Make Sure You Report All Income on Your Returns

Did you drive Uber to make some extra money this year? Or dabble in cryptocurrency? The IRS is reminding taxpayers of reporting and potential tax obligations from working in the gig economy, making virtual currency transactions, earning foreign-source income, or holding certain foreign assets. Generally, income earned from the gig economy is taxable and must be reported to the IRS, and in most cases, taxes are not held from that income so planning in important. Gig income must be reported on a tax return even if the income is:
  • From part-time, temporary or side work
  • Not reported on an information return form
  • Paid in any form, including cash, property, goods or virtual currency

Additionally, since many people are now trading in cryptocurrency, the IRS has added a question at the top of Form 1040 and Form 1040-SR asking about virtual currency transactions that all taxpayers must check  indicating either “yes” or “no.” The IRS provided a list of some of the transactions involving virtual currency for reference:

  • If an individual disposed of any virtual currency that was held as a capital asset through a sale, exchange, or transfer, they should check “yes,” and use Form 8949, Sales and Other Dispositions of Capital Assets, to determine their capital gain or loss and report it.
  • 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 should check “yes,” and must report the income as they would report other income of the same type.

Further, the IRS reminded U.S. citizens and resident aliens to report unearned income from sources outside the U.S. unless exempt by law or tax treaty. They must also report earned income from foreign sources. An income tax filing requirement generally applies even if you qualify for tax benefits, including the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. You are allowed an automatic two-month extension to June 15 if they live outside the U.S. and Puerto Rico, but even if allowed an extension, you will have to pay interest on any tax not paid by the regular due date of April 18, 2022. Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 15.

Additionally, the IRS reminded taxpayers that federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and banks and other financial accounts. In most cases, affected taxpayers need to complete and attach Schedule B, Form 1040, to their tax returns. Part III of Schedule B requires citizens to report the country in which each foreign account is located. In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. Finally, 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 file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). The IRS encouraged taxpayers with foreign assets to check if this filing requirement applies to them, and the deadline for filing the annual FBAR is the same as that of Form 1040. FinCEN grants filers who missed the original deadline have an automatic extension until October 15, 2022, to file the FBAR without requesting an extension.

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