Working on Your Taxes? 5 Tips to Help You Know What to Report

The Covid-19 Pandemic might have extended your tax deadline to the 15th of July, 2020. But you will still have to figure out what to report and how.

Things can get tough if you have a complicated income profile with things like cryptocurrency and tipped wages. Read through the following tips to get all the answers you will need while filing your taxes.

Tips

If you are a restaurant or a bar worker, a cab driver, an employee of a salon, a casino worker, a performer, a club attendant, or a concierge, you may be receiving tips at work. You will have to keep accurate records of these tips and report them under taxable income.

Many restaurants find it easier to pool tips together so that there will be an equal distribution of income among the team members. Pooling also makes it easier to keep track of these tips and report them for tax.

The IRS makes it mandatory for every tipped employee to report their tips to their employer before the 10th of every month, provided the total exceeds $20. You will have to fill these up in the IRS Form 4070 and give it to your employer. Based on this, your employer will decide how much payroll tax is to be withheld from your paycheck.

You will get your W-2 form from your employer at the end of the financial year. Apart from your wages, this form will reflect all the tips that you have reported throughout the year. This form should help you while filing your tax return.

If for some reason you haven’t been able to report your tips, you can come clean by submitting the IRS Form 4137. However, you will have to pay fifty-percent of your Medicare and Social Security taxes, along with your regular taxes as a penalty. You could avoid this penalty if the failure to report was because of a reasonable cause. Nevertheless, you will have to attach a statement to prove that this was not due to willful neglect.

Cryptocurrency

If you think you don’t need to pay taxes on the cryptocurrency that you have been using, think again. You can receive a heavy penalty if you are unable to prove “reasonable cause.”

The IRS has been considering cryptocurrency as property since 2014. You will have to convert your yearly crypto gains into US dollars and determine its fair value while reporting. You will have to report it on schedule 1 of form 1040 under the heading “Additional Income and Adjustments to Income.”

Here are a few tips that might come in handy while filing cryptocurrency taxes:

• Keep track of every transaction you have made using cryptocurrency.
• Maintain dollar-equivalent value for each of these transactions.
• Calculate your net profit or net loss from these transactions.

If you have held the cryptocurrency for more than a year, it will be treated as capital gains. You will then have to pay a tax of 3.8 percent on your net investment income.

Alimony

Alimony is the amount that you receive from your spouse as maintenance. If you receive this as a one-time lump sum in the form of cash, you don’t need to worry about paying any taxes. It will be treated as a capital receipt. However, it will become taxable if you are receiving it as a monthly payment. Child support, however, is not treated as alimony and hence, not taxable.

Any income earned from any of the assets transferred by your spouse will be taxable after your divorce. If you sell these assets, you will have to pay capital gains tax, just like you would on any other asset.

Forgiven Debt

If you have gotten your debt settled for less or forgiven altogether, you may have received a 1099-C form through the mail. This is the form that your creditor might have submitted to the IRS.

Make sure you include the canceled or forgiven amount (mentioned in the form) in your gross income while filing your taxes. Nevertheless, there are some exclusions you can use if you qualify for exceptions. This way, you can reduce the tax or forego it altogether.

Gambling

You may feel fortunate after winning prize money in gambling, but you will still have to pay taxes on it. If you have received an item such as a car or a laptop as a prize, you will have to determine its fair market value and include the amount on the Form 1040 under “other income.” The amount to include will be evident from the W-2G form that you may receive upon winning the prize.

Get in Touch With a Tax Professional

Consulting a tax professional might be a great idea if you want to be accurate with your tax filing. You might be able to save yourself a lot of time and money, eliminating the need to pay unnecessary penalties.