Issue Number: Tax Tip 2022-115

When taxpayers have a question, their first stop should be IRS.gov. The Let Us Help You page is a great way to get answers to tax questions fast. People who call the IRS for additional help will need to have information available to verify their identity. This is part of the agency's ongoing efforts to keep taxpayer data secure from identity thieves.

IRS representative only discuss personal information with the taxpayer or someone the taxpayer authorizes to speak on their behalf. To ensure they don’t have to call back, taxpayers, should have the following information ready:

• Social Security numbers and birth dates for those who were included on the tax return

• An Individual Taxpayer Identification Number letter if the taxpayer has an ITIN instead of an SSN

• Their filing status: single, head of household, married filing jointly, married filing separate, or qualifying widow or widower with a dependent child

• The prior-year tax return. Phone representatives may need to verify taxpayer identity with information from the return before answering certain questions

• A copy of the tax return in question

• IRS letters or notices received by the taxpayer

By law, IRS representatives will only speak with the taxpayer or to the taxpayer's legally designated representative.

Anyone calling about someone else's account should be prepared to verify their identity and provide information about the person they are representing including:

• Verbal or written authorization from the taxpayer to discuss their account

• The ability to verify the taxpayer's name, SSN or ITIN, tax period, and tax forms filed

• Preparer Tax Identification Numberor PIN if a third-party designee

• One of these forms, which is current, completed and signed:

  • Form 8821, Tax Information Authorization

  • Form 2848, Power of Attorney and Declaration of Representative

Issue Number: Tax Tip 2022-112

People with disabilities can use an Achieving a Better Life Experience or ABLE account to help pay qualified disability-related expenses. This tax-advantaged savings account doesn’t affect their eligibility for government assistance programs.

Here are some key things people should know about these accounts.

Annual contribution limit

• The 2022 limit is $16,000.

• Certain employed ABLE account beneficiaries may make an additional contribution up to the lesser of these amounts:

  • The designated beneficiary's compensation for the tax year.

  • The poverty line for a one-person household. For 2022, this amount is $12,880 in the continental U.S., $16,090 in Alaska and $14,820 in Hawaii.

Saver's credit

• ABLE account designated beneficiaries may be eligible to claim the saver's credit for a percentage of their contributions.

• The beneficiary claims the credit on Form 8880, Credit for Qualified Retirement Savings Contributions. The saver's credit is a non-refundable credit available to individuals who meet these three requirements:

  • Are at least 18 years old at the close of the taxable year

  • Are not a dependent or a full-time student

  • Meet the income requirements

Rollovers and transfers from section 529 plans

• Families may roll over funds from a 529 plan to another family member's ABLE account.

• The ABLE account must be for the same beneficiary as the 529 account or for a member of the same family as the 529 account holder. Rollovers from a section 529 plan count toward the annual contribution limit. For example, the $16,000 annual contribution limit would be met by parents contributing $10,000 to their child's ABLE account and rolling over $6,000 from a 529 plan to the same ABLE account.

Qualified disability expenses

• States can offer ABLE accounts to help people who become disabled before age 26 or their families pay for disability-related expenses. These expenses include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services.

• Though contributions aren't deductible for federal tax purposes, distributions, including earnings, are tax-free to the beneficiary, if they are used to pay qualified disability expenses.

More Information:

ABLE Accounts - Tax Benefit for People with Disabilities

Publication 907, Tax Highlights for Persons with Disabilities

Form 1099-QA, Distributions from ABLE Accounts

Form 5498-QA, ABLE Account Contribution Information

Instructions for Forms 1099-QA and 5498-QA

Issue Number: FS-2022-33

With continuing phone and in-person scams taking place across the country, the IRS wants to help taxpayers understand how and why agency representatives may contact taxpayers.

In most instances, the IRS sends a letter or written notice to a taxpayer in advance, but not always. Depending on the situation, IRS employees may first call or visit with a taxpayer.

Here’s how taxpayers can know if a person calling or visiting their home or place of business is a legitimate IRS employee or an imposter. There are special instances where an IRS revenue officer or revenue agent may visit a home or business related to an unpaid tax bill or an audit; the IRS urges people with tax issues to understand the circumstances around these visits and also help protect themselves against imposters.

Text messages: Frequently a scam

The IRS does not send text messages including shortened links, asking the taxpayer to verify some bit of personal information. These fraudulent messages often contain bogus links claiming to be IRS websites or other online tools. Other than IRS Secure Access, the IRS does not use text messages to discuss personal tax issues, such as those involving bills or refunds.

If a taxpayer receives an unsolicited SMS/text that appears to be from either the IRS or a program closely linked to the IRS, the taxpayer should take a screenshot of the text message and include the screenshot in an email to phishing@irs.gov with the following information:

• Date, time and time zone they received the text message.

• Phone number that received the text message.

The IRS reminds everyone NOT to click links or open attachments in unsolicited, suspicious or unexpected text messages whether from the IRS, state tax agencies or others in the tax community.

Email: Many tax scams involve email

The IRS does not initiate contact with taxpayers by email to request personal or financial information. The IRS initiates most contacts through regular mail. If a taxpayer receives an unsolicited fraudulent email that appears to be from either the IRS or a program closely linked to the IRS, report it by sending the email as an attachment to phishing@irs.gov. The Report Phishing and Online Scams page at IRS.gov provides complete details.

Mail and phone contacts are first steps with a tax issue

Taxpayers will generally first receive several letters from the IRS in the mail before receiving a phone call. However, there are circumstances when the IRS will call, including when a taxpayer has an overdue tax bill, a delinquent or unfiled tax return or has not made an employment tax deposit.

The IRS does not leave pre-recorded, urgent or threatening voice messages. Additionally, the IRS (and its authorized private collection agencies) will never:

• Call to demand immediate payment using a specific payment method such as a prepaid debit card or gift card. The IRS does not use these methods for tax payments.

• Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.

• Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.

• Ask for credit or debit card numbers over the phone.

All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties. For anyone who doesn't owe taxes and has no reason to think they do: Do not give out any information. Hang up immediately. For more information, see IRS warning: Scammers work year-round; stay vigilant.

In-person visits: What to know

IRS revenue officers generally make unannounced visits to a taxpayer’s home or place of business to discuss taxes owed or tax returns due. Keep in mind this important point: Taxpayers would have first been notified by mail of their balance due or missing return. A limited exception involves revenue officer contacts while working a small number of “alert” cases, designed to help businesses from falling behind on withheld employment taxes before a balance due notice is created or mailed. Revenue officers are IRS civil enforcement employees whose role involves education, investigation and when necessary, appropriate enforcement steps to collect a tax debt. A revenue officer will help a taxpayer understand their tax obligations as well as the consequences for not meeting the obligations.

IRS revenue agents will at times visit an individual, business or non-profit who is being audited. That taxpayer would have first been notified by mail about the audit and set an agreed-upon appointment time with the revenue agent. Also, after mailing an initial appointment letter to a taxpayer, an auditor may call to confirm and discuss items pertaining to the scheduled audit appointment.

When visited by someone from the IRS, the taxpayer should always ask for credentials or identification. IRS representatives can always provide two forms of official credentials: IRS-issued credentials (also called a pocket commission) and a HSPD-12 card. The HSPD-12 card is a governmentwide standard form of identification for federal employees.

For more information, visit How to know it’s really the IRS calling or knocking on your door on IRS.gov, and the IRS Taxpayer Bill of Rights.

Helpful information on resolving tax issues

The IRS reminds individuals, businesses and non-profits with outstanding tax issues that there are a number of easy ways to get assistance and help them meet their tax obligations. The IRS encourages people to visit a special section on IRS.gov focused on payment options. These include paying taxes through an Online Account with IRS Direct Pay or paying by debit card, credit card or digital wallet. The IRS has options for people who can't pay their taxes, including applying for a payment plan on IRS.gov. Recently the IRS announced expanded voice bot options to help eligible taxpayers easily verify their identity to set up or modify a payment plan while avoiding long wait times.

Remember that the IRS will not:

• Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes.

• Demand a taxpayer pay taxes without the opportunity to question or appeal the amount they say they owe. Taxpayers should also be advised of their rights as a taxpayer.

• Ask for credit or debit card numbers over the phone.

• Threaten to bring in local police, immigration officers or other law-enforcement to have taxpayers arrested for not paying. The IRS also cannot revoke a driver’s license, business license or immigration status. Threats like these are common tactics scam artists use to trick victims into buying into their schemes.

Taxpayers who have filed a petition with the U.S. Tax Court may receive a call from an Appeals officer to discuss their tax dispute and options for resolution. During the call, the Appeals officer will provide their name, their badge number and their contact information including their phone number, e-fax, and e-mail address. The Appeals Officer will also know the docket number, as well as specifics regarding the case.

Appeals employees will never ask for credit card or banking information. If an Appeals officer cannot reach a taxpayer by phone, they may leave a general voicemail message. When an Appeals employee leaves a voicemail, they will include self-identifying information such as their name, title, badge number, and contact information.

Also, during this call, Appeals employees may ask taxpayers to submit additional documentation regarding their petition directly to the Independent Office of Appeals via mail, fax, or to an email address ending with @irs.gov.

Also note, taxpayers can contact the Taxpayer Advocate Service, which is an independent organization within the IRS that helps taxpayers and protects taxpayers’ rights. They can offer taxpayers help if their tax problem is causing a financial difficulty, they’ve tried and been unable to resolve the issue with the IRS, or they believe an IRS system, process, or procedure just isn’t working as it should. Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778 for more information.

Issue Number: Tax Tip 2022-107

There are many ways people plan for retirement. Individual Retirement Arrangements, or IRAs, are a common one. IRAs provide tax incentives for people to make investments that can provide financial security when they retire. These accounts can be with a bank or other financial institution, a life insurance company, mutual fund, or stockbroker.

Here are some things to know about a traditional IRA.

A traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible.

• Generally, the money in a traditional IRA isn’t taxed until it’s withdrawn.

• There are annual limits to contributions depending on the person’s age and the type of IRA.

• When planning when to withdraw money from an IRA, taxpayers should know that:

  • They may face a 10% penalty and a tax bill if they withdraw money before age 59½, unless they qualify for an exception.

  • Usually, they must start taking withdrawals from their IRA when they reach age 72. For tax years 2019 and earlier, that age was 70½.

