An Introduction To Tax Forms For Gig Economy Workers

The gig economy has transformed the contours of the modern workforce, bringing forth a unique combination of flexibility, autonomy, and diversified income streams. Whether you’re driving for a ride-sharing platform, developing eye-catching graphics as a freelance designer, or mastering home repairs as a handyman, you’re participating in an ever-evolving, vibrant economy. But with the freedom of gig work comes an often overlooked aspect: understanding and managing your tax obligations. In this blog, I’ll cover some of the essential tax issues and IRS forms with which every gig worker should be familiar.

As a participant in the gig economy, you’re an independent contractor in the eyes of the IRS. Essentially, you’re a solo entrepreneur, which ushers in a unique set of tax rules and obligations. Central to these obligations is the Form 1099 series (Form 1099-NEC, Form 1099-K, Form 1099-MISC). We’ll look at each of these to get a better understanding of your gig worker responsibilities, but the key is that you must report your income to the IRS and to state and local tax agencies. As a gig economy worker, you should be familiar with what constitutes “income” and what you need to include on your annual tax return regardless of whether you receive one of the forms.

Income

Income is the starting point for determining taxes due. In general, income is all the money and other things of value that you receive, but the technical definition is broad. For practical purposes, income can include payments you receive from wages and employee benefitsself-employment or side jobs (freelance or independent contractor work), goods or services you sell online, renting personal property, partnerships or other business entities, investments, or other benefits paid to you. Income isn’t just money – it can also be the value of goods or services you receive. (Think of a bartering transaction where someone pays you in an exchange by giving you an item or providing valuable work for you.) You can even have income for tax purposes for payments made to someone else on your behalf. Income is generally taxable when the payment is available to you, even if you don’t immediately take possession of it; for example, you usually can’t delay income simply by waiting to pick up a check or deposit it into your account.

When you perform gig work, you should carefully store and organize your receipts and other records of your costs. Tax law allows you to deduct certain business expenses, which can reduce the amount of tax you will ultimately need to pay on your income. While tax law requires third parties in certain situations to report payments to taxpayers, such as through the Form 1099 series, those forms generally only show your income, not your expenses. It’s your responsibility to keep track of your deductible costs so that you can correctly calculate the tax you owe. Even if you don’t receive a form reporting income paid to you during the tax year, you should report the income on your tax return.

Read More

National Taxpayer Advocate Delivers Annual Report to Congress

National Taxpayer Advocate Erin M. Collins today released her 2023 Annual Report to Congress, describing 2023 as a year of “extraordinary transition for the IRS and therefore for taxpayers.” The report credits the IRS with substantially improving taxpayer services and developing plans to transform the taxpayer experience in the coming years, but it identifies paper processing as an area of continuing weakness.  

Most Serious Problems

By law, the Advocate’s report is required to identify the ten most serious problems taxpayers are experiencing in their dealings with the IRS and to make administrative and legislative recommendations to address those problems. Before cataloging taxpayer challenges, however, Collins praised the IRS for taking notable strides forward. However, paper processing is an area of continuing weakness. The areas in which taxpayers continued to experience delays were primarily those that required employees to process tax returns and taxpayer correspondence, including:  

  • Extraordinary delays in assisting victims of identity theft;  
  • Delays in processing amended tax returns and taxpayer correspondence;  
  • Challenges in receiving telephone assistance despite overall improvements; and  
  • Employee Retention Credit (ERC) processing. 
Administrative Recommendations 

At the end of each of the ten most serious problem sections in the report, the National Taxpayer Advocate makes administrative recommendations to address the problems. Among her key recommendations: 

  • Prioritize the improvement of online accounts for individual taxpayers, business taxpayers, and tax professionals to provide functionality comparable to that of private financial institutions; 
  • Improve the IRS’s ability to attract, hire, and retain qualified employees; 
  • Ensure all IRS employees – particularly customer-facing employees – are well-trained; 
  • Upgrade the back end of the Document Upload Tool (DUT) to fully automate the processing of taxpayer correspondence;  
  • Enable all taxpayers to e-file their federal tax returns; and  
  • Extend eligibility for first-time penalty abatement to all international information return penalties. 
Legislative Recommendations: The “Purple Book” 

The National Taxpayer Advocate’s 2024 Purple Book proposes 66 legislative recommendations intended to strengthen taxpayer rights and improve tax administration. Among the recommendations: 

Read More

National Taxpayer Report Objectives Report To Congress For 2024

The Internal Revenue Code requires the National Taxpayer Advocate to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The National Taxpayer Advocate is required to submit these reports directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, or the Office of Management and Budget. The first report, due by June 30 of each year, must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year.

