 Internal revenue service, IRS tax news, tax time guide, IRS reminder to report all income, gig economy, and service industry, digital or foreign assets, and sources. Yo, here we go again. The iris is going after the gig economy like Elmer Fudd going after Bugs Bunny. Bang bang bang, come out of your holes you cowardly wabbit, bang bang, and I'll show you the spill we need. You need a cowardly escorting blood. My money's on the bunny and in the gig economy or possibly it's like Joe Biden going after the teleprompter. The nurse named Pearl Nelson, military. She'd come in and do things that I don't think you'd learn in medical school, in nursing school. My money's on the teleprompter, giving Joe Biden a tongue twister induced heart attack. She whispered in my ear and couldn't understand him. She whispered and she'd lean down. He'd actually breathe on me. Honestly, who pulled a Ron Burgundy anchor man putting that inappropriate story on the teleprompter like that? I mean, Burgundy, go f**k yourself, San Diego. Ah, what in the name? No! Yeah, that could have looked really bad if anybody was able to understand what he actually said and or if the news media like, you know, reported stuff. Nice work, everyone. Short broadcast. Really good. Everyone on the floor as well. Really a lot of hustle. I liked it. But honestly, Phil, would you do some research on this because I'm pretty sure that that nurse currently holds a high ranking cabinet position in the administration. Working a job where she has about as little experience as Pete Buttigieg in the area of transportation. But whatever, I'm just kidding. In any case, you could put anything on that teleprompter and Joe Biden will either read it or worse not read it and ad-lib, which is the worst possible situation. But either way, much like the administration's response to the situation in Ohio, it's a trained wreck. It's just a trained wreck. I mean, they have to hose down the podium after every speech to treat all the burning toxic chemicals that were released into the atmosphere. You know, the press corps pretty soon is going to have to start wearing those hazard suits, you know, because those masks, those masks that they wear in there, that's not because of COVID. It's because of all the toxic stuff that's going from the podium. And honestly, like, like I think Kamala Harris has been feeding Joe Biden water from the now toxic Ohio River because it's looking like her only shot at the presidency is if poor old Joe gives up his poor old withered corrupt and diminished to the point of non-being ghost. IR 2023-35, March 1st, 2023, Washington, the Internal Revenue Service, reminds taxpayers of their reporting and potential tax obligations on income from the gig economy and service industry, transactions from digital assets and foreign sources, or holding certain foreign assets. Information available on irs.gov and instructions for Form 1040 and 1040 SR can help taxpayers understand and meet these reporting tax requirements. So let's just give a quick recap of how the tax system basically works here. The tax code is an income tax, therefore income is actually bad for taxes. The government has an incentive to try to double check that income is being reported. It used to be that the main thing that they've relied on to do that was to have audits similar to a situation that if you're driving on the freeway, you're not going to get caught if you've speed all the time. But when you do get caught, the ticket will be high enough to disincentivize you from speeding on the freeway. Same kind of thing or similar kind of process or thought process with the audit system. They're going to audit people and then if you get caught cheating on the taxes, then the penalties and interest will hit you at that point in time, hopefully being sufficient enough from a legal standpoint to not be cheating on the taxes. But more and more they're relying on more intrusive measures, which is to try to get to try to know everything about your taxes, know all the income that you earned without you actually having to file the taxes, right? And you can see why there would be pressure from a government side of things to do that. Now there's some industries that it's more difficult to do that than others. So how can they actually do that? They're going to be looking at the side of the transaction where they have the most leverage. Where do they have the most leverage on the one that's paying on the transaction? So an employer, employee situation, they have the leverage on the employer because the employer wants to deduct the wages. And so in order to deduct the wages, the IRS can say, well, if you want to get that deduction, you have to tell us who you're paying so that we know where to get our money from, the person that got the income. Not only that, but now you can see they inserted more pressure. We want you to actually act as the tax collector. You collect the money on our behest. You're mandated to do that, right? And then if you have a non-employee employer situation, if you have a contractor situation, they still have the pressure on the payer side of the transaction to tell the IRS who they paid with a form 1099 form. Now, some industries that still doesn't work well with the classic examples are cashed based industries where you're doing business for the end customer. Classically, hair salons, the restaurants, massage parlors, nail salons and all that kind of stuff because the end user is not a business. It's an end customer that is paying typically a small business type of situation or sole proprietor situation and oftentimes paying it in say cash, which is not very traceable. And so therefore certain industries don't, you know, the IRS can't regulate quite as tightly and so that causes them problems, right? And we can see why they might want to put more pressure on those industries because they're not doing what they want so they can look down their shoulders and see every transaction that they're making like they can to some extent with other transactions. One of the ways they might try to get