Author: crubenacker

Gig economy work can affect a taxpayer’s bottom line

Taxpayers who work in the gig economy need to understand how their work affects their taxes. A little pre-planning can help make sure gig economy workers are prepared when it’s time to file their tax return.

First things first, here’s a quick overview of the gig economy:

The gig economy is also referred to as the on-demand, sharing or access economy. People involved in the gig economy earn income as a freelancer, independent worker or employee. They use technology to provide goods or services. This includes things like renting out a home or spare bedroom and providing car rides.

Here are some things taxpayers should know about the gig economy and taxes:

• Money earned through this work is usually taxable.

• There are tax implications for both the company providing the platform and the individual performing the services.

• This income is usually taxable even if the:
o Taxpayer providing the service doesn’t receive an
information return, like a Form 1099-MISC, Form
1099-K, or Form W-2.
o Activity is only part-time or side work.
o Taxpayer is paid in cash.

• People working in the gig economy are generally required to pay:
o Income taxes.
o Federal Insurance Contribution Act or Self-
employment Contribution Act tax.
o Additional Medicare taxes.

• Independent contractors may be able to deduct business expenses. These taxpayers should double check the rules around deducting expenses related to use of things like their car or house. They should remember to keep records of their business expenses.

• Special rules usually apply to rental property also used as a residence during the tax year. Taxpayers should remember that rental income is generally fully taxable.

• Workers who do not have taxes withheld from their pay have two ways to pay their taxes in advance. Here are these two options:
o Gig economy workers who have another job where
their employer withholds taxes from their paycheck
can fill out and submit a new Form W-4. The
employee does this to request that the other
employer withholds additional taxes from their
paycheck. This additional withholding can help cover
the taxes owed from their gig economy work.
o The gig economy worker can make quarterly
estimated tax payments. They do this to pay their
taxes and any self-employment taxes owed
throughout the year.

 

Excerpt for IRS Tax Tip 2020-06

IRS Issues Guidance on Virtual Currency, Second Draft of Form 1040 Schedule 1

In October 2019, as part of a wider effort to assist taxpayers and to enforce the tax laws in a rapidly changing area, the Internal Revenue Service issued two new pieces of guidance for taxpayers who engage in transactions involving virtual currency. The new guidance includes Revenue Ruling 2019-24 and frequently asked questions (FAQs). It supplements the guidance the IRS issued on virtual currency in Notice 2014-21 that describes how virtual currency is treated for federal tax purposes.

In addition, the IRS has now issued the second early release draft of the 2019 Form 1040, Schedule 1, Additional Income and Adjustments to Income, which includes the following checkbox question:

At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency? ◊ Yes ◊ No

Taxpayers who file Schedule 1 to report income or adjustments to income that can’t be entered directly on Form 1040 should check the appropriate box to answer the virtual currency question. Taxpayers do not need to file Schedule 1 if their answer to this question is NO and they do not have to file Schedule 1 for any other purpose.

The related draft Form 1040 instructions, also now available on IRS.gov, include instructions to help taxpayers determine how they should answer this new question.

If you missed the tax deadline, these tips can help

The tax filing deadline has come and gone. If you didn’t file a tax return or an extension, but should have,  you need to take action now. Here are some tips to help you: (if you’re living abroad  you have until June 15, 2019 to file for an extension)
• There is no penalty for filing a late return after the tax deadline if a refund is due. If you didn’t file and owe tax, file a return as soon as you can and pay as much as possible to reduce penalties and interest.
• For those who qualify, IRS Free File is still available on IRS.gov through October 15 to prepare and file returns electronically.
• If you don’t qualify for IRS Free File, you can use Free File Fillable Forms to e-file. This option uses electronic versions of IRS paper forms. It does some of the math and works best for those who are comfortable doing their own taxes.
• You can get fast answers about your refund by using the Where’s My Refund? tool available on IRS.gov and through the IRS2Go mobile app. All you need is your Social Security number, tax filing status and the exact amount of your refund. Where’s My Refund? is updated no more than once every 24 hours, usually overnight, so you don’t need to check the status more often.
• If you owe taxes, you can view your balance, pay with IRS Direct Pay, by debit or credit card or apply online for a payment plan, including an installment agreement. Before accessing your tax account online, you must authenticate your identity through the Secure Access process. Several other electronic payment options are available on IRS.gov/payments. They are secure and easy to use. If you pay electronically, you’ll receive immediate confirmation when you submit your payment. Also, with Direct Pay and EFTPS, you can opt in to receive email notifications about your payments.
• If you need more time to pay your taxes, you can apply for an installment agreement with the IRS. The best way to apply is to use the IRS Online Payment Agreement tool. Once you complete the online process, you’ll receive immediate notification of whether your agreement is approved.

No matter how or when you file, you should keep a copy of your tax return and all supporting documents.

 

Courtesy of the IRS: May 10, 2019

Where’s my refund?

Taxpayers can access Where’s My Refund? anytime to track their refunds. They can find this tool on both IRS.gov and the IRS2GO app. The IRS issues most refunds in less than 21 days, although some require additional time. Agency customer service representatives can’t answer refund questions unless it has been:

  • 21 days or more since the taxpayer e-filed
  • 6 weeks or more since the taxpayer mailed their return

Also, in some cases “Where’s My Refund” may tell the taxpayer to contact the IRS.

Taxpayers can also call the automated IRS refund hotline at 800-829-1954.

Validate identity
Taxpayers who call the IRS with questions about their account should be ready to verify their identity. IRS telephone assistors may ask a series of questions to confirm the identity of callers. Many of the answers to these questions come from the taxpayer’s prior year tax return.

 

Excerpt from: IRS Tax tip 2019-09