FY 2024 Objectives Report To Congress

PREFACE: The National Taxpayer Advocate’s Introductory Remarks

REVIEW OF THE 2023 FILING SEASON

TAS SYSTEMIC ADVOCACY OBJECTIVES
Introduction

  1. Protect Taxpayer Rights as the IRS Implements Its Strategic Operating Plan
  2. Protect Taxpayer Privacy and Ensure the IRS Does Not Disclose Taxpayer Information Without Consent
  3. Improve Correspondence Audit Processes, Taxpayer Participation, and Agreement and Default Rates
  4. Implement Systemic First Time Abatement But Allow Substitution of Reasonable Cause
  5. Reduce Burden on Taxpayers Applying for an Individual Taxpayer Identification Number
  6. Formalize 45-Day Response Time From All IRS Functions to Recommendations Made by the Taxpayer Advocacy Panel
  7. Eliminate Systemic Assessments and Offer a First Time Abatement Waiver for International Information Return Penalties
  8. Modernize IRS Paper Processing Procedures
  9. Continue to Propose Simplification of the Tax Code and IRS Procedures to Reduce Taxpayer Compliance Burden
  10. Improve IRS Hiring, Recruitment, and Training Strategies
  11. Improve Taxpayer Access to Telephone and Face-to-Face Assistance
  12. Increase Accessibility and Improve Functionality of Digital Services for Individual and Business Taxpayers and Tax Professionals
  13. Improve Tax Return Processing by Eliminating Barriers to E-Filing
  14. Improve IRS Transparency
  15. Identify Data to Support Minimum Competency Standards for Paid Return Preparers of Federal Tax Returns
  16. Improve the Staffing and Culture of the IRS Independent Office of Appeals
  17. Reduce Compliance Barriers for Overseas Taxpayers

TAS CASE ADVOCACY AND OTHER BUSINESS OBJECTIVES

Read More

National Taxpayer Advocate Delivers Annual Report To Congress; Focuses On Taxpayer Impact Of Paper Processing Delays

WASHINGTON — National Taxpayer Advocate Erin M. Collins released her 2023 Annual Report to Congress, describing 2023 as a year of “extraordinary transition for the IRS and therefore for taxpayers.”

The report credits the Internal Revenue Service with substantially improving taxpayer services and developing plans to transform the taxpayer experience in the coming years, but it identifies paper processing as an area of continuing weakness.

By law, the Advocate’s report is required to identify the 10 most serious problems taxpayers are experiencing in their dealings with the IRS and to make administrative and legislative recommendations to address those problems. Before cataloging taxpayer challenges, however, Collins praised the IRS for taking notable strides forward.

“Overall, the magnitude of successes exceeded the areas of weakness in 2023, and most metrics showed significant improvement from the depths of the [COVID-19] pandemic,” Collins wrote in the report’s preface. The report says the IRS virtually eliminated its backlog of unprocessed original individual income tax returns (Forms 1040) and substantially improved telephone service.

Taxpayer service challenges

“When I released the National Taxpayer Advocate’s 2020 report, I wrote that the IRS in most cases ‘can effectively handle whatever it can automate,’ and when I released our 2021 report, I wrote that ‘paper is the IRS’s kryptonite,'” Collins said in releasing the new report. “Those observations continued to hold true in 2023. The areas in which taxpayers continued to experience delays were primarily those that required employees to process tax returns and taxpayer correspondence.”

Extraordinary delays in assisting victims of identity theft. At the end of fiscal year (FY) 2023, nearly half a million taxpayers with cases pending in the IRS’s Identity Theft Victims Assistance (IDTVA) unit were waiting an average of almost 19 months for the agency to resolve their identity theft problems. “If it weren’t for the significant number of challenges affecting larger groups of taxpayers, this would be headline news, and it should be,” Collins wrote. “Many taxpayers depend on their tax refunds to meet their living expenses, particularly low-income taxpayers who receive Earned Income Tax Credit (EITC) benefits that [approached] $7,000 for tax year 2022.” Noting that 69% of taxpayers whose identity theft cases the IDTVA unit resolved had adjusted gross incomes at or below 250% of the federal poverty level, Collins called the delays “unconscionable” and urged the IRS to place a higher priority on resolving cases quickly.