  • Special distribution rules apply for IRA beneficiaries.

Roth IRAs are like traditional IRAs, but there are some important differences.

A Roth IRA is another tax-advantaged personal savings plan with many of the same rules as a traditional IRA but there are exceptions:

• A taxpayer can’t deduct contributions to a Roth IRA.

• Qualified distributions are tax-free.

• Roth IRAs don’t require withdrawals until after the death of the owner.

Here are a few other types of IRAs:

• Savings Incentive Match Plan for Employees. A SIMPLE IRA allows employees and employers to contribute to traditional IRAs set up for employees. It is suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.

• Simplified Employee Pension. A SEP IRA is set up by an employer. The employer makes contributions directly to an IRA set up for each employee.

• Rollover IRA. This is when the IRA owner receives a payment from their retirement plan and deposits it into a different IRA within 60 days.

More information:

Publication 590-A, Contributions to Individual Retirement Arrangements

Publication 590-B, Distributions from Individual Retirement Arrangements

Topic No. 557, Additional Tax on Early Distributions from Traditional and Roth IRAs

Topic No. 413, Rollovers from Retirement Plans

Topic No. 451, Individual Retirement Arrangements

Issue Number: Tax Tip 2022-105

Taxpayers who want to check their account information including balance, payments, tax records and more, can log into their IRS online account. It’s a simple and secure way to get information fast.

Taxpayers can view:

• Their payoff amount, which is updated for the current day

• The balance for each tax year for which they owe taxes

• Their payment history

• Key information from their most current tax return as originally filed

• Payment plan details if they have one

• Digital copies of select IRS notices

• Economic Impact Payments if they received any

• Their address on file

Taxpayers can also use their online account to:

• Select an electronic payment option.

• Set up an online payment agreement.

• Access tax records and transcripts.

• Approve and electronically sign Power of Attorney and Tax Information Authorization requests from their tax professional.

Taxpayer's balance will update no more than once every 24 hours, usually overnight. Taxpayers should also allow 1 to 3 weeks for payments to show up in the payment history.

Issue Number: Tax Tip 2022-104

Business travel can be costly. Hotel bills, airfare or train tickets, cab fare, public transportation – it can all add up fast. The good news is business travelers may be able off-set some of those cost by claiming business travel deductions when they file their taxes.

Here are some details about these valuable deductions that all business travels should know.

Business travel deductions are available when employees must travel away from their tax home or main place of work for business reasons. The travel period must be substantially longer than an ordinary day's work and a need for sleep or rest to meet the demands the work while away.

Travel expenses must be ordinary and necessary. They can’t be lavish, extravagant or for personal purposes.

Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment length does not exceed one year.

Travel expenses for conventions are deductible if attendance benefits the business and there are special rules for conventions held outside North America.

Deductible travel expenses while away from home include the costs of:

• Travel by airplane, train, bus or car between your home and your business destination.

• Fares for taxis or other types of transportation between an airport or train station to a hotel, from a hotel to a work location.

• Shipping of baggage and sample or display material between regular and temporary work locations.

• Using a personally owned car for business which can include an increase in mileage rates.

• Lodging and non-entertainment-related meals.

• Dry cleaning and laundry.

• Business calls and communication.

• Tips paid for services related to any of these expenses.

• Other similar ordinary and necessary expenses related to the business travel.

Self-employed or farmers with travel deductions

• Those who are self-employed can deduct travel expenses on Schedule C ,Form 1040, Profit or Loss From Business, Sole Proprietorship.

• Farmers can use Schedule F, Form 1040, Profit or Loss From Farming.

Travel deductions for the National Guard or military reserves

National Guard or military reserve servicemembers can claim a deduction for unreimbursed travel expenses paid during the performance of their duty.

Recordkeeping

Well-organized records make it easier to prepare a tax return. Keep records, such as receipts, canceled checks, and other documents that support a deduction.

More information:

Publication 463, Travel, Gift, and Car Expenses

IRS updates per diem guidance for business travelers and their employers

Issue Number: Tax Tip 2022-103

As the old saying goes: When something sounds too good to be true, it probably is. Taxpayers with outstanding tax bills might be tempted by businesses who advertise and offer to help them reduce their tax debt. These businesses, often called Offer in Compromise mills, make huge claims about reducing unpaid taxes for pennies on the dollar. Unfortunately, these companies sometimes don’t deliver and charge large fees.

An Offer in Compromise with the IRS can help some taxpayers who can’t pay their tax bill.

An Offer in Compromise is an agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount owed. The offer program gives eligible taxpayers a path toward paying off their debt when they otherwise couldn’t or would face financial hardship.

The OIC mills that are dishonest take advantage of taxpayers’ lack of knowledge to make a quick buck.

These OIC mills urge people to hire their company to file an OIC application, even though the taxpayer won't qualify. They often charge big fees to prepare applications that they know the IRS will deny. This unfair practice wastes taxpayers’ time and money.

Taxpayers who do qualify for an OIC can get the same deal working directly with the IRS, without the extra fees.

The OIC mills that are dishonest are a problem all year long, but they step up their advertising after the filing season ends, when taxpayers are trying to resolve their tax issues.

Here’s what taxpayers considering an OIC should know:

• Individual taxpayers can use the IRS's Offer in Compromise Pre-Qualifier tool to see if they're eligible.

• When a taxpayer is ready to apply, they can watch an OIC video playlist that will lead them through the steps and forms to calculate an appropriate offer based on their assets, income, expenses and future earning potential.

• Taxpayers must make an offer based on their true ability to pay.

• Applying does not guarantee that the IRS will accept the taxpayer’s offer.

Finding reputable tax help

People who want help from a reputable tax profession can review Choosing a Tax Professional page on IRS.gov to find information about tax preparer credentials and qualifications. They can then use IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to find a preparer by type of credential or qualification.

More information:

Offer in Compromise

Offer in Compromise Pre-Qualifier Tool

Offer in Compromise - IRS Video Portal

Form 656, Offer in Compromise

Issue Number: Tax Tip 2022-99

Compiled annually, the Dirty Dozen lists a variety of common scams that taxpayers can encounter anytime. The IRS warns taxpayers, tax professionals and financial institutions to beware of these scams. This year’s list is divided into five groups. Here’s an overview of the top twelve tax scams of 2022.

Potentially abusive arrangements

The 2022 Dirty Dozen begins with four transactions that are wrongfully promoted and will likely attract additional agency compliance efforts in the future. Those four abusive transactions involve charitable remainder annuity trusts, Maltese individual retirement arrangements, foreign captive insurance, and monetized installment sales.

Pandemic-related scams

This IRS reminds taxpayers that criminals still use the COVID-19 pandemic to steal people's money and identity with phishing emails, social media posts, phone calls, and text messages.

All these efforts can lead to sensitive personal information being stolen, and scammers using this to try filing a fraudulent tax return as well as harming victims in other ways. Some of the scams people should continue to be on the lookout for include Economic Impact Payment and tax refund scams, unemployment fraud leading to inaccurate taxpayer 1099-Gs, fake employment offers on social media, and fake charities that steal taxpayers’ money.

Offer in Compromise "mills"

Offer in Compromise or OIC "mills," make outlandish claims, usually in local advertising, about how they can settle a person's tax debt for pennies on the dollar. Often, the reality is that taxpayers pay the OIC mill a fee to get the same deal they could have gotten on their own by working directly with the IRS. These “mills” are a problem all year long, but they tend to be more visible right after the filing season ends and taxpayers are trying to resolve their tax issues perhaps after receiving a balance due notice in the mail.

Suspicious communications

Every form of suspicious communication is designed to trick, surprise, or scare someone into responding before thinking. Criminals use a variety of communications to lure potential victims. The IRS warns taxpayers to be on the lookout for suspicious activity across four common forms of communication: email, social media, telephone, and text messages. Victims are tricked into providing sensitive personal financial information, money, or other information. This information can be used to file false tax returns and tap into financial accounts, among other schemes.

Spear phishing attacks

Spear phishing scams target individuals or groups. Criminals try to steal client data and tax preparers' identities to file fraudulent tax returns for refunds. Spear phishing can be tailored to attack any type of business or organization, so everyone needs to be skeptical of emails requesting financial or personal information.

A recent spear phishing email used the IRS logo and a variety of subject lines such as "Action Required: Your account has now been put on hold” to steal tax professionals’ software preparation credentials. The scam email contains a link that if clicked will send users to a website that shows the logos of several popular tax software preparation providers. Clicking on one of these logos will prompt a request for tax preparer account credentials. The IRS warns tax pros not to respond or take any of the steps outlined in the email. The IRS has observed similar spear phishing emails claiming to be from "tax preparation application providers."

The list is not a legal document or a literal listing of agency enforcement priorities. It is designed to raise awareness among a variety of audiences that may not always be aware of developments involving tax administration.

Issue Number: Tax Tip 2022-97

Many people take up gig work on a part-time or full-time basis, often through a digital platform like an app or website. Gig work, such driving a car for booked rides, selling goods online, renting out property, or providing other on-demand work, is taxable and must be reported as income on the worker’s tax return.

Here are some things gig workers should know to stay on top of their tax responsibilities:

Gig work is taxable:

• Earnings from gig economy work is taxable, regardless of whether an individual receives information returns. The reporting requirement for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers will now receive an information return. This is true even if the work is full-time or part-time.

• Gig workers may be required to make quarterly estimated tax payments.

• If they are self-employed, gig workers must pay all their Social Security and Medicare taxes on their income from the gig activity

Proper worker classification:

While providing gig economy services, it is important that the taxpayer is correctly classified.

• This means the business, or the platform, must determine whether the individual providing the services is an employee or independent contractor.

• Taxpayers can use the worker classification page on IRS.gov to see how they should be classified.

• Independent contractors may be able to deduct business expenses, depending on tax limits and rules. It is important for taxpayers to keep records of their business expenses.

Paying the right amount of taxes throughout the year:

• An employer typically withholds income taxes from their employees' pay to help cover income taxes their employees owe.

• Gig economy workers who aren’t considered employees have two ways to cover their income taxes:

  • Submit a new Form W-4 to their employer to have more income taxes withheld from their paycheck if they have another job as an employee.

  • Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.

The Gig Economy Tax Center on IRS.gov answers questions and helps gig economy taxpayers understand their tax responsibilities.

