Month: August 2021

When you travel to a business location where you spend the night, you are in travel status. But will the tax rules make this a business or personal night?

The rules also affect your costs during the day. When you have an overnight business travel day, you generally deduct your costs of sustaining life for the day, such as breakfast, lunch, dinner, snacks, drinks, lodging, and taxis.

Business days also are important in determining how much of your travel cost you may deduct. For example, on a seven-day trip to London, one business day makes the airfare deductible.

Yep, you heard that right. Six personal days and one business day in London—you deduct 100 percent of the airfare.

Transportation days are the trickiest days. 

Days spent traveling to or returning from a destination outside the United States are treated as business days—provided you use a “reasonably direct route” and you don’t engage in “substantial diversions for non-business reasons” that prolong your travel time.

If you don’t use a reasonably direct route, you count as business days the amount of time that a reasonably direct route would have taken. 

Similarly, if you engage in substantial non-business diversions, you count as business days the amount of time it would have taken without such diversions.

These rules apply to whatever mode of transportation you use. So if you travel by airplane and don’t take a reasonably direct route, you count as business travel days the number of days an airplane would take to reach your destination by a reasonably direct route. The same is true for travel by car or cruise ship.

Once you are at your business travel destination, if a Saturday, a Sunday, a legal holiday, or another reasonably necessary standby day intervenes while you endeavor to conduct your business with reasonable dispatch, you treat such a day as a business day.

If you have questions about your business travel, please don’t hesitate to call me.

• By Leon Clinton
• August 13, 2021

Qualifying for tax deductions on a yacht or other luxury boat requires tax knowledge.

First, more than 50 percent of your use of the yacht must be for business transportation.

Once you meet the “more than 50 percent” test, your potential tax deductions include fuel costs, insurance, repairs, dock or slip fees, caretakers’ salaries, hurricane storage, and depreciation (including IRC Section 179 deductions)—all of which are limited by tax rules on luxury water transportation. 

Second, the yacht is an entertainment facility. Tax law treats entertainment facilities harshly, so you need to seriously consider providing no business entertainment on this yacht. This should be easy to do because business entertainment is no longer deductible, thanks to the Tax Cuts and Jobs Act.

The luxury water travel limits can change monthly. During 2020, the lowest luxury water travel limit was $760 a day and the highest was $988. Say that your yacht expenses exceed the daily limits and that you used your yacht 45 days for business transportation. At the lowest limit, your yacht deductions would be $34,200 (45 x $760)—not a bad payoff for a little tax knowledge.

If you would like to discuss your possible yacht deductions, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• August 8, 2021

Here’s something to know about cryptocurrencies.

Because cryptocurrencies are classified as “property” rather than as securities, the wash-sale rule does not apply if you sell a cryptocurrency holding for a loss and acquire the same cryptocurrency before or after the loss sale. 

You just have a garden-variety short-term or long-term capital loss depending on your holding period. No wash-sale rule worries. 

This favorable federal income tax treatment is consistent with the long-standing treatment of foreign currency losses.

That’s a good thing, because folks who actively trade cryptocurrencies know that prices are volatile. And this volatility gives you two opportunities:

1. profits on the upswings
2. loss harvesting on the downswings

Let’s take a look at the harvesting of losses:

• On day 1, Lucky pays $50,000 for a cryptocurrency.
• On day 50, Lucky sells the cryptocurrency for $35,000. He captures and deducts the $15,000 loss ($50,000 – $35,000) on his tax return.
• On day 52, Lucky buys the same cryptocurrency for $35,000. His tax basis is $35,000.
• On day 100, Lucky sells the cryptocurrency for $15,000. He captures and deducts the $20,000 loss ($35,000 – $15,000) on his tax return.
• On day 103, Lucky buys the same cryptocurrency for $15,000.
• On day 365, the cryptocurrency is trading at $55,000. Lucky is happy.

Observations:

• Assuming Lucky had $35,000 in capital gains, Lucky deducted his $35,000 in cryptocurrency capital losses. If he had no capital gains, he had a $3,000 deductible loss and carried the other $32,000 forward to next year.
• On day 365, Lucky has his cryptocurrency, which was his plan on day 1. He thought it would go up in value. It did, from its original $50,000 to $55,000.
• Lucky’s tax basis in the cryptocurrency on day 365 is $15,000. 

Here’s what Lucky did:

1. He kept his cryptocurrency.
2. He banked $35,000 in losses.

Be alert. Losses from crypto-related securities, such as Coinbase, can fall under the wash-sale rule because the rule applies to losses from assets classified as securities for federal income tax purposes. For now, cryptocurrencies themselves are not classified as securities.

Planning point. If you want to harvest losses, make sure you hold a cryptocurrency and not a security.

If you would like to discuss cryptocurrencies, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• August 5, 2021