Read More

Student-Athletes Involved In Name Image Likeness (NIL) Agreements Should Be Aware Of Their Tax Obligations

Collegiate athletics is a competitive and popular multibillion dollar business industry. With television rights deals, conference realignment, recruitment, and much more, collegiate athletics garner significant media coverage. One topic receiving significant recent attention is the area of Name, Image, and Likeness (NIL) agreements, which allow student-athletes to financially benefit from their NIL. Because of the growing influence of student-athletes as celebrities in social media and their communities, the attention surrounding NIL is not surprising. NIL opportunities have provided new revenue sources for student-athletes that, in some instances, may reach significant sums according to some media outlet rankings of the highest estimated financial value of student-athlete NIL agreements. Due to the potential tax consequences, student-athletes should exercise appropriate due diligence before entering into NIL agreements. It is crucial to follow relevant IRS and state guidance on how to report and pay taxes on NIL income.

TAS has developed and published educational tax resources for student-athletes on our NIL Get Help page to highlight general information, including federal tax reporting, federal tax withholding, estimated tax payment, and return filing requirements associated with NIL income. I want to bring additional attention to this issue to help educate prospective and current student-athletes and their families regarding important federal tax considerations.

National Collegiate Athletic Association Case Law and NIL Interim Policy Create New Challenges

NIL contracts are a relatively new phenomenon, which may have legal implications on all parties involved. The landscape of collegiate athletics changed on June 21, 2021, when the U.S. Supreme Court ruled in National Collegiate Athletic Association v. Alston that student-athletes could benefit from their NIL. After Alston, the National Collegiate Athletic Association (NCAA) enacted an Interim NIL Policy, many states enacted NIL legislation, and for the first time, student-athletes were able to benefit from their NIL. On October 26, 2022, the NCAA issued new guidance clarifying institutional involvement in enrolled student-athletes’ NIL activities.

With so much activity during its infancy, it did not take long for NIL agreements to present complicated issues, including governing legal authority. In some instances, respective state NIL laws may conflict with the NCAA’s universally applied NIL legislation and policies. On June 27, 2023, the NCAA published an NIL Update Memo providing answers to frequently asked questions and maintaining that NCAA legislation and policy is the governing authority when applicable state NIL laws conflict.

Read More

National Taxpayer Advocate Report To Congress 2024

The Internal Revenue Code requires the National Taxpayer Advocate to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The National Taxpayer Advocate is required to submit these reports directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, or the Office of Management and Budget. The first report, due by June 30 of each year, must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year.

FY 2024 Objectives Report To Congress

PREFACE: The National Taxpayer Advocate’s Introductory Remarks

REVIEW OF THE 2023 FILING SEASON

TAS SYSTEMIC ADVOCACY OBJECTIVES
Introduction

  1. Protect Taxpayer Rights as the IRS Implements Its Strategic Operating Plan
  2. Protect Taxpayer Privacy and Ensure the IRS Does Not Disclose Taxpayer Information Without Consent
  3. Improve Correspondence Audit Processes, Taxpayer Participation, and Agreement and Default Rates
  4. Implement Systemic First Time Abatement But Allow Substitution of Reasonable Cause
  5. Reduce Burden on Taxpayers Applying for an Individual Taxpayer Identification Number
  6. Formalize 45-Day Response Time From All IRS Functions to Recommendations Made by the Taxpayer Advocacy Panel
  7. Eliminate Systemic Assessments and Offer a First Time Abatement Waiver for International Information Return Penalties
  8. Modernize IRS Paper Processing Procedures
  9. Continue to Propose Simplification of the Tax Code and IRS Procedures to Reduce Taxpayer Compliance Burden
  10. Improve IRS Hiring, Recruitment, and Training Strategies
  11. Improve Taxpayer Access to Telephone and Face-to-Face Assistance
  12. Increase Accessibility and Improve Functionality of Digital Services for Individual and Business Taxpayers and Tax Professionals
  13. Improve Tax Return Processing by Eliminating Barriers to E-Filing
  14. Improve IRS Transparency
  15. Identify Data to Support Minimum Competency Standards for Paid Return Preparers of Federal Tax Returns
  16. Improve the Staffing and Culture of the IRS Independent Office of Appeals
  17. Reduce Compliance Barriers for Overseas Taxpayers

Read More

When Can You Deduct Digital Asset Investment Losses On Your Individual Tax Return?
How To Deduct Losses On Virtual Currency, Cryptocurrency And Non-
Fungible Tokens

In the current digital asset climate of plummeting values, frozen accounts, and bankruptcy filings, if you own investments in digital assets, such as virtual currency, cryptocurrency and/or non-fungible tokens (NFTs), you might wonder when it is appropriate to report losses on your tax return. 