More information

Publication 5369, Gig Economy and your taxes: things to know

Publication 1779, Independent Contractor or Employee

Is My Residential Rental Income Taxable and/or Are My Expenses Deductible?

Issue Number: Tax Tip 2022-95

When someone dies, their surviving spouse or representative files the deceased person’s final tax return. On the final tax return, the surviving spouse or representative will note that the person has died. The IRS doesn’t need any other notification of the death.

Usually, the representative filing the final tax return is named in the person’s will or appointed by a court. Sometimes when there isn’t a surviving spouse or appointed representative, a personal representative will file the final return.

Here are some things to know about filing the final return

• • The IRS considers someone married for the entire year that their husband or wife died if they don’t remarry during that year.

  • The surviving spouse is eligible to use filing status married filing jointly or married filing separately.

  • The final return is due by the regular April tax date unless the surviving spouse or representative has an extension to file.

Who should sign the return

When e-filing, the surviving spouse or representative should follow the directions provided by the software for the correct signature and notation requirements. For paper returns, the filer should write the word deceased, the deceased person’s name and the date of death across the top. Here’s who should sign the return:

• • Any appointed representative must sign the return. If it's a joint return, the surviving spouse must also sign it.

  • If there isn’t an appointed representative, the surviving spouse filing a joint return should sign the return and write in the signature area labeled, filing as surviving spouse.

  • If there's no appointed representative and no surviving spouse, the person in charge of the deceased person’s property must file and sign the return as "personal representative."

Other documents to include

• Court-appointed representatives should attach a copy of the court document showing their appointment.

• Representatives who aren’t court-appointed must include Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer to claim any refund. Surviving spouses and court-appointed representatives don’t need to complete this form.

The IRS doesn’t need a copy of the death certificate or other proof of death.

If tax is due, the filer should submit payment with the return or visit the payments page of IRS.gov for other payment options. If they can't pay the amount due immediately, they may qualify for a payment plan or installment agreement.

Qualifying widow or widower

Surviving spouses with dependent children may be able to file as a Qualifying Widow(er) for two years after their spouse’s death. This filing status allows them to use joint return tax rates and the highest standard deduction amount if they don't itemize deductions.

More information

Publication 501, Dependents, Standard Deduction, and Filing Information

Publication 559, Survivors, Executors and Administrators

Tax Topic No. 356 Decedents

How Do I File a Deceased Person's Tax Return?

Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer

Issue Number: Tax Tip 2022-95

Tax credits and deductions can help lower the amount of tax owed. All taxpayers should begin planning now to take advantage of the credits and deductions they are eligible for when they file their 2022 federal income tax return next year.

Here are a few facts that can help taxpayers with their year-round tax planning:

• Adjusted Gross Income, or AGI, is a taxpayer’s total gross income minus specific deductions that can reduce the taxpayer’s income before calculating tax owed. AGI is the starting point for calculating taxes and determining a taxpayer’s eligibility for certain tax credits and deductions that can help lower their tax bill.

• Taxable income is a taxpayer’s AGI minus the standard deduction or itemized deductions, whichever is greater.

• The standard deduction is a set dollar amount that reduces taxable income. Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions and using the option that lowers their tax the most.

• Properly claiming tax credits can reduce taxes owed or boost refunds.

• Some tax credits, like the earned income tax credit, are refundable, which means an eligible taxpayer can get money refunded to them even if they don't owe any taxes.

• To claim a deduction or credit, taxpayers should keep records that show their eligibility for it.

Issue Number: Tax Tip 2022-93

Under the tax law, payers responsible for knowing who they are paying. To accomplish this, payers are required to collect the legal name and taxpayer identification number, or TIN, from vendors they pay. Generally, backup withholding is required when a service vendor does not provide the payer their TIN timely or accurately. This type of withholding can apply to most payments reported on certain Forms 1099 and W-2G.

Here’s what taxpayers need to know about backup withholding.

Backup withholding is required on certain non-payroll amounts when certain conditions apply.

The payer making such payments to the payee doesn't generally withhold taxes, and the payees report and pay taxes on this income when they file their federal tax returns. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income.

Backup withholding is set at a specific percentage.

The current rate is 24 percent.

Payments subject to backup withholding include:

• • Interest payments

  • Dividends

  • Payment card and third-party network transactions

  • Patronage dividends, but only if at least half the payment is in money

  • Rents, profits, or other gains

  • Commissions, fees, or other payments for work done as an independent contractor

  • Payments by brokers

  • Barter exchanges

  • Payments by fishing boat operators, but only the part that is paid in actual money and that represents a share of the proceeds of the catch

  • Royalty payments

  • Gambling winnings, if not subject to gambling withholding

  • Taxable grants

  • Agriculture payments

Examples when the payer must deduct backup withholding:

• • If a payee has not provided the payer a Taxpayer Identification Number.

    • A TIN specifically identifies the payee.

    • TINs include Social Security numbers, Employer Identification Numbers, Individual Taxpayer Identification Numbers and Adoption Taxpayer Identification Numbers.

  • If the IRS notified the payer that the payee provided an incorrect TIN; that is the TIN does not match the name in IRS records. Payees should make sure that the payer has their correct name and TIN to avoid backup withholding.

More information:

Backup Withholding "B" Program

Publication 1281, Backup Withholding for Missing and Incorrect Name/TINs

Issue Number: Tax Tip 2022-92

When people go through a legal separation or divorce, the change in their relationship status also affects their tax situation. The IRS considers a couple married for filing purposes until they get a final decree of divorce or separate maintenance.

Update withholding

When someone becomes divorced or separated, they usually need to file a new Form W-4 with their employer to claim the proper withholding. If they receive alimony, they may have to make estimated tax payments. The Tax Withholding Estimator tool on IRS.gov can help people figure out if they’re withholding the correct amount.

Understand the tax treatment of alimony and separate maintenance

Amounts paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree, or a written separation agreement may be alimony or separate maintenance payments for federal tax purposes. Certain alimony or separate maintenance payments are deductible by the payer spouse, and the recipient spouse must include it in income.

However, individuals can't deduct alimony or separate maintenance payments made under a divorce or separation agreement executed after 2018 or executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification. Alimony and separate maintenance payments received under such an agreement are not included in the income the recipient spouse.

Determine who will claim a dependent child if filing separate returns

Generally, the parent with custody of a child can claim that child on their tax return. If parents split custody fifty-fifty and aren’t filing a joint return, they’ll have to decide which parent gets to claim the child. There are tie-breaker rules if the parents can’t agree. Child support payments aren’t deductible by the payer and aren’t taxable to the payee.

Report property transfers, if needed

Usually, there is no recognized gain or loss on the transfer of property between spouses, or between former spouses if the transfer is because of a divorce. People may have to report the transaction on a gift tax return.

Consider filing status

Divorcing couples who are still married as of the end of the year are treated as married for the year and must determine their filing status. The What Is My Filing Status tool on IRS.gov can help people figure out what status makes sense for their situation.

Here the statuses separating or recently divorced people should consider:

• Married filing jointly. On a joint return, married people report their combined income and deduct their combined allowable expenses. For many couples, filing jointly results in a lower tax than filing separately.

• Married filing separately. If spouses file separate tax returns, they each report only their own income, deductions, and credits on their individual return. Each spouse is responsible only for the tax due on their own return. People should consider whether filing separately or jointly is better for them.

• Head of household. Some separated people may be eligible to file as head of household if all of these apply.

  • Their spouse didn’t live in their home for the last six months of the year.

  • They paid more than half the cost of keeping up their home for the year.

  • Their home was the main home of their dependent child for more than half the year.

• Single. Once the final decree of divorce or separate maintenance is issued, a taxpayer will file as single starting for the year it was issued, unless they are eligible to file as head of household or they remarry by the end of the year.

More information:

Publication 504, Divorced or Separated Individuals

Topic No. 452 Alimony and Separate Maintenance

Issue Number: Tax Tip 2022-91

The IRS encourages businesses to begin planning now to take advantage of tax benefits available to them when they file their 2022 federal income tax return. This includes the enhanced business meal deduction.

For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant. Otherwise, the limit is usually 50% of the cost of the meal.

To qualify for the enhanced deduction:

• The business owner or an employee of the business must be present when food or beverages are provided.

• Meals must be from restaurants, which includes businesses that prepare and sell food or beverages to retail customers for immediate on-premises or off-premises consumption.

• Payment or billing for the food and beverages occurs after December 31, 2020, and before January 1, 2023.

• The expense cannot be lavish or extravagant.

Grocery stores, convenience stores and other businesses that mostly sell pre-packaged goods not for immediate consumption, do not qualify as restaurants.

Employers may not treat certain employer-operated eating facilities as restaurants, even if they operate under contract by a third party.

Here’s what business owners need to know about certain costs:

• The cost of the meal can include taxes and tips.

• The cost of transportation to and from the meal isn’t part of the cost of a business meal.

Entertainment events

Business owners may be able to deduct the costs of meals and beverages provided during an entertainment event if either of these apply:

• the purchase of the food and beverages occurs separately from the entertainment

• the cost of the food and beverages is separate from the cost of the entertainment on one or more bills, invoices, or receipts.

Businesses should review the special recordkeeping rules that apply to business meals.

More information:

Publication 463, Travel, Gift, and Car Expenses

Issue Number: Tax Tip 2022-62

The IRS mails letters or notices to taxpayers for a variety of reasons including:

• They have a balance due.

• They are due a larger or smaller refund.

• The agency has a question about their tax return.

• They need to verify identity.

• The agency needs additional information.

• The agency changed their tax return.

If a taxpayer receives an IRS letter or notice, they should:

• Not ignore it. Most IRS letters and notices are about federal tax returns or tax accounts. The notice or letter will explain the reason for the contact and gives instructions on what to do.

• Not panic. The IRS and its authorized private collection agencies generally contact taxpayers by mail. Most of the time, all the taxpayer needs to do is read the letter carefully and take the appropriate action.

• Read the notice carefully and completely. If the IRS changed the tax return, the taxpayer should compare the information provided in the notice or letter with the information in their original return. In general, there is no need to contact the IRS if the taxpayer agrees with the notice.

