I could have bought with that!
That definitely sounds like a real nightmare!
The taxation rules for people who earn money across multiple tax jurisdictions have always been scary to me (e.g. how to successfully avoid paying taxes twice on the same earnings). I've paid taxes twice on some small foreign income I had from stocks, just because it was easier than figuring out and filing the associated tax forms for reducing my US tax payment by the foreign taxes paid.