The Internal Revenue Service reminds taxpayers of their reporting obligations and potential taxes for working in the sharing economy, conducting virtual currency transactions, earning income from foreign sources or holding certain foreign assets. The information available on IRS.gov and the Form 1040 instructions help taxpayers understand and comply with these reporting and tax requirements.

Income from the sharing economy is taxable

Generally, income earned from the sharing economy is taxable and must be reported to the IRS. The sharing economy is a movement wherein individuals procure pay by giving work, administrations or products on request. Frequently, it’s through a computerized stage like an application or site. Taxpayers must report income earned from the sharing economy on a tax return, even if the income is:

  • Part-time, temporary or secondary work,
  • Not reported on an information return form, such as a Form 1099-K, 1099-MISC, W-2, or other income statement, or
  • Paid in any form, including cash, property, goods or virtual currency

Understand reporting requirements and taxes on virtual currencies

The IRS reminds taxpayers that there is once again a question at the top of Form 1040 and Form 1040-SR about virtual currency transactions. All taxpayers who file these forms must check the box indicating “yes” or “no”. A transaction involving virtual currency includes, but is not limit to:

  • The receipt of virtual currency as payment for goods or services provided;
  • Receipt or transfer of virtual currency for free (without providing any consideration) that does not qualify as a bona fide gift;
  • The receipt of new virtual currency as a result of mining and staking activities;
  • The receipt of virtual currency as a result of a hard fork;
  • An exchange of virtual currency for property, goods, or services;
  • An exchange/barter of virtual currency for another virtual currency;
  • A sale of virtual currency; Y
  • Any other disposal of a financial interest in virtual currency

If a person disposed of any virtual currency they held as a capital asset through a sale, exchange, or transfer. They should check “Yes” and use Form 8949 to figure their capital gain or loss and report it on Schedule D (Form 8949). 1040).

If they received any virtual currency as compensation for services or disposed of any virtual currency. They held for sale to customers in a trade or business, they must report the income in the same manner as other income of the same type (for example, wages from a Form W-2 on line 1 of Form 1040 or 1040-SR, or Schedule C inventory or services on Schedule 1). More information about virtual currency can be find in the instructions for Form 1040 and on the Virtual Currency page on IRS.gov.

Report income from foreign sources

Generally, the worldwide income of a US citizen or resident alien is subject to US tax, regardless of where you reside. They are also subject to the same tax reporting requirements. That apply to US citizens or resident aliens living in the United States.

Citizens and foreign residents of the United States must report unearned income such as interest, dividends, and pensions from sources outside the United States unless exempted by law or tax treaty. They must also report income from work, such as wages and tips from sources outside the United States. The requirement to file an income tax return generally applies. Even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which reduces or substantially eliminates United States tax liability. These tax benefits are only available if an eligible taxpayer files a US tax return.

A taxpayer is grant an automatic 2-month extension until June 15. If both their tax domicile and domicile are outside of the United States and Puerto Rico. Even if an extension is granted, a taxpayer will still have to pay interest on any tax that was not paid by the normal due date of April 18, 2022.

 

Those serving in the military outside the United States. Puerto Rico on their tax return’s normal due date also qualify for an extension through June 15. The Internal Revenue Service (IRS)  recommends attaching a return if one of these two situations applies. More information can be found in the Instructions for Forms 1040 and 1040-SR, Publication 54, Tax Guide for U.S. Citizens and Aliens Residing Abroad (in English) and Publication 519, Tax Guide for Aliens in the United States (in English).

Report required for foreign accounts and assets

Government regulation requires United States residents and unfamiliar inhabitants to report overall pay, including unfamiliar pay from trusts, banks, and other monetary records. By and large, impacted citizens need to finish and append Schedule B to their expense form. Part III of Schedule B gets some information about the presence of unfamiliar records, like bank and stock records. And regularly requires United States residents to report the country in which each record is found.

In addition, certain taxpayers may also be require to complete and attach Form 8938. Statement of Foreign Financial Assets, to their return. By and large, US residents, inhabitant outsiders, and certain alien outsiders should report. Determine unfamiliar monetary resources on this structure assuming that the total worth of those resources surpasses specific edges. See the instructions for this form for details.

Additionally, in addition to reporting specific foreign financial assets on their tax return, taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2020, must electronically file the Form 114, Foreign Bank and Finance Account Report (FBAR) to the Treasury Department’s Financial Crimes Enforcement Network (Fin CEN). Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small assets, to check if this filing requirement applies to them. The form is only available through the BSA Electronic Filing System website.

The annual Foreign Bank and Financial Account Report (FBAR) filing deadline is the same as the Form 1040 filing deadline. Fin CEN grants applicants who missed the original filing deadline an automatic extension to June 15 October 2022 to file the FBAR. It is not necessary to request this extension.

This press release is part of a series called the Tax Season Guide, a resource to help taxpayers file an accurate tax return. Additional help is available in Publication 17, The Federal Income Tax.

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