The IRS Warns Taxpayers Not to Forget These 4 Things When Filing
The tax agency has sent out an important new alert for filers.
The 2022 tax season is nearly two months underway already, but if you haven't started looking at your financials yet, you're hardly alone. The Internal Revenue Service (IRS) says it expects to receive 160 million individual tax returns this year, and it's only gotten around 35 million as of Feb. 18. While you certainly have time to get things in order before the April 18 deadline, you should still be paying attention to the notices the IRS is sending out right now. In fact, the tax agency just posted a new alert warning taxpayers about four different things they shouldn't forget when filing this year. Read on to find out what you need to double-check when doing your taxes.
The IRS is warning taxpayers not to forget to report four things when filing.
On March 1, the IRS released a new alert for taxpayers, warning them not to forget to include four different things on their tax returns this year. The agency said that filers should be reporting gig economy income, virtual currency transactions, foreign source income, and certain foreign assets. "Information available on IRS.gov and instructions on Form 1040 can help taxpayers in understanding and meeting these reporting and tax requirements," the IRS said in its statement.
You might have gotten gig economy income during the pandemic.
The gig economy is any activity where people earn money by providing on-demand work, services, or goods, according to the IRS. "Many people joined the gig economy to help make ends meet during the pandemic," the tax agency explained. The income made from this work is generally taxable, and taxpayers are required to report it on their return, even if the income is from part-time, temporary, or side work and not reported on an information return form. You're required to report it no matter how it's paid either, whether that's in cash, property, goods, or virtual currency.
Most people involved in the gig economy earn income as a freelancer, independent worker, or employee. "They use technology known as online platforms to connect them with customers to provide goods or services," the IRS said. "This includes things like renting out a home or spare bedroom and providing delivery services."
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Virtual currency is commonly reported incorrectly by taxpayers.
Obligations on reporting virtual currency are still relatively new, which has caused some confusion. According to the IRS, taxpayers should see a question on top of their return asking about virtual currency transactions. "All taxpayers filing these forms must check the box indicating either 'yes' or 'no,'" the agency explained. These transactions might include an exchange of virtual currency for property, goods or services, an exchange or trade of virtual currency for another virtual currency, and the sale of virtual currency.
This hasn't been the easiest thing for taxpayers to wrap their heads around, which might account for the recent warning from the IRS. In July 2019, the tax agency reported that it had to mail educational letters to more than 10,000 taxpayers who either failed to report transactions involving virtual currency or reported these transactions incorrectly. "Taxpayers who did not report transactions involving virtual currency or who reported them incorrectly may, when appropriate, be liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution," the agency warned.
You might have to follow U.S. tax requirements even if you don't live in the country.
According to the IRS, a "U.S. citizen or resident alien's worldwide income is generally subject to U.S. income tax, regardless of where they live." This means you're subject to the same filing rules as well, which requires you to report earn income such as wages and tips and unearned income such as interest, dividends, and pensions from sources outside the country.
Your foreign filing requirements might not stop at work-related income. "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," the IRS added.
But you may be allowed an extension when it comes to filing with foreign income. According to the IRS, a taxpayer is allowed a two-month deadline extension to June 15 if both their tax home and abode are outside of the U.S. and Puerto Rico. Even if you are given this extension, however, you will be required to pay interest on any tax not paid by the regular deadline of April 18.