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IRS Reminds Taxpayers to Report Digital and Other Income
In IR-2024-63, the Internal Revenue Service (IRS) reminded taxpayers that all income is taxable. This could include digital assets (such as cryptocurrency), income in the gig economy and any payments from foreign sources. The different types of income are also explained in the instructions for IRS Form 1040.
1. Digital Assets and Cryptocurrency — A digital asset could include cryptocurrency, stablecoins, non-fungible tokens or other digital assets. When taxpayers file IRS Form 1040 or 1040-SR, they must check either "Yes" or "No" in the digital asset box.
Taxpayers are required to check the "Yes" box if they received digital assets for property or services, engaged in cryptocurrency mining or staking, received a digital asset from a hard fork (a branching of cryptocurrency blockchain that splits one cryptocurrency into two), sold or exchanged a digital asset or made a gift of a digital asset.
A taxpayer who sells cryptocurrency owned for more than one year must file IRS Form 8949, Sales and other Dispositions of Capital Assets. If a taxpayer owns cryptocurrency and makes a gift to a friend or family member, they must file IRS Form 709, United States Gift Tax Return. Taxpayers who perform a service and are paid in cryptocurrency will report this amount on Schedule C of Form 1040.
There are several reasons that a taxpayer may check the "No" box. You can hold digital assets in a wallet, transfer them from the one wallet to another or purchase digital assets with real currency and not have taxable income. The IRS has a frequently asked questions section on the Digital Assets page on IRS.gov.
2. Gig Economy Earnings — Many individuals earn income each year through providing labor, services, goods or selling property online. Gig economy income must be reported. It may come from part-time or side work, could include payment in cryptocurrency and has not been previously reported on IRS Form 1099 or W-2.
3. Service Industry Tips — Those who work in restaurants, hotels and other commercial locations and receive tips from customers. Most cash tips are reported to each employer and included on the employee’s Form W-2, Wage and Tax Statement. If an employee receives additional items that are not cash such as a pass, event ticket or goods, this should be report this on a tax return. Any tips not reported to an employer should be listed on IRS Form 4137, Social Security and Medicare Tax on Unreported Tip Income.
4. Foreign Source Income — A U.S. citizen or a resident alien is subject to tax on his or her worldwide income. The taxpayer must report all "interest, dividends, and pensions from sources outside the United States.” The taxpayer may qualify for a reduced tax because you can use the Foreign Earned Income Exclusion or the Foreign Tax Credit. If a taxpayer has a home and lives permanently outside the United States and Puerto Rico, he or she can qualify for an extension to file until June 15, 2024. However, taxes owed are due on April 15 and you will have to pay interest if you owe additional tax on June 15.
5. Foreign Bank Accounts — While individuals must pay tax on worldwide income, this also could include income from foreign trusts or banks. Taxpayers may need to file Form 8938, Statement of Foreign Financial Assets. If the taxpayer has a foreign bank account with value over $10,000, Form 114, Report of Foreign Bank and Financial Accounts (FBAR) must also be filed. This must be filed by April 15, 2024. However, if this deadline is missed, there is an automatic extension until October 15, 2024.
1. Digital Assets and Cryptocurrency — A digital asset could include cryptocurrency, stablecoins, non-fungible tokens or other digital assets. When taxpayers file IRS Form 1040 or 1040-SR, they must check either "Yes" or "No" in the digital asset box.
Taxpayers are required to check the "Yes" box if they received digital assets for property or services, engaged in cryptocurrency mining or staking, received a digital asset from a hard fork (a branching of cryptocurrency blockchain that splits one cryptocurrency into two), sold or exchanged a digital asset or made a gift of a digital asset.
A taxpayer who sells cryptocurrency owned for more than one year must file IRS Form 8949, Sales and other Dispositions of Capital Assets. If a taxpayer owns cryptocurrency and makes a gift to a friend or family member, they must file IRS Form 709, United States Gift Tax Return. Taxpayers who perform a service and are paid in cryptocurrency will report this amount on Schedule C of Form 1040.
There are several reasons that a taxpayer may check the "No" box. You can hold digital assets in a wallet, transfer them from the one wallet to another or purchase digital assets with real currency and not have taxable income. The IRS has a frequently asked questions section on the Digital Assets page on IRS.gov.
2. Gig Economy Earnings — Many individuals earn income each year through providing labor, services, goods or selling property online. Gig economy income must be reported. It may come from part-time or side work, could include payment in cryptocurrency and has not been previously reported on IRS Form 1099 or W-2.
3. Service Industry Tips — Those who work in restaurants, hotels and other commercial locations and receive tips from customers. Most cash tips are reported to each employer and included on the employee’s Form W-2, Wage and Tax Statement. If an employee receives additional items that are not cash such as a pass, event ticket or goods, this should be report this on a tax return. Any tips not reported to an employer should be listed on IRS Form 4137, Social Security and Medicare Tax on Unreported Tip Income.
4. Foreign Source Income — A U.S. citizen or a resident alien is subject to tax on his or her worldwide income. The taxpayer must report all "interest, dividends, and pensions from sources outside the United States.” The taxpayer may qualify for a reduced tax because you can use the Foreign Earned Income Exclusion or the Foreign Tax Credit. If a taxpayer has a home and lives permanently outside the United States and Puerto Rico, he or she can qualify for an extension to file until June 15, 2024. However, taxes owed are due on April 15 and you will have to pay interest if you owe additional tax on June 15.
5. Foreign Bank Accounts — While individuals must pay tax on worldwide income, this also could include income from foreign trusts or banks. Taxpayers may need to file Form 8938, Statement of Foreign Financial Assets. If the taxpayer has a foreign bank account with value over $10,000, Form 114, Report of Foreign Bank and Financial Accounts (FBAR) must also be filed. This must be filed by April 15, 2024. However, if this deadline is missed, there is an automatic extension until October 15, 2024.
Published March 8, 2024
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