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Essential tax reporting guidelines for digital assets, gig economy earnings, and foreign income

Essential tax reporting guidelines for digital assets, gig economy earnings, and foreign income

The IRS has issued a reminder for taxpayers regarding the necessity to report all forms of earned income on their tax returns.

This includes income from digital asset transactions, gig economy and service industry work, as well as income and assets from foreign sources.

These guidelines are crucial for taxpayers to ensure they file an accurate and compliant tax return.

Digital asset transactions

Digital assets, such as cryptocurrencies, stablecoins, and non-fungible tokens (NFTs), are subject to reporting.

Taxpayers must answer a specific question about digital asset transactions on their tax forms, regardless of whether they engaged in such transactions during the year.

Reporting is required for various activities, including receiving digital assets as payment, transferring them as gifts, mining, and selling.

The correct forms for reporting these transactions include Form 8949 for capital gains or losses and Schedule C for business-related transactions.

Key points for reporting digital assets:

  • Receipt of digital assets as payment or rewards
  • Transfers, sales, and exchanges of digital assets
  • Reporting of capital gains or losses on Form 8949
  • Business-related transactions on Schedule C

Gig economy earnings

Income earned from gig economy activities, such as on-demand labor or selling goods online, must be reported to the IRS.

This includes payments received in digital assets, cash, goods, or property.

Taxpayers should report this income even if it is not documented on forms like 1099-K, 1099-MISC, or W-2.

Reporting gig economy income involves:

  • Temporary, part-time, or side work
  • Payments in various forms, including digital assets
  • Reporting even without an information return form

Service industry tips

Tips received in the service industry, whether cash or non-cash, are taxable and must be reported.

Employees should report all cash tips to their employers, who will then include them on Form W-2. Noncash tips must also be reported on tax returns.

Guidelines for reporting tips:

  • Reporting all cash tips to employers
  • Including non cash tips on tax returns
  • Exemption for tips under $20 per month per employer

Foreign source income and assets

US citizens and resident aliens must report worldwide income, including from foreign sources.

This applies to both unearned income, such as interest and dividends, and earned income like wages.

Reporting foreign financial assets may require completing Schedule B and possibly Form 8938 if certain thresholds are met.

Additionally, US persons with foreign bank accounts exceeding $10,000 at any point in the year must file FinCEN Form 114 (FBAR).

Requirements for foreign income and assets include:

  • Reporting worldwide income on US tax returns
  • Possible need to file Schedule B and Form 8938
  • FBAR filing for foreign financial accounts exceeding $10,000

Bottom line

Taxpayers must diligently report all forms of income, including those from digital assets, the gig economy, service industries, and foreign sources.

Understanding and following these guidelines will help ensure compliance with tax laws and avoid potential penalties.

Ines Zemelman, EA
Founder of TFX