• Respond timely. If the notice or letter requires a response by a specific date, taxpayers should reply in a timely manner to:

  • avoid delays in processing their tax return

  • minimize additional interest and penalty charges

  • preserve their appeal rights if they don't agree

• Pay amount due. Taxpayers should pay as much as they can, even if they can't pay the full amount. People can pay online or apply online for a payment agreement, including installment agreements, or an Offer in Compromise. The agency offers several payment options.

• Keep a copy of the notice or letter. It's important that taxpayers keep a copy of all notices or letters with other tax records. They may need these documents later.

• Remember there is usually no need to call the IRS. If a taxpayer must contact the IRS by phone, they should use the number in the upper right-hand corner of the notice. The taxpayer should have a copy of their tax return and letter when calling. Typically, taxpayers only need to contact the agency if they don't agree with the information, if the IRS requests additional information, or if the taxpayer has a balance due. Taxpayers can also write to the agency at the address on the notice or letter. Taxpayer replies are worked on a first-come, first-served basis and will be processed based the date the IRS receives it.

Issue Number: Tax Tip 2022-57

A hobby is any activity that a person pursues because they enjoy it and with no intention of making a profit. People operate a business with the intention of making a profit. Many people engage in hobby activities that turn into a source of income. However, determining if that hobby has grown into a business can be confusing.

To help simplify things, the IRS has established factors taxpayers must consider when determining whether their activity is a business or hobby.

These factors are whether:

• The taxpayer carries out activity in a businesslike manner and maintains complete and accurate books and records.

• The taxpayer puts time and effort into the activity to show they intend to make it profitable.

• The taxpayer depends on income from the activity for their livelihood.

• The taxpayer has personal motives for carrying out the activity such as general enjoyment or relaxation.

• The taxpayer has enough income from other sources to fund the activity.

• Losses are due to circumstances beyond the taxpayer's control or are normal for the startup phase of their type of business.

• There is a change to methods of operation to improve profitability.

• Taxpayer and their advisor have the knowledge needed to carry out the activity as a successful business.

• The taxpayer was successful in making a profit in similar activities in the past.

• Activity makes a profit in some years and how much profit it makes.

• The taxpayer can expect to make a future profit from the appreciation of the assets used in the activity.

All factors, facts, and circumstances with respect to the activity must be considered. No one factor is more important than another.

If a taxpayer receives income from an activity that is carried on with no intention of making a profit, they must report the income they receive on Schedule 1, Form 1040, line 8.

Issue Number: IR-2022-78

WASHINGTON — The Internal Revenue Service today reminded all taxpayers – particularly those who are identity theft victims – of an important step they should take to protect themselves from tax fraud.

Some identity thieves use taxpayers’ information to file fraudulent tax returns. By requesting Identity Protection PINs from the Get an IP PIN tool on IRS.gov, taxpayers can prevent thieves from claiming tax refunds in their names.

Identity Protection PINs and how to get one

An IP PIN is a six-digit number the IRS assigns to an individual to help prevent the misuse of their Social Security number or Individual Taxpayer Identification Number (ITIN) on federal income tax returns. The IP PIN protects the taxpayer’s account, even if they’re no longer required to file a tax return, by rejecting any e-filed return without the taxpayer’s IP PIN

Taxpayers should request an IP PIN:

• If they want to protect their SSN or ITIN with the IRS,

• If they want to protect their dependent’s SSN or ITIN with the IRS,

• If they think their SSN, ITIN or personal information was exposed by theft or fraudulent acts or

• If they suspect or confirm they’re a victim of identity theft.

Taxpayers can go to IRS/getanippin to complete a thorough authentication check. Once authentication is complete, an IP PIN will be provided online immediately. A new IP PIN is generated every year for added security. Once an individual is enrolled in the IP PIN program, there’s no way to opt-out.

The IRS may automatically assign an IP PIN if the IRS determines the taxpayer’s a victim of tax-related identity theft. The taxpayer will receive a notification confirming the tax-related ID theft incident along with an assigned IP PIN for future tax-return filings.

Taxpayers will either receive a notice with their new IP PIN every year in early January for the next filing season or they must retrieve their IP PIN by going to IRS/getanippin.

Tax-related identity theft and how to handle it

Tax-related identity theft occurs when someone uses a taxpayer’s stolen SSN to file a tax return claiming a fraudulent refund. In the vast majority of tax-related identity theft cases, the IRS identifies a suspicious tax return and pulls the suspicious return for review. The IRS then sends a letter to the taxpayer and won’t process the tax return until the taxpayer responds.

Depending on the situation, the taxpayer will receive one of three letters asking them to verify their identity:

• Letter 5071C, asks them to use an online tool to verify their identity and tell the IRS if they filed the return in question.

• Letter 4883C, asks the taxpayer to call the IRS to verify their identity and tell the IRS if they filed the return.

• For those who have been a victim of a data breach, they may receive Letter 5747C and be asked to verify their identity in-person at a Taxpayer Assistance Center.

If the taxpayer receives any of these letters, they don’t need to file an https://www.irs.gov/newsroom/when-to-file-an-identity-theft-affidavit(Form 14039). Instead, they should follow the instructions in the letter.

When to file an Identity Theft Affidavit

If a taxpayer hasn’t heard from the IRS but suspects tax-related identity theft, they should complete and submit a Form 14039, Identity Theft Affidavit. Signs of possible tax-related identity theft include:

• A taxpayer can’t e-file their tax return because a duplicate tax return was filed using their Social Security number. (Check that there’s no error in the SSN, such as transposed numbers.)

• A taxpayer can’t e-file because a dependent’s Social Security number or ITIN was already used by someone on another return without the taxpayer’s knowledge or permission. (Also check that the SSN or ITIN is correct and be sure the dependent hasn’t filed a separate tax return.)

• A taxpayer receives a tax transcript in the mail they did not request.

• A taxpayer receives a notice from a tax preparation software company confirming an online account was created in their name, and they did not create one.

• A taxpayer receives a notice from their tax preparation software company that their existing online account was accessed or disabled when they took no action.

• A taxpayer receives an IRS notice informing them that they owe additional tax, or their refund was offset to a balance due, or that they have had collection actions taken against them for a year they did not earn any income or file a tax return.

• The IRS sends a taxpayer a notice indicating that the taxpayer received wages or other income from an employer for whom they didn’t work.

• The taxpayer was assigned an Employer Identification Number (EIN), but they did not request or apply for an EIN.

The IRS will work to verify the legitimate taxpayer, clear the fraudulent return from the taxpayer’s account and, generally, place a special marker on the account that will generate an IP PIN each year for the taxpayer who is a confirmed victim.

For information about tax-related identity theft, see Identity Protection: Prevention, Detection and Victim Assistance and IRS Identity Theft Victim Assistance: How It Works on IRS.gov. The Federal Trade Commission website also includes information about tax-related identity theft.

Signs of non-tax-related identity theft; no need to file form 14039

Non-tax-related identity theft occurs when someone uses stolen or lost personal identifiable information (PII) to open credit cards, obtain mortgages, buy a car or open other accounts without their victim’s knowledge.

Potential evidence of non-tax-related identity theft can include:

• An individual receives balance due bills from companies with whom they didn’t conduct business, magazine subscriptions they didn’t order, notifications of a mortgage statement and/or credit cards for which they didn’t apply.

• An individual receives notices of unemployment benefits for which they didn’t apply.

• An individual receives a Notice CP 01E, Employment Identity Theft.

• An individual receives a Form W-2 or 1099 from a corporation or employer from whom they did not receive the income reported and they have not received a notice or letter from the IRS questioning them about that income.

• A taxpayer can’t e-file because a dependent’s SSN or ITIN was already used by someone who is known to the taxpayer but is not the parent or legal guardian, and the taxpayer did not provide permission for that person to claim the dependent. For additional information about this issue, see Publication 1819, Divorce and non-custodial, separated, or never married parents.

Victims of non-tax-related identity theft don’t need to report these incidents to the IRS but should take steps to protect against the type of identity theft they’ve experienced.

Issue Number: IR-2022-65

WASHINGTON – Even though the Internal Revenue Service issues most refunds in less than 21 days for taxpayers who filed electronically and chose direct deposit, some refunds may take longer.

Many different factors can affect the timing of a refund after the IRS receives a return. A manual review may be necessary when a return has errors, is incomplete or is affected by identity theft or fraud.

Other returns can also take longer to process, including when a return needs a correction to the Child Tax Credit or Recovery Rebate Credit amount, includes a claim filed for an Earned Income Tax Credit or an Additional Child Tax Credit, or includes a Form 8379, Injured Spouse Allocation , which could take up to 14 weeks to process.

The fastest way to get a tax refund is by filing electronically and choosing direct deposit. Taxpayers who don’t have a bank account can find out more on how to open an account at an FDIC-Insured bank or the National Credit Union Locator Tool.

The IRS cautions taxpayers not to rely on receiving a refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer. Also, remember to take into consideration the time it takes for a financial institution to post the refund to an account or to receive it by mail.

To check the status of a refund, taxpayers should use the Where’s My Refund? tool on IRS.gov. Information for the most current tax year filed is generally available within 24 hours after the IRS acknowledges receipt of a taxpayer’s e-filed return. If they filed a paper return, taxpayers should allow four weeks before checking the status.

The IRS will contact taxpayers by mail when more information is needed to process a return. IRS phone and walk-in representatives can only research the status of a refund if it has been:

• 21 days or more since it was filed electronically (or since the IRS filing season start date – whichever is later),

• Six weeks or more since a return was mailed , or when

• Where's My Refund? tells the taxpayer to contact the IRS.

Before filing a return, taxpayers should make IRS.gov their first stop to find online tools to help get the information they need to file. The tools are easy-to-use and available anytime. Millions of people use them to help file and pay taxes, find information about their accounts, get answers to tax questions and get tips on filing a return.

2020 tax returns

Waiting on a 2020 tax return to be processed? People whose tax returns from 2020 have not yet been processed should still file their 2021 tax returns by the April due date or request an extension to file.

Those filing electronically in this group need their Adjusted Gross Income, or AGI, from their most recent tax return. For those waiting on their 2020 tax return to be processed, make sure to enter $0 (zero dollars) for last year's AGI on the 2021 tax return. Visit Validating Your Electronically Filed Tax Return for more details.

