August 02, 2022
The tax deadline is approaching, so the IRS is sending out their yearly reminder to not only get your returns in on time, but also to declare various sources of income that you may have forgotten about. For example, money made as a freelancer via the gig economy or through the sales and purchases of virtual currency, like Bitcoin, are all considered to be taxable income. In addition, any foreign sources of income, as well as foreign assets, need to be reported as well. Let’s go over these in more detail.
Yearly Tax Return Deadline
Every year the tax deadline changes slightly. This has been more so in recent years than usual, thanks to the pandemic, which pushed the deadlines back considerably. Thankfully, this year things have returned to normal to this year, and the deadline is April 18, 2022.
In addition to making sure that people understand exactly when the deadline to submit their returns is, the IRS also issues a number of reminders leading up to that date regarding certain things that need to be declared on tax returns, just in case people forget. This particular year, the reminders are for gig economy workers, those who buy and sell virtual currency, people who earn income in foreign countries, and citizens who own foreign assets.
It’s crucial to not forget about these things when filling out a tax return, as doing so can lead to delays in getting your tax return processed, as well as the potential to have your return selected for audited.
Freelance and Gig Economy Income is Taxable
While most freelance and independent contractor income appears on a 1099 form, making it easy to report, not all of it does. This applies to people who work in the gig economy, who also may consider themselves to be freelancers of a sort. Examples of gig economy jobs include working for:
- And others
In addition to those delivery and task-based jobs, others that fall into this category are people who sell or flip goods through eBay, Mercari, Facebook Marketplace, and Poshmark, along with other sales apps. While these sales platforms will begin issuing 1099s next January to sellers who made over $600 over the course of this calendar year, any current income from them needs to be reported on 2021 tax return.
Thankfully, many of the apps and platforms utilized by these services make it easy to see how much a person has earned over the course of 2021, so finding the right numbers to report are simple. However, in some cases, things like vehicle usage, gas expenses, and even car insurance may be considered deductible expenses, although it depends on the type of gig-based job and the type of records that the worker has kept.
If you have any questions about declaring gig economy income on your tax return, please see an expert tax preparer, as filling out the forms incorrectly can lead to having to pay fines and penalties to the IRS.
Don’t Forget to Declare Virtual Currency Transactions
Just like traditional stock investments, virtual currency transactions, like those made in Bitcoin and other cryptocurrency formats, need to be declared on your tax return. The IRS has made this easy to remember, thanks to a useful question at the top of the 1040 and 1040-SR forms that ask about any virtual currency transactions.
Of course, since virtual currency isn’t quite like making investments via the stock market, there are plenty of different categories that your transactions may fall under, all of which need to be declared on your tax forms. For example, if you mined virtual currency and were successful, or used a hard fork to receive virtual currency, you need to declare it. In addition, receiving cryptocurrency either through the sale of goods and services or as a gift (one that doesn’t count as a free gift) needs to be noted and listed as well.
This goes even further to include any virtual currencies that were exchanged for goods and services (different than receiving them outright for selling items), and even trades and exchanges of one virtual currency for another. For example, if you traded some Bitcoin for Dogecoin, then that must be declared on your tax form.
Finally, bringing cryptocurrency into a category closer to traditional stocks, if you sold some virtual currency, whether or not you made money on it, or if you otherwise dispossessed yourself of your virtual currency holdings, this needs to be listed on your taxes as well. Form 8949 contains all of the information that you need to determine your cryptocurrency gains and losses.
Foreign Sources of Income Must be Included
U.S. citizens, even those who live in foreign countries some of the time, need to declare any income made from foreign sources (those not located in the United States) on their tax returns. In addition, resident aliens of the United States, also regardless of where they live, need to declare this income on their returns as well.
On top of having to include any earned income on their tax returns, unearned income needs to be included as well. Examples of unearned income include pensions, interest, and dividends that are earned from sources based outside of the country. Any tips or other typically unreported income need to be listed on that tax return as well.
Keep in mind that there are certain exemptions to these declarations, such as the Foreign Tax Credit and the Foreign Earned Income Exclusion, both of which can lighten your tax burden, as long as you qualify for them.
Finally, if you are a member of the military stationed overseas, or are simply a U.S. citizen living and working outside of the United States (Puerto Rico is included as part of the United States for this regulation.), you have an automatic extension on your tax return. Instead of having to submit it by April 18th, you have until June 15th.
The IRS Requires You to Declare Foreign Assets
On top of any income made from foreign sources, the IRS also requires taxpayers to declare any foreign assets that they may own. These include money made, such as interest, on any funds help in foreign bank accounts or trusts. Schedule B, which ends up getting submitted along with the rest of your tax return, is where this particular form of interest needs to be listed.
There are also specific reporting and declaration requirements for other types of foreign assets as well. Property and businesses owned in other countries are two examples of things that fall into this category. These foreign assets must be listed on Form 8938, in addition to the required line for this form on your 1040.
Plus, people who have access to or own a foreign bank account that has more than $10,000 in it are subject to additional reporting requirements. In order to crack down on money made via illegal means, a special report needs to be filed with the Financial Crimes Enforcement Network. This form, called a Form 114, should be carefully filled out and submitted as required.
Other Tax Reminders
In addition to the reminders described above, all of which inform taxpayers to declare certain types of income and assets on their tax returns, there are some additional things that need to be noted as well. For example:
- Now Is the Time to File an Extension – If you think that you may need additional time in order to get your financial records in order and file your taxes, now is the best time to ask for an extension. Remember that filing late can add to your tax burden because the IRS will begin assessing fines, interest, and other penalties once your return in late. This makes asking for an extension a good idea because it prevents those from kicking in before your new deadline.
- Economic Impact Payments – If you did not receive the full amount of last year’s economic impact payment, yet qualified for it, you will need to report this on your tax form. The IRS may determine that you were indeed qualified to receive the full amount, and include that amount with your financial tax return.
- Requesting Professional Help – Although this is a very busy time of year for professional tax preparers, this doesn’t mean that they unavailable to assist you and answer questions. If you think that you need professional help with your tax return for any reason, now is the time to contact a professional service and set up an appointment.
Contact Us Today
If you have freelance earnings, virtual currency earnings, foreign income, or foreign assets and have questions about declaring them on your tax returns, then reach out to the tax advisors at the Enterprise Consultants Group. We can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free and confidential consultation to see how we can help you.
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