Federal Tax News for Individuals

Involved in Crypto? Here Are Some Tax Issues

It’s a simple “yes” or “no” question, but you must answer it on your Form 1040 or Form 1040-SR: At any time during 2021, did you receive, sell, exchange or otherwise dispose of any financial interest in any virtual currency?

According to the IRS, some examples of a transaction involving virtual currency are the receipt of virtual currency as payment for goods or services; the receipt or transfer of virtual currency for free that doesn’t qualify as a bona fide gift; a trade of virtual currency for another virtual currency; and a sale of virtual currency. Your tax advisor can help determine how you should answer this question.

Speaking of cryptocurrency, greater regulation of digital assets could be coming. On March 9, 2022, President Biden signed an executive order (EO) to expand oversight of cryptocurrency markets. The EO also prioritizes the assessment of a Central Bank Digital Currency (CBDC). Various government financial regulators will assess how the “adoption of digital assets” would affect U.S. investors and businesses.

Also sought is input as to whether the “risks of digital assets” will require implementation of additional protective measures. Lawmakers haven’t yet embraced the idea of a CBDC where currency is represented by a digital token or electronic record.

Reporting Income Earned from Gigs

If you’ve earned income from the gig economy, the IRS is reminding you that those wages are taxable and must be reported. The gig economy is when people earn income providing on-demand work, services or goods. Often, the gig is acquired through a digital platform, such as a smart phone app.

Taxpayers must report income earned from the gig economy on their tax returns, even if the income is from part-time, temporary or side work. It also must be reported if it’s not reported on an information return, such as Form 1099-K, 1099-NEC or W-2, or if you’re paid in cash or virtual currency. If you’ve earned income as a gig worker, make sure you’re properly reporting it to the IRS.

Click here to learn more from the IRS.

Under a new law, gig workers and online sellers of goods must file Form 1099-K with the IRS if they earn at least $600 annually. A group of Democrats in Congress thinks that threshold is too low and may subject these taxpayers to “burdensome or confusing reporting requirements, which could result in overpayment as well as ineligibility for certain tax benefits.” Therefore, the group has introduced a bill that would raise the reporting threshold to $5,000, retroactive to Jan. 1, 2022. The bill is known as the “Cut Red Tape For Online Sales Act.” The proposed legislation would also mandate that Form 1099-K instructions help reduce taxpayer confusion by providing a plain-language description of taxable income.

Tip Income Responsibilities for Employees and Employers

Like most income, tips in the service industry are taxable. It doesn’t matter if tips are paid directly in cash or added to payments by credit, debit or gift cards, or shared with coworkers. Noncash tips, such as tickets or passes are also taxable. To correctly report tip income, the IRS advises taxpayers to keep a daily tip record and report all tips to their employers and on their income tax returns.

What if you’re the employer of tipped workers? Employees who receive $20 or more in any month must report the tips to you by the 10th of the next month. You must then withhold income and employment tax on the reported tips. Click here for more information about the tax rules of tip income.

The IRS Issues the 2022 Foreign Housing Cost Exclusions

A U.S. citizen or U.S. resident alien living abroad can elect to exclude the foreign earned income and housing cost amount from gross income (subject to limitations). The housing cost exclusion is calculated based on the number of days physically present in the foreign location. In addition, the IRS allows a higher amount for those living in certain high-cost locations.

Without adjustment, the applicable limit for the 2022 tax year is $33,600. The IRS issued the table of 2022 adjusted limitations on housing expenses and stated that qualified taxpayers may elect to apply 2022 limitations to tax years beginning in 2021. (Notice 2022-10)

Supreme Court Declines to Hear Passport Revocation Case

Having “seriously delinquent tax debt” could put your passport at risk (unless an exception applies). This generally means that the assessed tax debt is at least $55,000 in 2022 (indexed for inflation), a lien has been filed and other remedies have been exhausted. If such conditions exist, the U.S. State Dept. can deny, revoke or limit a passport.

One man, who owed about $250,000 in federal tax, interest and penalties, argued in a U.S. District Court that revoking his passport violated his constitutional right to travel abroad. That court and a U.S. Appeals Court upheld the revocation, finding that the action supported the legitimate interest of the government. The U.S. Supreme Court declined to hear the case.