Also, when self-preparing a tax return and filing electronically, taxpayers must sign and validate the electronic tax return by entering their prior-year Adjusted Gross Income (AGI) or prior-year Self-Select PIN (SSP). Those who electronically filed last year may have created a five digit Self-Select PIN to use as their electronic signature. Generally, tax software automatically enters the information for returning customers. Taxpayers who are using a software product for the first time may have to enter this information.

Taxpayers should review the special instructions to validate an electronically filed 2021 tax return if their 2020 return has not been processed or they used the Non-Filers tool in 2021 to register for an advance Child Tax Credit payment or third Economic Impact Payment in 2021.

Issue Number: FS 2022-20

Understanding Crowdfunding

Crowdfunding is a method of raising money through websites by soliciting contributions from a large number of people. The contributions may be solicited to fund businesses, for charitable donations, or for gifts. In some cases, the money raised through crowdfunding is solicited by crowdfunding organizers on behalf of other people or businesses. In other cases, people establish crowdfunding campaigns to raise money for themselves or their businesses.

Receipt of a Form 1099-K for Distributions of Money Raised Through Crowdfunding

The crowdfunding website or its payment processor may be required to report distributions of money raised if the amount distributed meets certain reporting thresholds by filing Form 1099-K, Payment Card and Third Party Network Transactions, with the IRS. If Form 1099-K is required to be filed with the IRS, the crowdfunding website or its payment processor must also furnish a copy of that form to the person to whom the distributions are made. The American Rescue Plan Act clarifies that the crowdfunding website or its payment processor is not required to file Form 1099-K with the IRS or furnish it to the person to whom the distributions are made if the contributors to the crowdfunding campaign do not receive goods or services for their contributions.

Prior to 2022, the threshold for a crowdfunding website or payment processor to file and furnish a Form 1099-K was met if, during a calendar year, the total of all payments distributed to a person exceeded $20,000 in gross payments resulting from more than 200 transactions or donations.

For calendar years beginning after December 31, 2021, the threshold is lowered and is met if, during a calendar year, the total of all payments distributed to a person exceeds $600 in gross payments, regardless of the number of transactions or donations.

Accordingly, if a crowdfunding website or its payment processor makes distributions of money raised that meet the reporting threshold, and the contributors to the crowdfunding campaign received goods or services for their contributions, then a Form 1099-K is required to be filed with the IRS. Additionally, if the distributions of the money raised are made to the crowdfunding organizer, a copy of the Form 1099-K must be furnished to the organizer; alternatively, if the distributions of the money raised are made directly to individuals or businesses for whom the organizer solicited funds, the Form 1099-K must be furnished to those individuals or businesses that receive amounts that meet the reporting threshold.

A person receiving a Form 1099-K for distributions of money raised through crowdfunding may not recognize the filer’s name on the form. Sometimes the payment processor used by the crowdfunding website, rather than the crowdfunding website itself, will issue the Form 1099-K and be included as the filer on the form. If the recipient of a Form 1099-K does not recognize the filer’s name or the amounts included on the Form 1099-K, the recipient can use the filer’s telephone number listed on the form to contact a person knowledgeable about the payments reported.

Box 1 on the Form 1099-K will show the gross amount of the distributions made to a person during the calendar year, but issuance of a Form 1099-K doesn’t automatically mean the amount reported on the form is taxable to the person receiving the form. As discussed below, the income tax consequences depend on all the facts and circumstances. If the distributions reported on a Form 1099-K are not reported on the tax return of the recipient of the form, the IRS may contact the recipient for more information. The recipient will have the opportunity to explain why the crowdfunding distributions were not reported on the recipient’s tax return.

Tax Treatment of Money Raised Through Crowdfunding

Under federal tax law, gross income includes all income from whatever source derived unless it is specifically excluded from gross income by law. In most cases, property received as a gift is not includible in the gross income of the person receiving the gift.

If a crowdfunding organizer solicits contributions on behalf of others, distributions of the money raised to the organizer may not be includible in the organizer’s gross income if the organizer further distributes the money raised to those for whom the crowdfunding campaign was organized.

If crowdfunding contributions are made as a result of the contributors’ detached and disinterested generosity, and without the contributors receiving or expecting to receive anything in return, the amounts may be gifts and therefore may not be includible in the gross income of those for whom the campaign was organized. Contributions to crowdfunding campaigns are not necessarily a result of detached and disinterested generosity, and therefore may not be gifts. Additionally, contributions to crowdfunding campaigns by an employer to, or for the benefit of, an employee are generally includible in the employee’s gross income.

Taxpayers may want to consult a trusted tax professional for information and advice regarding how to treat amounts received from crowdfunding campaigns.

Recordkeeping for Money Raised Through Crowdfunding

Crowdfunding organizers and any person receiving amounts from crowdfunding should keep complete and accurate records of all facts and circumstances surrounding the fundraising and disposition of funds for at least three years.

Issue Number: Tax Tip 2022-38

Higher education is important to many people and it’s often expensive. Whether it’s specialized job training or an advanced degree, there are a lot of costs associated with higher education. There are two education tax credits designed to help offset these costs - the American opportunity tax credit and the lifetime learning credit.

Taxpayers who paid for higher education in 2021 can see these tax savings when they file their tax return. If taxpayers, their spouses, or their dependents take post-high school coursework, they may be eligible for a tax benefit. To claim either credit, taxpayers complete Form 8863, Education Credits, and file it with their tax return.

These credits reduce the amount of tax someone owes. If the credit reduces tax to less than zero, the taxpayer could even receive a refund. To be eligible to claim either of these credits, a taxpayer or a dependent must have received a Form 1098-T from an eligible educational institution. There are exceptions for some students.

Here are some key things taxpayers should know about each of these credits.

The American opportunity tax credit is:

• Worth a maximum benefit of up to $2,500 per eligible student.

• Only available for the first four years at an eligible college or vocational school.

• For students pursuing a degree or other recognized education credential.

• Partially refundable. People could get up to $1,000 back.

The lifetime learning credit is:

• Worth a maximum benefit of up to $2,000 per tax return, per year, no matter how many students qualify.

• Available for all years of postsecondary education and for courses to acquire or improve job skills.

• Available for an unlimited number of tax years.

Taxpayers can use the Interactive Tax Assistant tool on IRS.gov to figure out if they're eligible for either of these credits.

More information:

Compare Education Credits

Publication 970, Tax Benefits for Education

Issue Number: Tax Tip 2022-33

Taxpayers who are paying someone to take care of their children or another member of household while they work, may qualify for child and dependent care credit regardless of their income.

For tax year 2021, the maximum eligible expense for this credit is $8,000 for one child and $16,000 for two or more. Depending on their income, taxpayers could write off up to 50% of these expenses.

For the purposes of this credit, the IRS defines a qualifying person as:

• A taxpayer's dependent who is under age 13 when the care is provided.

• A taxpayer's spouse who is physically or mentally unable to care for themselves and lived with the taxpayer for more than half the year.

• Someone who is physically or mentally unable to take care of themselves and lived with the taxpayer for six months and either:

1. 1. The qualifying person was the taxpayer's dependent or

   2. They would have been the taxpayer's dependent except for one of the following:

• • • The qualifying person received gross income of $4,300 or more

    • The qualifying person filed a joint return

    • The taxpayer or spouse, if filing jointly, could be claimed as a dependent on someone else's return

Taxpayers can use the Interactive Tax Assistant on IRS.gov to determine if they can claim this credit.

More information:

Child and Dependent Care Credit FAQs

Child-related 2021 Tax Credits

Issue Number: IR 2022-45

WASHINGTON − The Internal Revenue Service reminds taxpayers of their reporting and potential tax obligations from working in the gig economy, making virtual currency transactions, earning foreign-source income or holding certain foreign assets. Information available on IRS.gov and instructions on Form 1040 can help taxpayers in understanding and meeting these reporting and tax requirements.

Gig economy earnings are taxable

Generally, income earned from the gig economy is taxable and must be reported to the IRS. The gig economy is activity where people earn income providing on-demand work, services or goods. Often, it’s through a digital platform like an app or website. Taxpayers must report income earned from the gig economy on a tax return, even if the income is:

• From part-time, temporary or side work,

• Not reported on an information return form - like a Form 1099-K, 1099-MISC, W-2 or other income statement or

• Paid in any form, including cash, property, goods or virtual currency.

For more information on the gig economy, visit the gig economy tax center.

Understand virtual currency reporting and tax requirements

The IRS reminds taxpayers that once again there is a question at the top of Form 1040 and Form 1040-SR asking about virtual currency transactions. All taxpayers filing these forms must check the box indicating either “yes” or “no.” A transaction involving virtual currency includes, but is not limited to:

• The receipt of virtual currency as payment for goods or services provided;

• The receipt or transfer of virtual currency for free (without providing any consideration) that does not qualify as a bona fide gift;

• The receipt of new virtual currency as a result of mining and staking activities;

• The receipt of virtual currency as a result of a hard fork;

• An exchange of virtual currency for property, goods or services;

• An exchange/trade of virtual currency for another virtual currency;

• A sale of virtual currency; and

• Any other disposition of a financial interest in virtual currency.

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 to figure their capital gain or loss and report it on Schedule D (Form 1040).

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 must report the income as they would report other income of the same type (for example, W-2 wages on Form 1040 or 1040-SR, line 1, or inventory or services from Schedule C on Schedule 1). More information on virtual currency can be found in Instruction for Form 1040 and on IRS.gov.

Report Foreign Source Income

A U.S. citizen or resident alien’s worldwide income is generally subject to U.S. income tax, regardless of where they live. They’re also subject to the same income tax filing requirements that apply to U.S. citizens or resident aliens living in the United States.

U.S. citizens and resident aliens must report unearned income, such as interest, dividends, and pensions, from sources outside the United States unless exempt by law or a tax treaty. They must also report earned income, such as wages and tips, from sources outside the United States. An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return.

A taxpayer is allowed an automatic 2-month extension to June 15 if both their tax home and abode are outside the United States and Puerto Rico. Even if allowed an extension, a taxpayer 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. IRS recommends attaching a statement if one of these two situations apply. More information can be found in the Instructions for Form 1040 and 1040-SR, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and Publication 519, U.S. Tax Guide for Aliens.

Reporting required for foreign accounts and assets

Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each 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. See the instructions for this form for details.

Further, separate from reporting specified foreign financial assets on their tax return, 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). Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-filing System website.

