We are officially in the home stretch! To clear any hurdles to your winning tax season, your friends at O’Donnell, Ficenec, Wills & Ferdig are highlighting the most recent considerations isolated by the IRS over the past three weeks in the lead-up to filing deadlines.
These alerts generally put a spotlight on potential pitfalls that could cost you money, and increase your audit risk, among other untoward events. Don’t stumble when it comes to:
Accounting for all earned income.
Do not overlook or leave “digital assets” unconsidered.
When referring to digital assets, we’re talking about convertible virtual currency, crypto, NFTs, and their ilk.
All taxpayers will be questioned about digital assets. It is required that you answer “yes” or “no,” even if you do not engage or have familiarity with these types of transactions.
Keep in mind that you may have to answer “yes” even when assets were received as a “bona fide” gift, reward, or award, and you must also account for when they are disposed of or sold for other property, services, or other such assets.
All income including the value of the assets as wages when received as part of one’s employment must be reported.
Again, we are talking about transactions specifically, not mere ownership of such assets.
“Gig” work also falls under the “taxable income” purview.
With explosive growth in this branch of the labor force, the IRS reminds taxpayers that they are required to report temporary, part-time, on-demand, project and online (goods and services) income. In fact, to accommodate questions regarding requirements and reporting on this front, the agency has developed a dedicated “Gig economy tax center.”
These earnings, too, may be received in a variety of different forms – including virtual or cryptocurrencies, cash, and property or goods.
While services have long made the economy go ‘round, it bears repeating that all cash tips must be accounted for in one’s W-2, wage and tax statement. These earnings include those from one employee to another, paid electronically, or via “tip-sharing” models.
“Non-cash” tips are also taxable and, in turn, must be reported. As their name suggests, this type of income might include tickets, gifts, or other commodities that are given to the employee by a customer. These tips don’t have to be reported to the employer, but they must still be reported by the taxpayer/employee.
There is also a separate form to account for the scenario listed in the above bullet point, which can be found here.
Worldwide income is also taxable, as long as the taxpayer is a U.S. citizen or resident alien. Interest, dividends, pensions, and other unearned income from outside of the country must also be reported unless there are legal or tax treaty exemptions in place.
The above requirements also largely apply even to those taxpayers who might qualify for the likes of Foreign Earned Income Exclusion or Foreign Tax Credit benefits.
Those who live outside of the U.S. or Puerto Rico are granted an automatic extension of two months to June 15; however, they are still subject to paying interest on tax outstanding as of the April 15 deadline. The extension applies to members of the U.S. military, as well.
“Good to knows” for all of us
While the above considerations and reminders may apply to special situations and even reflect evolving workplace and societal trends, there are “best practices” that apply to the “rest of us.” Notably, the IRS is encouraging taxpayers to check out and leverage the improved “Where’s My Refund?” portal. This hub for information about the “what if’s” after filing helps in part to:
Confirm when/if the return was received
Get updates about the approval status of the refund
Stay abreast of the potential issue date associated with the refund
Stay on top of any additional information that the IRS may request prior to approving and issuing the refund
For filing season 2024, taxpayers can have this information at smartphone’s reach via the new IRS2Go app. After acknowledgment of the return is received, you can usually check the status of your refund within 24 hours of e-filing for the tax year 2023 return (or four weeks after mailing a paper return). Updates are made each day, usually overnight, so don’t worry about compulsively refreshing the tool. If you don’t see any updates one day, just wait until tomorrow morning.
There are several factors that can delay your refund, and which underscore still other pivotal reminders and best practices. Notably, errors or incomplete information related to the likes of tax credits can affect how quickly you get your refund. Note that the IRS will not call or harass you for your private or sensitive information. As we discussed last month, scams are more abundant than ever. When in doubt, do not provide any info and also be sure to take the appropriate steps to report potential bad actors to the right authorities and channels.
A few final essentials:
Be sure that you have all of the tax documentation that you need before finalizing your return. Too often, a lack of information can result in delays and other complications that stand between you and a non-taxing tax season.
Always get into the habit of checking the documents that are received for any inaccurate or incomplete info.
Be sure to get those changes or corrections made promptly. Do not delay.
Get records in order sooner rather than later. You do not want to miss out on money-saving credits and deductions simply because of a sloppy data-gathering process.
We know that many times individuals can suffer from paralysis by analysis. The tax filing process can seem daunting. Additionally, we also know that the practices mentioned above may be easier said than done. For these and myriad other reasons, we encourage you to contact O’Donnell, Ficenec, Wills & Ferdig today.
Taxes as a season and year-round are our business. We have the knowledge, expertise, and infrastructure in place to securely organize, retrieve, report, and otherwise manage your personal data. With our trusted and experienced tax professionals on your team, you don’t have to frantically sprint toward the tax filing deadline. We assure the process is hassle-free and favorable, and minimizes bulky or burdensome tax liabilities.