Why Pay and Prepare Your Taxes

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Who Must File a Tax Return

Generally, if you are pay more than $600, you must file a tax return. The IRS says you must earn more than the standard deductions. See table below.

Table 1. 2021 Filing Requirements Chart for Most Taxpayers

IF your filing status is…AND at the end of 2021 you were…*THEN file a return if your gross income was at least…**
Singleunder 65 | $12,550
Single65 or older|$14,250
Head of householdunder 65 | $18,800
Head of household65 or older|$20,500
Married, filing jointlyunder 65 (both spouses)$25,100
Married, filing jointly65 or older (one spouse)$26,450
Married, filing jointly65 or older (both spouses)$27,800
Married, filing separatelyany age$5
qualifying widow(er)under 65 $25,100
qualifying widow(er)65 or older|$26,400
* If you were born before January 2, 1957, you’re considered to be 65 or older at the end of 2021. (If your spouse died in 2021, see Death of spouse, later. If you’re preparing a return for someone who died in 2021, see Death of taxpayer, later.
** Gross income means all income you receive in the form of money, goods, property, and services that isn’t exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Don’t include any social security benefits unless (a) you’re married filing a separate return and you lived with your spouse at any time during 2021, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). If (a) or (b) applies, see the Form 1040 and 1040-SR instructions to figure the taxable part of social security benefits you must include in gross income. Gross income includes gains, but not losses, reported on Form 8949 or Schedule D. Gross income from a business means, for example, the amount on Schedule C, line 7; or Schedule F, line 9. But in figuring gross income, don’t reduce your income by any losses, including any loss on Schedule C, line 7; or Schedule F, line 9.
*** If you didn’t live with your spouse at the end of 2021 (or on the date your spouse died) and your gross income was at least $5, you must file a return regardless of your age.

IRS Rules for Divorced Parents Claiming a Dependent

Parents who are divorced, separated, never married or live apart and who share custody of a child with an ex-spouse or ex-partner need to understand the specific rules about who may be eligible to claim the child for tax purposes. This can make filing taxes easier for both parents and avoid errors that may lead to processing delays or costly tax mistakes.

Only one person may be eligible to claim the qualifying child as a dependent.

Only one person can claim the tax benefits related to a dependent child who meets the qualifying child rules. Parents can’t share or split up the tax benefits for their child on their respective tax returns.

It’s important that each parent understands who will claim their child on their tax return. If two people claim the same child on different tax returns, it will slow down processing time while the IRS determines which parent’s claim takes priority.

Custodial parents generally claim the qualifying child as a dependent on their return.

  • The custodial parent is the parent with whom the child lived for the greater number of nights during the year. The other parent is the noncustodial parent.
  • In most cases, because of the residency test, the custodial parent claims the child on their tax return.
  • If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income.

Tie-breaker rules may apply if the child is a qualifying child of more than one person.

  • Although the child may meet the conditions to be a qualifying child of either parent, only one person can actually claim the child as a qualifying child, provided the taxpayer is eligible.
  • People should carefully read Publication 504, Divorced or Separated Individuals to understand who is eligible to claim a qualifying child.

Noncustodial parents may be eligible to claim a qualifying child.
Special rules apply for a child to be treated as a qualifying child of the noncustodial parent.


More information:
Publication 501, Dependents, Standard Deduction, and Filing Information
Whom May I Claim as a Dependent?

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Tax Tips for Gig Workers – Uber | Lyft | DoorDash |InstraCart | Airbnb

Prior to covid-19, the gig economy seems to be on steriods. The emergence of Amazon, Uber and Lyft, Airbnb, InstraCart, Grubhub, DoorDash were all new entries into the way we now live. More and more people tend to use gig work to supplement their income.

If you take up gig work on a part-time or full-time basis, often through a digital platform like an app or website. Gig work, such driving a car for booked rides, selling goods online, renting out property, or providing other on-demand work, is taxable and must be reported as income on the worker’s tax return.