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is the same as that of Form 1040. FinCEN grants filers who missed the original deadline an automatic extension until October 15, 2022, to file the FBAR. There is no need to request this extension.

Issue Number: IR 2022-20

More people without children now qualify for the Earned Income Tax Credit (EITC), the federal government’s largest refundable tax credit for low- to moderate-income families.

In addition, families can use pre-pandemic income levels to qualify if it results in a larger credit. The Internal Revenue Service and partners across the nation highlight those changes today as they mark the the 16th annual EITC Awareness Day.

Enacted in 1975, EITC is regarded as one of the government’s largest antipoverty programs helping millions of American families every year. The IRS and partners nationwide urge people to check to see if they qualify for this important credit, and also urge people who don’t normally file a tax return to review whether they qualify for EITC and other valuable credits like the Child Tax Credit or the Recovery Rebate Credit, also referred to as stimulus payments.

“There are important changes to EITC that will help this credit reach more hard-working families this year,” said IRS Commissioner Chuck Rettig. “We urge people potentially eligible for this valuable credit to review the guidelines; many people each year overlook this and leave money on the table. On this EITC Awareness Day, we want to make sure everyone who qualifies for the credit knows about it and has the information they need to get it.”

The IRS began accepting 2021 tax returns on Jan. 24, 2022. Taxpayers can ensure they’re getting all the credits and deductions for which they qualify, including EITC, by filing their taxes electronically, using a trusted tax professional or using an IRS Free File partner’s name-brand software. Taxpayers whose adjusted gross income (or AGI) is $73,000 or less qualify for Free File partner offers.

The IRS also reminds taxpayers that the quickest way to get a tax refund is by filing an accurate tax return electronically and choosing direct deposit for their refund. Tax software, tax professionals and other free options can help people see if they qualify for the EITC.

What’s new?

Childless EITC expanded for 2021

For 2021 only, more childless workers and couples can qualify for the EITC, and the maximum credit is nearly tripled for these taxpayers. For the first time, the credit is now available to both younger workers and senior citizens.

For 2021, the EITC is generally available to filers without qualifying children who are at least 19 years old with earned income below $21,430; $27,380 for spouses filing a joint return. The maximum EITC for filers with no qualifying children is $1,502, up from $538 in 2020. There are also special exceptions for people who are 18 years old and were formerly in foster care or are experiencing homelessness. Full-time students under age 24 don't qualify. There is no upper age limit for claiming the credit if taxpayers have earned income. In the past, the EITC for those with no dependents was only available to people ages 25 to 64.

Income from 2019

Another change for 2021 allows individuals to figure the EITC using their 2019 earned income if it was higher than their 2021 earned income. To qualify for the EITC, people must have earned income through employment or other sources, so this option may help workers get a larger credit if they earned less in 2021 or received unemployment income instead of their regular wages. See the instructions for Form 1040 (.pdf), line 27 c.

Phase out and credit limits

For 2021, the amount of the credit has been increased and the phaseout income limits at which taxpayers can claim the credit have been expanded. For instance, the maximum EITC for a married couple filing jointly with three or more children is $6,728 and the upper-income level for that same family is $57,414. In 2020, the maximum EITC for a family in that situation was $6,660 and the upper-income level was $56,844.

Taxpayers should also note that any Economic Impact Payments or Child Tax Credit payments received are not taxable or counted as income for purposes of claiming the EITC. Eligible individuals who did not receive the full amounts of their Economic Impact Payments may claim the Recovery Rebate Credit on their 2021 tax return. See IRS.gov/rrc for more information.

2021 and beyond

New law changes expand the EITC for 2021 and future years. These changes include:

• More workers and working families who also have investment income can get the credit. Starting in 2021, the amount of investment income they can receive and still be eligible for the EITC increases to $10,000. In 2020, the limit was $3,650. After 2021, the $10,000 limit is indexed for inflation.

• Married but separated spouses can choose to be treated as not married for EITC purposes. To qualify, the spouse claiming the credit cannot file jointly with the other spouse, must have a qualifying child living with them for more than half the year and either:

  • Do not have the same principal residence as the other spouse for at least the last six months out of the year.

  • Are legally separated according to their state law under a written separation agreement or a decree of separate maintenance and not live in the same household as their spouse at the end of the tax year for which the EITC is being claimed.

    • Taxpayers should file Schedule EIC (Form 1040) and check the box showing them as married filing separately with a qualifying child.

    • In the past, married taxpayers had to file with their spouse to claim the EITC.

• Single people and couples with children who have Social Security numbers can claim the credit, even if their children do not have SSNs. In this instance, they would get the smaller credit available to childless workers. In the past, these filers didn't qualify for the credit.

  • Taxpayers should file Schedule EIC (Form 1040) if they have a qualifying child. If they have at least one child who meets the conditions to be their qualifying child for purposes of claiming the EITC, they should complete and attach Schedule EIC to their Form 1040 or 1040-SR even if that child doesn't have a valid SSN. For more information, including how to complete Schedule EIC if your qualifying child doesn't have a valid SSN, see the instructions for Form 1040, line 27a, and Schedule EIC.

Vital refund boost

The EITC is the federal government’s largest refundable federal income tax credit for low- to moderate-income workers. For those who qualify, and if the credit is larger than the amount of tax they owe, they will receive a refund for the difference. While the majority of those eligible claim the EITC every year, IRS estimates that one of five eligible taxpayers do not claim the credit.

Nationwide last year, almost 25 million eligible workers and families received over $60 billion in EITC allowing for the payment of necessities, housing, and educational training, with an average EITC nationwide of $2,411. For 2021, the EITC is worth as much as $6,728 for a family with three or more children or up to $1,502 for taxpayers who do not have a qualifying child.

Look for EITC Refunds by early March if no issues with tax return

By law, the IRS cannot issue refunds before mid-February for tax returns that claim the EITC or the Additional Child Tax Credit (ACTC). The IRS must hold the entire refund − even the portion not associated with the EITC or ACTC and the Recovery Rebate Credit if applicable. This helps ensure taxpayers receive the refund they deserve and gives the agency more time to detect and prevent errors and fraud.

'Where’s My Refund?' on IRS.gov and the IRS2Go app will be updated with projected deposit dates for most early EITC/ACTC refund filers by Feb. 19. Therefore, EITC/ACTC filers will not see an update to their refund status for several days after Feb. 15. Due to weekends and other factors, the IRS expects most EITC or ACTC related refunds to be available in taxpayer bank accounts or on debit cards by the first week of March, if they choose direct deposit and there are no other issues with their tax return.

Workers who can claim the EITC

Workers at risk for overlooking this important credit include taxpayers:

• Without children, including those workers who are at least 19 years old and older than 64

• Living in non-traditional families, such as a grandparent raising a grandchild

• Whose earnings declined or whose marital or parental status changed

• With limited English language skills

• Who are members of the armed forces

• Living in rural areas

• Who are Native Americans

• With disabilities or who provide care for a disabled dependent

How to claim the EITC

To get the EITC, workers must file a tax return and claim the credit. Eligible taxpayers should claim the credit even if their earnings were below the income requirement to file a tax return. Free tax preparation help is available online and through volunteer organizations.

Those eligible for the EITC have these options:

• Find a trusted tax professional. The IRS also reminds taxpayers that a trusted tax professional can prepare their tax return and provide helpful information and advice. Tips for choosing a return preparer, including certified public accountants, enrolled agents, attorneys and many others who don’t have a professional credential, and details about national tax professional groups are available on IRS.gov. EITC recipients should be careful not to be duped by an unscrupulous return preparer.

• Free File on IRS.gov. Free brand-name tax software is available that leads taxpayers through a question-and-answer format to help prepare the tax return and claim credits and deductions if they’re eligible. Free File also provides online versions of IRS paper forms, an option called Free File Fillable Forms, best suited for taxpayers comfortable preparing their own returns.

• Free tax preparation sites. EITC-eligible workers can seek free tax preparation at thousands of Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites. To locate the nearest site, use the search tool on IRS.gov, the IRS2go smartphone application, or call toll-free 800-906-9887. Taxpayers should bring all required documents and information.

The IRS reminds taxpayers to be sure they have valid Social Security numbers for themselves, their spouse if filing a joint return, and for each qualifying child claimed for the EITC. The SSNs must be issued before the due date of the return, including extensions. There are special rules for those in the military or those out of the country.

Avoid errors

Taxpayers are responsible for the accuracy of their tax return even if someone else prepares it for them. Since the rules for claiming the EITC can be complex, the IRS urges taxpayers to understand all of them. People can find help to make sure they’re eligible by visiting a free tax return preparation site, or using Free File software or by using a paid tax professional.

Beware of scams

Be sure to choose a tax preparer wisely. Beware of scams that claim to increase the EITC refund. Scams that create fictitious qualifying children or inflate income levels to get the maximum EITC could leave taxpayers with a penalty.

Visit IRS online

IRS.gov is a valuable first stop to help taxpayers get it right this filing season. Information on other tax credits, such as the Child Tax Credit, is also available.

Issue Number: Tax Tip 2022-14

As the 2022 filing season begins, the IRS encourages taxpayers to file electronically when they are ready and choose direct deposit to get their refund. Direct deposit is the safest and most convenient way to receive a tax refund.

Here are some other benefits of choosing IRS direct deposit:

• It’s fast. The fastest way for taxpayers to get their refund is to electronically file and choose direct deposit. Visit IRS.gov for details about IRS Free File, Free File Fillable Forms, free tax return preparation and more. Taxpayers who file a paper return can also choose direct deposit, but it will take longer to process the return and get a refund.

• It’s secure. Since refunds are electronically deposited, there's no risk of having a paper check stolen or lost in the mail.

• It’s easy. Taxpayers can simply follow the instructions when selecting direct deposit as a refund method and enter their account information as directed. They must enter the correct account and routing numbers when they file.

• It provides options. Taxpayers can split a refund into several financial accounts. These include checking, savings, health, education and certain retirement accounts. They should use IRS Form 8888, Allocation of Refund, Including Savings Bond Purchases to deposit a refund in up to three accounts. However, this form cannot be used to designate part of a refund to pay tax preparers.

Taxpayers should deposit refunds into U.S. bank accounts in their own name, their spouse's name or both. They should avoid making a deposit into accounts owned by others. Some banks require both spouses' names on the account to deposit a tax refund from a joint return. Taxpayers should check with their bank for direct deposit rules.