to those types of businesses is to try to digitalize everything, remove cash from the transaction, force the middle people, credit card company, banks, PayPal and that kind of stuff to start reporting the 1099s, kind of the strategy you're seeing in the gig economy. So the gig economy is the new thing that the IRS is scared of because they can't track everything. They want to see everything that's happening. It's more difficult to do that in the gig economy because it's like a new Silk Road is what I kind of call it. Meaning you've got people that can do businesses and people that want services that prior to this haven't been able to connect. The internet is connecting them. That's what the gig economy is doing. People are allowed to have their own businesses in a way that they couldn't before much more easily due to the ability to connect to the people that actually want the goods and services they're providing. And so there it is. But there's no in that transaction you have a bunch of people that are acting similar to the hair salons and whatnot where people are doing work for the end user without the middleman of a giant business or corporation. So there's no one to pressure to give the 1099s and the W-2s and whatnot. So what's the government going to lean to do? They can try to force the platforms to act as the big corporations. They can make the platforms into big corporations where they're forced to hire the people as employees instead of just as a Silk Road type of thing. Or they can go towards the actual payers or the intermediary platforms when everything's electronic such as the credit cards and the pay pals and the stripes to try to make them issue the 1099s. So that's kind of where we're going. How far down that road are they going to go? If they go down that road too far, they're going to become quite intrusive and they're going to squash a lot of the GDP growth that would have otherwise happened there because of competition and free markets and trade. And whatnot because the more regulations strangle that out or they can loosen up on that and that will lead to more people doing some kind of tax not being appropriate with the taxes sometimes but they can try to mitigate that with standard audit procedures, auditing random audits just like a police officer regulating speeding on the freeway. So that's where we stand with it in general. So gig economy earnings are taxable. So generally income earned from the gig economy is taxable and must be reported to the IRS on tax returns. The gig economy is actively where people earn income providing on demand work services or goods such as selling goods online, driving a car for deliverers or renting out property. Often it's through digital platform like an app or website. Taxpayers must report income earned from the gig economy on a tax return even if the income is from part time, temporary or side work paid in any form including cash property goods or digital assets, not reported on an information return form like a form 1099K, 1099 miscellaneous W2 or other income statement. So they're saying, hey, we haven't got a complete stranglehold on this economy yet. So you might not get an information return like a 1099 or a W2. You're still required to report your taxes. And notice again, because of the stranglehold they have on everything where all income is reported to many people, people tend to start thinking, well, if I don't get a 1099, then I don't have to record the income. And that's not exactly right because it's a self reporting type of system. But because of the, in my opinion, the overreach and controlling nature of the way the IRS is kind of inserting themselves, then you can see why people would come to that conclusion. It would kind of be natural. You say, well, if I didn't get a 1099, I don't need to report it because everyone else gives me a 1099. But that's not generally the case because we're supposed to have a self reporting system where the IRS is not that intrusive, but rather going to be doing audits to double check like a police officer on a freeway or something. So for more information on the gig economy, visit gig economy tax center. There's a link to that here. Service industry tips are also taxable. People who work in restaurants, salons, hotels and similar service industries often receive tips for customer service they provide. This is another area where, in my opinion, the IRS has gotten way over intrusive. And actually you can see that the business models that worked in the past were profitable have actually become, you know, less profitable. You can't run the same business models which were competitive before, which means that, and so the tax code is actually distorting the way things are happening because of the way they're trying to regulate how tips are going to work, of course. So tips are usually taxable income and it's important for people working in these areas to understand details on how to report tips. Tips are optional cash or non-cash payments customers make to employees. Cash tips includes those received directly from customers, electronically paid tips distributed to the employee by their employer and tips received from other employees under any tips sharing arrangement. So notice that at one time, of course, you used to be able to basically pay people in tips. You have a model of saying you're going to earn your tips and I'm going to earn as the restaurant the money on the food and the beverages. And then the people that are making the tips actually competed to be the best servers because the best servers did get tipped more. But because the IRS wants someone to regulate the tips, they want the employer to regulate the tips. So it's a lot more likely these days that you might get tipped kind of scenarios and situations where they have to basically allocate the tips out. So they try to act like, well, they're doing that to be fair to the cooks and everyone else involved and whatnot. But really, there's a tax situation often involved in that as well. So it kind of changes the dynamics of everything, which again kind of