Here are some things gig workers should know to stay on top of their tax responsibilities:

Gig work is taxable:

  • Earnings from gig economy work is taxable, regardless of whether an individual receives information returns. The reporting requirement for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers will now receive an information return. This is true even if the work is full-time or part-time.
  • Gig workers may be required to make quarterly estimated tax payments.
  • If they are self-employed, gig workers must pay all their Social Security and Medicare taxes on their income from the gig activity

Proper worker classification:

While providing gig economy services, it is important that the taxpayer is correctly classified.

  • This means the business, or the platform, must determine whether the individual providing the services is an employee or independent contractor.
  • Taxpayers can use the worker classification page on IRS.gov to see how they should be classified.
  • Independent contractors may be able to deduct business expenses, depending on tax limits and rules. It is important for taxpayers to keep records of their business expenses.

Paying the right amount of taxes throughout the year:

  • An employer typically withholds income taxes from their employees’ pay to help cover income taxes their employees owe.
  • Gig economy workers who aren’t considered employees have two ways to cover their income taxes:
    • Submit a new Form W-4 to their employer to have more income taxes withheld from their paycheck if they have another job as an employee.
    • Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.

The Gig Economy Tax Center on IRS.gov answers questions and helps gig economy taxpayers understand their tax responsibilities.


More information:
Publication 5369, Gig Economy and your taxes: things to know
Publication 1779, Independent Contractor or Employee
Is My Residential Rental Income Taxable and/or Are My Expenses Deductible?

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IRS Rules Regarding 1099’s

Below are the IRS 1099-Misc. rules regarding paying someone for services they provide. 

File Form 1099-MISC for each person to whom you have paid during the year:

  • At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
  • At least $600 in:
    • Rents.
    • Prizes and awards.
    • Other income payments.
    • Medical and health care payments.
    • Crop insurance proceeds.
    • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
    • Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
    • Payments to an attorney.
    • Any fishing boat proceeds.

In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

Source: IRS Rules for 1099-Misc

Selling or Sold Your Home – Consider These

The IRS says homeowners should think about these things when selling a home:

Ownership and Use
To claim the exclusion, the taxpayer must meet ownership and use tests. During a five-year period ending on the date of the sale, the homeowner must have owned the home and lived in it as their main home for at least two years.

Gains
Taxpayers who sell their main home and have a gain from the sale may be able to exclude up to $250,000 of that gain from their income. Taxpayers who file a joint return with their spouse may be able to exclude up to $500,000. Homeowners excluding all the gain do not need to report the sale on their tax return unless a Form 1099-S was issued.

Losses
Some taxpayers experience a loss when their main home sells for less than what they paid for it. This loss is not deductible.

Multiple Homes
Taxpayers who own more than one home can only exclude the gain on the sale of their main home. They must pay taxes on the gain from selling any other home.

Reported Sale
Taxpayers who don’t qualify to exclude all of the taxable gain from their income must report the gain from the sale of their home when they file their tax return. Anyone who chooses not to claim the exclusion must report the taxable gain on their tax return. Taxpayers who receive Form 1099-S, Proceeds from Real Estate Transactions must report the sale on their tax return even if they have no taxable gain.

Mortgage Debt
Generally, taxpayers must report forgiven or canceled debt as income on their tax return. This includes people who had a mortgage workout, foreclosure, or other canceled mortgage debt on their home. Taxpayers who had debt discharged, in whole or in part, on a qualified principal residence can’t exclude it from income unless it was discharged before January 1, 2026, or a written agreement for the debt forgiveness was in place before January 1, 2026.

Possible Exceptions
There are exceptions to these rules for some individuals, including persons with a disability, certain members of the military, intelligence community and Peace Corps workers.

Worksheets
Worksheets included in Publication 523, Selling Your Home can help taxpayers figure the adjusted basis of the home sold, the gain or loss on the sale, and the excluded gain on the sale.

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Friendly Tax Services

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