Get banked

Taxpayers who don't have a bank account can visit the FDIC website for information on banks that allow them to open an account online and how to choose the right account. Veterans can use the Veterans Benefits Banking Program for access to financial services at participating banks. Tax preparers may also offer electronic payment options.

Mobile apps may be an option

Some mobile apps and prepaid debit cards allow for direct deposit of tax refunds. They must have routing and account numbers associated with them that can be entered on a tax return. Taxpayers should check with the mobile app provider or financial institution to confirm which numbers to use.

Taxpayers must have their routing and account numbers for direct deposit available when they are ready to file. The IRS can't accept this information after a return is filed.

There is a limit of three direct deposit refunds made into a single financial account or prepaid debit card.

Issue Number: Tax Tip 2022-13

A taxpayer’s filing status tells the IRS about them and their tax situation. This is just one reason taxpayers should familiarize themselves with each option and know their correct filing status. The IRS Interactive Tax Assistant can help them determine their filing status.

A taxpayer's filing status typically depends on whether they are considered unmarried or married on Dec. 31, which determines their filing status for that entire year.

More than one filing status may apply in certain situations. If this is the case, taxpayers can usually choose the filing status that allows them to owe the least amount of tax.

When preparing and filing a tax return, filing status determines:

• If the taxpayer is required to file a federal tax return

• If they should file a return to receive a refund

• Their standard deduction amount

• If they can claim certain tax credits

• The amount of tax they owe

Here are the five filing statuses:

• Single. Normally, this status is for taxpayers who are unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law.

• Married filing jointly. If a taxpayer is married, they can file a joint tax return with their spouse. If one spouse died in 2021, the surviving spouse can use married filing jointly as their filing status for 2021 if they otherwise qualify to use that status.

• Married filing separately. Married couples can choose to file separate tax returns. This may benefit taxpayers who want to be responsible only for their own tax or if it results in less tax than filing a joint return.

• Head of household. Unmarried taxpayers may be able to file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year.

• Qualifying widow or widower with dependent child. This status may apply to a taxpayer filing a 2021 tax return if their spouse died in 2019 or 2020, and they didn't remarry before the end of 2021 and have a dependent child. Other conditions also apply.

Issue Number: Tax Tip 2022-11

Tax laws are complicated but the most common tax return errors are surprising simple. Many mistakes can be avoided by filing electronically. Tax software does the math, flags common errors and prompts taxpayers for missing information. It can also help taxpayers claim valuable credits and deductions.

Using a reputable tax preparer – including certified public accountants, enrolled agents or other knowledgeable tax professionals – can also help avoid errors.

• • Filing too early. While taxpayers should not file late, they also should not file prematurely. People who don’t wait to file before they receive all the proper tax reporting documents risk making a mistake that may lead to a processing delay.

  • Missing or inaccurate Social Security numbers. Each SSN on a tax return should appear exactly as printed on the Social Security card.

  • Misspelled names. Likewise, a name listed on a tax return should match the name on that person's Social Security card.

  • Entering information inaccurately. Wages, dividends, bank interest, and other income received and that was reported on an information return should be entered carefully. This includes any information needed to calculated credits and deductions. Using tax software should help prevent math errors, but individuals should always review their tax return for accuracy.

  • Incorrect filing status. Some taxpayers choose the wrong filing status. The Interactive Tax Assistant on IRS.gov can help taxpayers choose the correct status especially if more than one filing status applies. Tax software also helps prevent mistakes with filing status.

  • Math mistakes. Math errors are some of the most common mistakes. They range from simple addition and subtraction to more complex calculations. Taxpayers should always double check their math. Better yet, tax prep software does it automatically.

  • Figuring credits or deductions. Taxpayers can make mistakes figuring things like their earned income tax credit, child and dependent care credit, child tax credit, and recovery rebate credit. The Interactive Tax Assistant can help determine if a taxpayer is eligible for tax credits or deductions. Tax software will calculate these credits and deductions and include any required forms and schedules. Taxpayers should Double check where items appear on the final return before clicking the submit button.

  • Incorrect bank account numbers. Taxpayers who are due a refund should choose direct deposit. This is the fastest way for a taxpayer to get their money. However, taxpayers need to make sure they use the correct routing and account numbers on their tax return.

  • Unsigned forms. An unsigned tax return isn't valid. In most cases, both spouses must sign a joint return. Exceptions may apply for members of the armed forces or other taxpayers who have a valid power of attorney. Taxpayers can avoid this error by filing their return electronically and digitally signing it before sending it to the IRS.

The IRS urges all taxpayers to file electronically and choose direct deposit to get their refund faster.

Issue Number: Tax Tip 2022-10

The home office deduction allows qualified taxpayers to deduct certain home expenses when they file taxes. To claim the home office deduction on their 2021 tax return, taxpayers generally must exclusively and regularly use part of their home or a separate structure on their property as their primary place of business.

Here are some details about this deduction to help taxpayers determine if they can claim it:

• Employees are not eligible to claim the home office deduction.

• The home office deduction, calculated on Form 8829, is available to both homeowners and renters.

• There are certain expenses taxpayers can deduct. These may include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.

• Taxpayers must meet specific requirements to claim home expenses as a deduction. Even then, the deductible amount of these types of expenses may be limited.

• The term "home" for purposes of this deduction:

  • Includes a house, apartment, condominium, mobile home, boat or similar property.

  • Also includes structures on the property. These are places like an unattached garage, studio, barn or greenhouse.

  • Doesn't include any part of the taxpayer's property used exclusively as a hotel, motel, inn or similar business.

• Generally, there are two basic requirements for the taxpayer's home to qualify as a deduction:

  • There generally must be exclusive use of a portion of the home for conducting business on a regular basis. For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.

  • The home must generally be the taxpayer's principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home but also uses their home to conduct business may still qualify for a home office deduction.

• Expenses that relate to a separate structure not attached to the home may qualify for a home office deduction. They will qualify only if the structure is used exclusively and regularly for business.

• Taxpayers who qualify may choose one of two methods to calculate their home office expense deduction:

  • The simplified option has a rate of $5 a square foot for business use of the home. The maximum size for this option is 300 square feet. The maximum deduction under this method is $1,500.

  • When using the regular method, deductions for a home office are based on the percentage of the home devoted to business use. Taxpayers who use a whole room or part of a room for conducting their business need to figure out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full.

Issue Number: Tax Tip 2022-07

Whether it’s a full-time job or just a side hustle, taxpayers must report gig economy earnings on their tax return. Understanding how gig work can affect taxes may sound complicated but, it doesn’t have to be. The IRS offers several resources to help gig economy taxpayers properly fulfill their tax responsibilities.

Here are some things gig workers should keep in mind.

Gig work is taxable:

• Earnings from gig economy work is taxable, regardless of whether an individual receives information returns. The reporting requirement for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers will now receive an information return. This is true even if the work is full-time, part-time or if an individual is paid in cash.

• Gig workers may also be required to make quarterly estimated income tax payments and pay their share of Social Security and Medicare taxes.

Check worker classification:

• While providing gig economy services, it is important that the taxpayer is correctly classified.

• This means the business, or the platform, must determine whether the individual providing the services is an employee or independent contractor.

• Taxpayers can use the worker classification page on IRS.gov to see how they are classified.

• Independent contractors may be able to deduct business expenses, depending on tax limits and rules. It is important for taxpayers to keep records of their business expenses.

Pay the right amount of taxes throughout the year:

• An employer typically withholds income taxes from their employees' pay to help cover income taxes their employees owe.

• Gig economy workers who are not considered employees have two ways to cover their income taxes:

  • Submit a new From W-4 to their employer to have more income taxes withheld from their paycheck, if they have another job as an employee.

  • Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.

The Gig Economy Tax Center on IRS.gov answers questions and helps gig economy taxpayers understand their tax responsibilities.

Issue Number: Tax Tip 2022-06

Taxpayers have two options when completing a tax return, take the standard deduction or itemize their deductions. Most taxpayers use the option that gives them the lowest overall tax.

Due to all the tax law changes in the recent years, including increases to the standard deduction, people who itemized in the past might want to switch to the standard deduction.

Here are some details about the two options.

Standard deduction

The standard deduction amount increases slightly every year and varies by filing status. The standard deduction amount depends on the taxpayer's filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don't itemize deductions are entitled to a higher standard deduction.

Most filers who use Form 1040 can find their standard deduction on the first page of the form. The standard deduction for most filers of Form 1040-SR, U.S. Tax Return for Seniors, is on page 4 of that form.

Not all taxpayers can take a standard deduction, which is discussed in the Instructions for Forms 1040 and 1040-SR. Those taxpayers include:

• A married individual filing as married filing separately whose spouse itemizes deductions—if one spouse itemizes on a separate return, both must itemize.

• An individual who files a tax return for a period of less than 12 months. This is uncommon and could be due to a change in their annual accounting period.

• An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.

Itemized deductions

Taxpayers choose to itemize deductions by filing Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim include:

• State and local income or sales taxes

• Real estate and personal property taxes

• Home mortgage interest

• Mortgage insurance premiums on a home mortgage

• Personal casualty and theft losses from a federally declared disaster

• Gifts to a qualified charity

• Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income

Some itemized deductions, such as the deduction for taxes, may be limited. Taxpayers should review the instructions for Schedule A Form 1040 for more information on limitations.

Issue Number: Tax Tip 2021-185

As taxpayers get ready to file their 2022 tax return, they may be considering hiring a tax return preparer. The IRS reminds taxpayers to choose a tax return preparer wisely. This is important because taxpayers are responsible for all the information on their return, no matter who prepares it for them.

There are different kinds of tax preparers, and a taxpayer's needs will help determine which kind of preparer is best for them. With that in mind, here are some quick tips to help people choose a preparer.

When choosing a tax professional, taxpayers should:

• Check the IRS Directory of Preparers. While it is not a complete listing of tax return preparers, it does include those who are enrolled agents, CPAs and attorneys, as well as those who participate in the Annual Filing Season Program.

• Check the preparer's history with the Better Business Bureau. Taxpayers can verify an enrolled agent's status on IRS.gov.

• Ask about fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of their refund into their financial accounts.

• Be wary of tax return preparers who claim they can get larger refunds than others.

• Ask if they plan to use e-file.

