Terry Selb’s Advice on COVID-Related Tax Traps
COVID, as a modern-day pandemic, has caused a lot of changes. It has redefined people’s roles, politics, and habits. However, the pandemic has also been a catalyst for new creativity and innovative business ideas. Sometimes, out of necessity — and other times out of more ability to focus, many people realized new financial opportunities thanks during the pandemic. This includes traditional ideas like starting new businesses as well as unique actions like building new treasures with crypto currency or NFTs. However, in every situation, Terry Selb points out, there is one commonality: tax implications. And that may very well be yet another widespread impact of COVID and the side effects of the virus.
Earning More Income
Terry Selb notes that while the world has changed due to a pandemic, the tax rules did not. If one earns income, it’s taxable. And if one earns more income, the amount owed increases as well. However, unlike regular jobs, where employers take care of the tax withholding every month from paychecks, folks who started their own businesses and second jobs often did so as independent contractors or sole proprietors. In both cases, there is no withholding from a paycheck, which Terry Selb reminds people, and instead, earners have to pay estimated quarterly taxes and self-employment taxes. For most people, the additional income earned is not enough and generally can be reported at the end of the year with normal income tax filings. However, Terry Selb reminds taxpayers, those earning more than the threshold have to pay their estimated taxes quarterly, or they could owe penalties for not sending payments in a timely manner.
Oddly enough, 2020 and 2021 were great years for those who decided to find wealth in digital assets. Bitcoin rocketed from $30,000 in November 2020 to as high as $64,000 in the spring of 2021. However, anyone who sold at a high point and made a big profit in 2021 will owe capital gains taxes on those gains during tax season in 2022. Additionally, Terry Selb points out, if the overall income is high enough, individuals could even be eligible for the alternative minimum tax, an even more costly tax bracket than normal. While many folks should have saved a portion of the profits for their 2021 tax liability, it is likely many more did not.
Yet there’s a more shocking situation: Terry Selb focuses on the rare but lucrative crypto situation of the airdrop. Unlike a typical crypto sale made with a gain after buying it at a lower price earlier, an airdrop or payment in crypto for service is considered as regular taxable income. Terry Selb reminds crypto advocates that it’s a much higher tax exposure than a capital gains tax. Again, if people have not saved a portion of their taxes due, it will come back to bite.
Sadly, COVID triggered a lot of estate transactions as property and real estate were passed to the next generations from those who passed away. And, Terry Selb notes, those come with tax ramifications in the form of “inheritance tax”. Most cases are usually under the threshold or the estate passed to a surviving spouse. However, in larger estate values, the tax implications are present and real, especially with passed-on Individual Retirement Account balances.
In short, COVID has several tax ramifications that are yet to manifest. Experts like Terry Selb and American Tax Solutions can help with the chaos, but first and foremost, people need to save ahead of time. The more you have stored up for taxes, the less painful it is at tax time.