On 3/1/23, the IRS published a Tax Time Reminder to all Taxpayers to report all income; gig economy and service industry, digital or foreign assets and sources. IRS is seeking to ensure that taxpayers understand their reporting and potential tax obligations and file an accurate 2022 tax return. Taxpayers ought to remember that most income is taxable, even if they didn’t receive a year-end document such as Form 1099-MISC, Miscellaneous Income; Form 1099-INT, Interest Income; Form 1099-NEC, Non-employee Compensation. Filing an accurate 2022 tax return and paying taxes on time is essential to avoid interest and penalties and the possibility of having a lien against the taxpayer. Going through statements, receipts, tax forms and other financial documents when it’s time to prepare to file the 2022 tax return is an essential. A good record-keeping system year-round can make filing the 2022 tax return easier by knowing what to keep and how long to keep it for. Moreover, good recordkeeping can also assist taxpayers if they receive a letter or notice from the IRS. That said, this is why IRS reminds taxpayers: Choose a tax professional carefully.
IRS Reminders for the 2022 Tax Return
- Gig economy earnings are taxable. The gig economy is activity where people earn income providing on-demand work, services, or goods, such as selling goods online, driving a car for deliveries or renting out property. Often, it’s through a digital platform like an app or website. Taxpayers must report income earned from the gig economy on a tax return, even if the income is:
- From part-time, temporary, or side work.
- Paid in any form, including cash, property, goods, or digital assets
- Not reported on an information return form like a Form 1099-K, 1099-MISC, W-2 or other income statement.
- Service industry tips are taxable. Tips are optional cash or noncash payments customers make to employees. Cash tips include those received directly from customers, electronically paid tips distributed to the employee by their employer and tips received from other employees under any tip-sharing arrangement. All cash tips must be reported to the employer, who must include them on the employee’s Form W-2, Wage and Tax Statement. Noncash tips are those of value received in any other medium than cash, such as: tickets, passes or other goods or commodities a customer gives the employee. Noncash tips aren’t reported to the employer but must be reported on a tax return.
- Digital asset reporting and tax requirements. There’s a question at the top of Forms 1040 and 1040-SR that asks about digital asset transactions. All taxpayers filing these forms must check the box indicating either “yes” or “no.” If an individual disposed of any digital asset that was held as a capital asset through a sale, exchange or transfer, they should check “Yes” and use Form 8949, Sales and other Dispositions of Capital Assets, to figure their capital gain or loss and report it on Schedule D (Form 1040), Capital Gains and Losses, or Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, in the case of a gift. Examples of transactions involving digital assets include:
- A sale of digital assets.
- The receipt of digital assets as payment for goods or services provided.
- The receipt or transfer of digital assets for free (without providing any consideration) that does not qualify as a bona fide gift.
- The receipt of new digital assets as a result of mining and staking activities.
- The receipt of new digital assets as a result of a hard fork.
- An exchange of digital assets for property, goods or services.
- An exchange/trade of digital assets for another digital asset(s).
- Any other disposition of a financial interest in digital assets.
If individuals received any digital assets as compensation for services or disposed of any digital assets they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type (for example, W-2 wages on Form 1040 or 1040-SR, line 1a, or inventory or services on Schedule C).
- Report foreign source income. A U.S. citizen or resident alien’s worldwide income is generally subject to U.S. income tax, regardless of where they live. They’re also subject to the same income tax filing requirements that apply to U.S. citizens or resident aliens living in the United States. S. citizens and resident aliens must report unearned income, such as interest, dividends and pensions from sources outside the United States unless exempt by law or a tax treaty. They must also report earned income, such as wages and tips, from sources outside the United States. An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are available only if an eligible taxpayer files a U.S. income tax return.
- Reporting required for foreign accounts and assets. Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts. In most cases, affected taxpayers need to complete and attach Schedule B (Form 1040), Interest and Ordinary Dividends, to their tax return. Part III of Schedule B asks about the existence of foreign accounts such as bank and securities accounts and usually requires U.S. citizens to report the country in which each account is located. In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds.
Separate from reporting specified foreign financial assets on their tax return, U.S. persons with an interest in or signature or other authority over foreign financial accounts where the aggregate value exceeded $10,000 at any time during 2022 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages U.S. persons with foreign assets, even relatively small ones, to check if this filing requirement applies to them.
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