• Make sure the preparer is available. People should consider whether the individual or firm will be around for months or years after filing the return. Taxpayers should do this because they might need the preparer to answer questions about the preparation of the tax return.

• Ensure the preparer signs and includes their preparer tax identification number. Paid tax return preparers must have a PTIN to prepare tax returns.

• Check the person's credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in tax matters. Other tax return preparers who participate in the IRS Annual Filing Season Program have limited practice rights to represent taxpayers during audits of returns they prepared.

Issue Number: Tax Tip 2021-176

The IRS encourages taxpayers to research charities before donating and to familiarize themselves with the expanded tax benefits that may come with giving to causes that mean something to them.

Taxpayers may be able to deduct donations to tax-exempt organizations on their tax return. As people are deciding where to make their donations, the IRS has a tool that may help. Tax Exempt Organization Search on IRS.gov is a tool that allows users to search for charities. TEOS provides information about an organization’s federal tax status and filings.

Here are some facts about the Tax Exempt Organization Search tool:

• Donors can use it to confirm an organization is tax-exempt and eligible to receive tax-deductible charitable contributions.

• Users can find out if an organization had its tax-exempt status revoked. A common reason for revocation is when an organization does not file its Form 990-series return for three consecutive years.

• TEOS does not list certain organizations that may be eligible to receive tax-deductible donations, including churches, organizations in a group ruling, and governmental entities.

• Organizations are listed under the legal name or a “doing business as” name on file with the IRS. No separate listing of common or popular names is searchable.ver financial or tax data.

Expanded tax benefits

The law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations even if they don't itemize their deductions. Taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.

Qualified charitable distributions

Most cash donations made to charity qualify for the deduction. However, there are some exceptions. Cash contributions that are not tax deductible include those:

Cash donations

The law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations even if they don't itemize their deductions. Taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.

• Made to a supporting organization

• Intended to help establish or maintain a donor advised fund

• Carried forward from prior years

• Made to most private foundations

• Made to charitable remainder trusts

These exceptions also apply to taxpayers who itemize their deductions.

Cash contributions include those made by check, credit card or debit card as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization. Cash contributions don't include the value of volunteer services, securities, household items or other property.

Issue Number: Tax Tip 2021-168

As taxpayers get ready for the upcoming filing season, It’s important for them to know their correct filing status. A taxpayer’s filing status defines the type of tax return form they should use when filing their taxes. Filing status can affect the amount of tax they owe, and it may even determine if they have to file a tax return at all.

There are five IRS filing statuses. They generally depend on the taxpayer’s marital status as of Dec.31. However, more than one filing status may apply in certain situations. If this is the case, taxpayers can usually choose the filing status that allows them to pay the least amount of tax.

When preparing and filing a tax return, the filing status affects:

• If the taxpayer is required to file a federal tax return

• If they should file a return to receive a refund

• Their standard deduction amount

• If they can claim certain credits

• The amount of tax they should pay

Here are the five filing statuses:

• Single. Normally this status is for taxpayers who are unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law.

• Married filing jointly. If a taxpayer is married, they can file a joint tax return with their spouse. When a spouse passes away, the widowed spouse can usually file a joint return for that year.

• Married filing separately. Married couples can choose to file separate tax returns. When doing so it may result in less tax owed than filing a joint tax return.

• Head of household. Unmarried taxpayers may be able to file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year.

• Qualifying widow(er) with dependent child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.

Issue Number: Tax Tip 2021-159

The tax law allows businesses to deduct expenses that help them bring in new customers and keep existing ones. These costs may include expenses for advertising and marketing. Here are some details about this valuable tax deduction that can help small businesses save money on their taxes.

Advertising and marketing costs must be ordinary and necessary to be tax deductible.

• An ordinary expense is one that is common and accepted in the industry.

• A necessary expense is one that is helpful and appropriate for the trade or business. An expense does not have to be indispensable to be considered necessary.

Here are a few advertising expenses that are usually deductible:

• Reasonable advertising expenses that are directly related to the business activities.

• An expense for the cost of institutional or goodwill advertising to keep the business name before the public if it relates to a reasonable expectation to gain business in the future. For example, the cost of advertising that encourages people to contribute to the Red Cross or to participate in similar causes is usually deductible.

• The cost of providing meals, entertainment, or recreational facilities to the public as a means of advertising or promoting goodwill in the community.

Generally, small businesses can’t deduct amounts they pay to influence legislation, which includes advertising in a convention program of a political party, or in any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate.

Issue Number: Tax Tip 2021-140

It is critical for business owners to correctly determine whether the individuals providing services are employees or independent contractors.

An employee is generally considered anyone who performs services, if the business can control what will be done and how it will be done. What matters is that the business has the right to control the details of how the worker’s services are performed. Independent contractors are normally people in an independent trade, business or profession in which they offer their services to the public. Doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers or auctioneers are generally independent contractors.

Independent contractor vs. employee. Whether a worker is an independent contractor, or an employee depends on the relationship between the worker and the business. Generally, there are three categories to consider.

• Behavioral control − Does the company control or have the right to control what the worker does and how the worker does the job?

• Financial control − Does the business direct or control the financial and business aspects of the worker's job. Are the business aspects of the worker’s job controlled by the payer? Things like how the worker is paid, are expenses reimbursed, who provides tools/supplies, etc.

• Relationship of the parties − Are there written contracts or employee type benefits such as pension plan, insurance, vacation pay? Will the relationship continue and is the work performed a key aspect of the business?

Misclassified worker Misclassifying workers as independent contractors adversely affects employees because the employer’s share of taxes is not paid, and the employee’s share is not withheld. If a business misclassified an employee without a reasonable basis, the business can be held liable for employment taxes for that worker. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes. Workers who believe they have been improperly classified as independent contractors can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report their share of uncollected Social Security and Medicare taxes due on their compensation.

Misclassified worker. Misclassifying workers as independent contractors adversely affects employees because the employer’s share of taxes is not paid, and the employee’s share is not withheld. If a business misclassified an employee without a reasonable basis, the business can be held liable for employment taxes for that worker. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes. Workers who believe they have been improperly classified as independent contractors can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report their share of uncollected Social Security and Medicare taxes due on their compensation.

Voluntary Classification Settlement Program. The Voluntary Classification Settlement Program is an optional program that provides taxpayers with an opportunity to reclassify their workers as employees for future employment tax purposes. This program offers partial relief from federal employment taxes for eligible taxpayers who agree to prospectively treat their workers as employees. Taxpayers must meet certain eligibility requirements and apply by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.

Who is self-employed? Generally, someone is self-employed if any of the following apply to them.

• • They carry on a trade or business as a sole proprietor or an independent contractor.

  • They are a member of a partnership that carries on a trade or business.

  • They are otherwise in business for themselves, including a part-time business.

Self-employed individuals, including those who earn money from gig economy work, are generally required to file an tax return and make estimated quarterly tax payments. They also generally must pay self-employment tax which is Social Security and Medicare tax as well as income tax. These taxpayers qualify for the home office deduction if they use part of a home for business.

Issue Number: Tax Tip 2021-136

Many Americans have been working from home due to the pandemic, but only certain people will qualify to claim the home office deduction. This deduction allows qualifying taxpayers to deduct certain home expenses on their tax return when they file their 2021 tax return next year.

Here are some things to help taxpayers understand the home office deduction and whether they can claim it:

• Employees are not eligible to claim the home office deduction.

• The home office deduction, reported on Form 8829, is available to both homeowners and renters.

• There are certain expenses taxpayers can deduct. They include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.

• Taxpayers must meet specific requirements to claim home expenses as a deduction. Even then, the deductible amount of these types of expenses may be limited.

• The term "home" for purposes of this deduction:

  • • Includes a house, apartment, condominium, mobile home, boat or similar property which provide basic living accommodations.

    • A separate structure on the property such as an unattached garage, studio, barn or greenhouse.

      • • Any portion of a home used exclusively as a hotel, motel, inn or similar establishment does NOT qualify as a “home” and, therefore, does not qualify for a home office deduction.

• Generally, there are two basic requirements for the taxpayer's home to qualify as a deduction:

  • • There must be exclusive use of a portion of the home for conducting business on a regular basis. For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.

    • The home must be the taxpayer's principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home but also uses their home to conduct business may still qualify for a home office deduction.

      • • A portion of a home that is used exclusively for conducting business on a regular basis but not used as the principal place of business, will qualify for a home office deduction if either patients, clients or customers are met in the home or there is a separate structure that is used exclusively for conducting business on a regular basis.

• Taxpayers who qualify may choose one of two methods to calculate their home office expense deduction:

  • • Using the simplified method consisting of a rate of $5 per square foot for business use of the home which is limited to a maximum size of 300 square feet and a maximum deduction $1,500.

    • Using the regular method whereby deductions for a home office are based on the percentage of the home devoted to business use. Any use a whole room or part of a room for conducting their business will involve figuring out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full.

More information:

Publication 587, Business Use of Your Home, Including Use by Daycare Providers

Issue Number: Tax Tip 2021-134

Small business owners have a variety of tax responsibilities. The IRS knows that understanding and meeting tax obligations is vital to the success of all businesses, especially a new one. IRS.gov has the resources and information to help people through the process of starting a new business.

Here are some tips for new entrepreneurs:

Choose a business structure. The form of business determines which income tax return a business taxpayer needs to file. The most common business structures are:

• Sole proprietorship: An unincorporated business owned by an individual. There's no distinction between the taxpayer and their business.

• Partnership: An unincorporated business with ownership shared between two or more people.

• Corporation: Also known as a C corporation. It's a separate entity owned by shareholders.

• S Corporation: A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.

• Limited Liability Company: A business structure allowed by state statute.

Choose a tax year. A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:

• Calendar year: 12 consecutive months beginning January 1 and ending December 31.

• Fiscal year: 12 consecutive months ending on the last day of any month except December.

Apply for an employer identification number. An EIN is also called a federal tax identification number. It's used to identify a business. Most businesses need one of these numbers. It's important for a business with an EIN to keep the business mailing address, location and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party and mailing it to the address on the form.

Have all employees complete these forms:

• Form I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services

• Form W-4 Employee's Withholding Allowance Certificate

Pay business taxes. The form of business determines what taxes must be paid and how to pay them.

Visit state's website. Prospective business owners should visit their state's website for info about state requirements.