changes the business models that could be in place. So all cash tips must be reported to the employer. See how they're making the employer now the tax collector. They're saying employer, you are the tax collector of the person. Instead of saying what you could kind of think of the business as is that the people that are working have their own business. They're basically servers and they're earning their own money. They can report their own tips. They don't need me to track their tips on making the money on the drinks or on the food. But you can't do that anymore because the IRS wants to force the employer to be their IRS agent. The business owner has to be the IRS agent of the government. So they must include them in an employee's form W2 wage and tip statement. There's a link to that here. Non-cash tips are those of value received in any other medium than cash such as tickets, passes or other goods or commodities a customer gives to the employee. So notice if rules and regulations get too intrusive, then people try to find ways around them. And then they try to give give stuff in ways other than cash or other than electronic transfers with these non-cash items, passes, tickets and this kind of stuff, which should be taxable as well. So that should be reported in those two. Non-cash tips aren't reported to the employer but must be reported as tax return. So any tip the employee didn't report to the employer must be reported separately on form 4137 Social Security Medicare tax on unreported tips income. There's a link to that here to include as additional wages with their tax return. The employee must also pay the employee share of Social Security Medicare tax owed on the tips. So notice if you had your own kind of business, if we if we thought of the person that was making the tips as their own business, then they would have like their own business income. That would be you might you could imagine it reported on like a schedule C, which means they're going to be subject to Social Security and Medicare. So the argument that the IRS will make the government will make with all of these platforms will be we're doing you a favor by forcing your employer to treat you as an employee as opposed to you having your own business. Even though it's more restrictive on you for various reasons because one we're going to we're going to try to say we're going to force the employer to give more benefits and because you're not going to be subject to the employee and employer portion of Social Security and Medicare, but and there's an argument to be made for that. But that but I think a lot of times a lot of people would be better off having their own business because then they're free to do whatever they're not. They're not under the thumb of the employer and and they can write off more deductions for their for their business. So they're they're whatever you're whatever you're putting into the to the business to do your job as best you can. You're more likely to be able to write it off. So in any case employees don't have to report tip amounts of less than $20 per month per employee for larger amounts. Employees must report tips to the employer by the 10th of the month following the month the tips were received. The employee can use form 4070 employees report of tips to employer available on publication 1244 employees daily record of tips and report to employer. There's a link to that here and employer provided form or other electronic system used by the employer for more information on how to report tips. You can see the tip reporting and record keep in reporting. There's a link to that here. It's a specialty kind of area and if you work in the taxes and you deal with people that have tips tip type industries. It's a specialty kind of industry to keep on top of this kind of stuff and try to try to think about how best a business can be competitive with the and be in compliance with the tip rules. Understanding digital asset reporting and tax requirements. The IRS reminds taxpayers that there's a question at the top of form 1040 and 1040 SR that asks about digital asset transactions. All taxpayers filing these forms must check the box including either yes or no if an individual disposed of any digital asset that was held as a capital asset through sale exchange or transfer. They should check yes and use form 8949 sale of other digital capital assets. So digital assets is of course another area that they don't have a complete stranglehold on when you invest in things like stocks and bonds. Then they have a pretty good stranglehold on the financial institutions right because they're kind of partnering up with the financial institutions and whatnot. And so the financial institutions benefit from that by becoming Bohemoth giant corporations with barriers to entry for competition where they don't have that kind of thing set up yet for the digital assets. And therefore they don't have the same kind of reporting that is that they're forcing the the financial institutions to do. So things like capital gains on the purchasing and sale of the digital assets is something that is they don't have quite as tied down to the purchase and sale of other investments such as stocks and bonds. So to figure their capital gains you got the schedule D. So if you have gains and losses it would be a similar process. If you got the schedule D. It's just that you're not going to have the same reporting oftentimes that you would if investing in stocks and bonds. But the idea would be quite the same or form 709 United States gift and generation skipping transfer tax in case of a gift. So that's the gift or state situation. So if you're giving gifts and whatnot then if you go over a certain threshold the IRS remember the IRS wants if you're a wealthy individual they wait till you die. And then they kind of come in pick your corpse for for you know taxes and whatnot. So what you try to do if you're wealthy to stop that is try to gift money away but then they put in a gift tax to try to mitigate how much you can give away you know before you die. So then so