Basic Tax Tips for the Sharing Economy

By Bill

Keep in Mind These Basic Tax Tips for the Sharing Economy

If taxpayers use one of the many online platforms to rent a spare bedroom, provide car rides or a number of other goods or services, they may be involved in the sharing economy. The IRS now offers a Sharing Economy Tax Center. This site helps taxpayers find the resources they need to help them meet their tax obligations.

Here are a few key points on the sharing economy:

1. Taxes. Sharing economy activity is generally taxable. It does not matter whether it is only part time or a sideline business, if payments are in cash or if an information return like a Form 1099 or Form W2 is issued. The activity is taxable.
2. Deductions. There are some simplified options available for deducting many business expenses for those who qualify. For example, a taxpayer who uses his or her car for business often qualifies to claim the standard mileage rate, which was 54 cents per mile for 2016.
3. Rentals. If a taxpayer rents out his home, apartment or other dwelling but also lives in it during the year, special rules generally apply. For more about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Taxpayers can use the Interactive Tax Assistant Tool, Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? to determine if their residential rental income is taxable.
4. Estimated Payments. The U.S. tax system is pay-as-you-go. This means that taxpayers involved in the sharing economy often need to make estimated tax payments during the year to cover their tax obligation. These payments are due on April 15, June 15, Sept. 15 and Jan. 15. Use Form 1040-ES to figure these payments.
5. Payment Options. The fastest and easiest way to make estimated tax payments is through IRS Direct Pay. Or use the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). 98005
6. Withholding. Taxpayers involved in the sharing economy who are employees at another job can often avoid making estimated tax payments by having more tax withheld from their paychecks. File Form W-4 with the employer to request additional withholding. Use the Withholding Calculator on IRS.gov.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Credit for Retirement Savings Contributions

By Bill

Get Credit for Retirement Savings Contributions 

Taxpayers who contribute to a retirement plan, like a 401(k) or an IRA, may be able to claim the Saver’s Credit. This credit can help a person save for retirement and reduce taxes at the same time.

Here are some key facts about the Retirement Savings Contributions Credit:

Nonrefundable Credit. The maximum contribution is $2,000 per person. Those filing a joint return can also contribute $2,000 for the spouse. However, the credit cannot be more than the amount of tax that a taxpayer would otherwise pay in taxes. This credit will not change the amount of refundable tax credits.

• Income Limits. Taxpayers may be able to claim the credit depending on their filing status and the amount of their annual income. They may be eligible for the credit on their 2016 tax return if they are:
  • Married filing jointly with income up to $61,500
  • Head of household with income up to $46,125
  • Married filing separately or a single taxpayer with income up to $30,750
• Other Rules. Other rules that apply to the credit include:
  • Taxpayers must be at least 18 years of age.
  • They can’t have been a full-time student in 2016.
  • No other person can claim them as a dependent on their tax return.
• Contribution Date. A taxpayer must have contributed to a 401(k) plan or similar workplace plan by the end of the year to claim this credit. However, the taxpayer may contribute to an IRA by the due date of their tax return and still have it count for 2016. The due date for most people is April 18, 2017.
• Interactive Tax Assistant Tool. The ITA tool is a tax law resource that asks taxpayers a series of questions and provides a response based on the answers. Taxpayers can use Do I Qualify for the Retirement Savings Contributions Credit? to determine if they qualify to claim the Saver’s Credit.
• Form 8880. File Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Five Tax Tips on Unemployment Benefits

By Bill

Five Tax Tips on Unemployment Benefits

Taxpayers who received unemployment benefits need to remember that it may be taxable. Here are five key facts about unemployment:

1. Unemployment is Taxable. Include all unemployment compensation as income for the year. Taxpayers should receive a Form 1099-G, Certain Government Payments, by Jan. 31. This form shows the amount received and the amount of any federal income tax withheld.
2. There are Different Types. Unemployment compensation includes amounts paid under federal law or state law as well as railroad, trade readjustment and airline deregulation laws. Even some forms of disability payments can count. For more information, see IRS Publication 525.
3. Union Benefits May be Taxable. Benefits received from regular union dues as income might be taxable. Other rules may apply if a taxpayer contributed to a special union fund and those contributions to the fund are not deductible. In this case, report only income exceeding the amount of contributions made.
4. Tax May be Withheld. Those who receive unemployment can choose to have federal income tax withheld by using Form W-4V, Voluntary Withholding Request. Those choosing not to have tax withheld may need to make estimated tax payments during the year.
5. Visit IRS.gov for Help. Taxpayers facing financial difficulties should visit the IRS.gov page: “What Ifs” for Struggling Taxpayers. This page explains the tax effect of various life events such as job loss. For those who owe federal taxes and can’t pay, the Payments tab on IRS.gov provides some options. In many cases, the IRS can take steps to help ease financial burden.

Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Debt Cancellation May be Taxable

By Bill

Debt Cancellation May be Taxable

If a lender cancels part or all of a debt, a taxpayer must generally consider this as income. However, the law allows an exclusion that may apply to homeowners who had their mortgage debt canceled in 2016.

Here are 10 tips about debt cancellation:

1. Main Home. If the canceled debt was a loan on a taxpayer’s main home, they may be  able to exclude the canceled amount from their income. They must have used the loan to buy, build or substantially improve their main home to qualify. Their main home must also secure the mortgage.
2. Loan Modification. If a taxpayer’s lender canceled or reduced part of their mortgage balance through a loan modification or ‘workout,’ the taxpayer may be able to exclude that amount from their income. They may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt canceled in a foreclosure.
3. Refinanced Mortgage. The exclusion may apply to amounts canceled on a refinanced mortgage. This applies only if the taxpayer used proceeds from the refinancing to buy, build or substantially improve their main home and only up to the amount of the old mortgage principal just before refinancing. Amounts used for other purposes do not qualify.
4. Other Canceled Debt. Other types of canceled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion. On the other hand, there are other rules that may allow those types of canceled debts to be nontaxable.
5. Form 1099-C. If a lender reduced or canceled at least $600 of a taxpayer’s debt, the taxpayer should receive Form 1099-C, Cancellation of Debt, by Feb. 1. This form shows the amount of canceled debt and other information.
6. Form 982. If a taxpayer qualifies, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. They should file the form with their income tax return.
7. IRS.gov Tool. Taxpayers should use the Interactive Tax Assistant tool – Do I Have Cancellation of Debt Income on My Personal Residence? – on IRS.gov to find out if their canceled mortgage debt is taxable.
8. Exclusion Extended. The law that authorized the exclusion of cancelled debt from income was extended through Dec. 31, 2016.
9. More Information. For more on this topic see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.
10. Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.