Why Pay and Prepare Your Taxes

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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?

Share this tip on social media — #IRSTaxTip: Here are some things gig economy workers should know about their tax responsibilities. http://go.usa.gov/xJ7KX

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.

Share this tip on social media — #IRSTaxTip: Important tax reminders for people selling a home https://go.usa.gov/xu6Nb

Fact Sheet – Child Tax Credit | Advance Child Tax Credit Payments

There have been important changes to the Child Tax Credit that will help many families receive advance payments. The American Rescue Plan Act (ARPA) of 2021 expands the Child Tax Credit (CTC) for tax year 2021 only.

What are advance Child Tax Credit payments? (updated May 20, 2022)
Advance Child Tax Credit payments are early payments from the IRS of 50 percent of the estimated amount of the Child Tax Credit that you may properly claim on your 2021 tax return. If the IRS processed your 2020 tax return or 2019 tax return before the end of June 2021, these monthly payments began in July and continued through December 2021, based on the information contained in that return.
Note: Advance Child Tax Credit payment amounts were not based on the Credit for Other Dependents, which is not refundable. For more information about the Credit for Other Dependents, see IRS Schedule 8812 (Form 1040), Credits for Qualifying Children and Other Dependents.

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IRS sends CP2100 and 2100A Notices

In April, the IRS sent CP2100 and CP2100A notices to banks, credit unions, businesses or payers who filed returns that don’t match IRS records.

These information returns include:

  • Form 1099-B, Proceeds from Broker and Barter Exchange Transactions
  • Form 1099-DIV, Dividends and Distributions
  • Form 1099-G, Certain Government Payments
  • Form 1099-INT, Interest Income 
  • Form 1099-K, Payment Card and Third-Party Network Transactions
  • Form 1099-MISC, Miscellaneous Income
  • Form 1099-NEC, Nonemployee Compensation
  • Form 1099-OID, Original Issue Discount
  • Form 1099-PATR, Taxable Distributions Received from Cooperatives
  • Form W-2G, Certain Gambling Winnings

The IRS mails these notices out twice a year, in September and October and again in April of the following year. The notices tell payers that the information return they submitted is missing a Taxpayer Identification number or has an incorrect name or both.

Each notice has a list of payees with identified TIN issues. Payers need to compare the accounts listed on the notice with their account records and correct or update their records, if necessary. This can also include correcting backup withholding on payments made to payees.

The notices also tell payers that they are responsible for backup withholding. Payments reported on the information returns listed above are subject to backup withholding if:

  • The payer doesn’t have the payee’s TIN when making the reportable payments.
  • The payee doesn’t certify their TIN as required for reportable interest, dividend, broker, and barter exchange accounts.
  • The IRS tells the payer that the payee gave an incorrect TIN, and the payee doesn’t certify their TIN as required.
  • The IRS tells the payer to begin backup withholding because the payee didn’t report all their interest and dividends on their tax return.

Payers are responsible for the amount they failed to backup withhold and penalties may apply.

More information
Publication 1281, Backup Withholding on Missing and Incorrect Name/TINs

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