that's a whole mess and stuff so people try to give money and so on and it's a whole nother game for wealthy individuals to try not to get taxed when they die. But in any case examples of transactions involving digital assets include a sale of digital asset. The receipt of digital assets as payment for goods or service provided the receipt of or transfer of digital assets for free without providing any consideration that does not qualify as a bonafide gift. The report of new digital assets as a result of mining and staking activities. The receipt of new digital assets as a result of hard fork and exchange of digital assets for property goods or services and exchange trade of digital assets for another digital asset. Any other disposal of financial interest in digital assets. If individuals receive any digital asset as compensation for services disposed of any digital asset they held for sale to customers in a trade or business they must report the income as they would report other income of the same type. For example W2 wages on form 1040 or 1040 SR line one a or inventory or services on schedule C. So in other words if you use digital asset like Bitcoin as a form of payment possibly in a schedule C business or someone paid you in Bitcoin or something like that. Well then you'd have to value it just like you would anything that you got paid. So if I got paid in a car someone gave me or someone traded or bartered me with something that doesn't mean that from tax standpoint I don't have to report it as tax. I have to then value it in terms of dollars the unit of measure that the taxes are in and reported as income. So more information on digital assets can be found in the instructions for form 1040 and 1040 SR and on the IRS digital asset page. There's links to those items here. Report foreign source income. A U. S. citizen or resident aliens worldwide income is generally subject to U. S. income tax regardless of whether where they live. They're also subject to the same income tax filing requirements that apply to U. S. citizens or resident aliens living in the United States. U. S. citizens and resident aliens must report unearned income such as interest dividends and pensions from sources outside the United States. Unless exempt by law or a tax treaty they must also report earned income such as wages and tips from sources outside the United States. An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits such as the foreign earned income tax exclusion or the foreign tax credit. Links to those here which substantially reduce or eliminate U. S. tax liability. So obviously if there's foreign sourced income we have a situation where there could be double taxation. And so then the question is what kind of agreements do we have with the other country and how do we deal with it with the tax situation for foreign sourced income. So you can look in the foreign earned income exclusion here and the foreign tax credit for more information and details on that. So these tax benefits are available only if an eligible taxpayer files a U. S. income tax return. If taxpayer is allowed to automatic two month extension to June 15th if both their tax home and an abode are outside the United States and Puerto Rico. Even if allowed an extension a taxpayer who will have to pay interest on any tax any any tax not paid by the regular due date of April 18th 2020. Those serving in the military outside the U. S. and Puerto Rico on the regular due date of their tax return also qualified for the extension to June 15th. I. R. S. recommends attaching a statement if one of these two situation applies more information can be found in the instructions for form 1040 and form 1040 S. R. Publication 54 tax guide for U. S. citizens and resident aliens abroad and publication 519 U. S. tax guide for aliens. There's links to those here reporting required for foreign accounts and assets. 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. In most cases affected taxpayers need to complete and attach Schedule B form 1040 interest and ordinary dividends. There's a link to that here to their tax return part three of Schedule B asks about existence of foreign accounts such as bank and security accounts and usually requires U. S. citizens to report the country in which each account is located. In addition, certain taxpayers may also have to complete and attach to their return form 8 9 3 8 statement of foreign financial assets. There's a link to that. Generally U. S. citizen resident aliens and certain non resident aliens must report specified foreign financial assets on this form. If the aggregate value of those assets exceeds certain thresholds see instructions for this form for details. Further separate from reporting specified foreign financial assets on their tax return U. S. persons with an interest in or signature or other authority over foreign financial accounts where the aggregate value exceeding $10,000 at any time during 2022 must file electronically with the Treasury Department a financial crimes enforcement network. That's the fence C. E. N. form one one form report foreign bank and financial accounts F. B. A. R. because of the threshold the IRS encourages U. S. persons with foreign assets. Even relatively small ones to check if this filing requirement applies to them. The form is available only through the B. S. A. E filing system website. The deadline for filing the annual report a foreign bank and financial accounts the F. B. A. R. is April 15, 2023. Then C. E. N. grants U. S. persons who missed the original deadline and automatic extension until October 15, 2023 to file the F. B. A. R. There is no need to request this extension that feed the FEN C. E. N. website for further information. There's a link to that here. This news release is part of a series called the tax time guide a resource to help taxpayers file an accurate tax return. Additional guidance is available in publication 17 foreign federal income tax for individuals. Wow, that was quite the guide. There's links to all that stuff here. There'll be a link to this in the description.