The IRS considers digital assets to be property. The tax treatment of a digital asset transaction depends on the purpose of the digital asset in your hands. If you held or are holding digital assets as investments, the digital assets are considered capital assets and certain tax rules apply when determining gains and losses from these investments. (Note: This Tax Tip only addresses digital assets held for investment. If you held digital assets for a reason other than investment purposes, see IRS Publication 544, Sales and Other Dispositions of Assetsand IRS Notice 2014-21 for more information.)  

Sales 

If you sold the digital asset you held as an investment for less than your cost to purchase it, you have a capital loss. First, you will need to determine if your capital loss is a short-term loss or a long-term loss (use IRS Publication 544, Sales and Other Dispositions of Assetsto help you make this determination). Then use Form 8949 to calculate your capital gain or loss and report that gain or loss on Schedule D (Form 1040). If you exchanged your digital asset investment for property (including a different digital asset) other than cash, you will first need to value the property you received on the date of the transaction. For example, if the value is greater than your cost in the digital asset you gave up, then you have a capital loss, which you will report on Form 8949 

Bankruptcy and Frozen Accounts 

How should you report your digital asset investment loss when it is worthless, near worthless, locked in bankruptcy proceedings, or has vanished?  

Read More

Earned Income Tax Credit Studies

Written By National Taxpayer Advocate

ERIN COLLINS - NATIONAL TAXPAYER ADVOCATE

As the National Taxpayer Advocate, I advocate for all taxpayers, regardless of whether they reside in the United States or abroad. Our hearts go out to the impacted people in Israel, the West Bank, and Gaza because of the terrorist attacks beginning on October 7, 2023. I applaud the IRS for quickly providing filing and some payment relief for these taxpayers.

IRS Notice 2023-71

On Friday, October 13, 2023, the IRS issued Notice 2023-71, which provides a postponement of the due dates for filing tax returns and making payments. Affected taxpayers will have until October 7, 2024, to file tax returns, make tax payments, and perform certain time-sensitive acts listed in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2018-58, 2018-50 I.R.B. 990 (December 10, 2018), that are due to be performed on or after October 7, 2023, and before October 7, 2024.

The affected taxpayers are:

  • Any individual whose principal residence, and any business entity or sole proprietor whose principal place of business, is located in the State of Israel, the West Bank or Gaza (covered area);
  • Any individual affiliated with a recognized government or philanthropic organization and who is assisting in the covered area, such as a relief worker;
  • Any individual, business entity or sole proprietor, or estate or trust whose tax return preparer or records necessary to meet a deadline for postponed acts are located in the covered area;
  • Any spouse of an affected taxpayer, solely with regard to a joint return of two married individuals; and
  • Any individual visiting the covered area who was killed, injured, or taken hostage as a result of the October 7, 2023, terrorist attacks.

Read More

Taxpayer Advocate Will Not Be Permitted To Help Taxpayers If Government Shuts Down

As of today, it appears Congress may not approve appropriations legislation to fund parts of the government, including the IRS, by the start of the fiscal year that begins on Sunday, October 1st. As a result, today is the last workday I can post a blog before a potential shutdown.

Taxpayers and their representatives should be aware that if there is a lapse in appropriations, the Taxpayer Advocate Service (TAS) will not be permitted to assist taxpayers until the government reopens.

That means that if the IRS has already issued a notice requiring an employer to garnish a taxpayer’s paycheck or requiring a bank to levy on a taxpayer’s bank account and those collections actions cause an economic hardship for the taxpayer, the taxpayer will have no way to get help from TAS.

This is a terrible result for taxpayers who are experiencing economic hardships and will not be able to obtain relief from TAS.

Here is a quick primer on why this is so: Article I of the Constitution provides that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” To implement this requirement, Congress has passed several statutes, most notably the Antideficiency Act (ADA). The ADA generally prohibits the U.S. government from making or authorizing an expenditure or obligation unless funding has previously been made available through an appropriation or other funding mechanism. The ADA contains a general prohibition against the acceptance of voluntary services (i.e., services for which compensation has not yet been paid or obligated), except for “emergencies involving the safety of human life or the protection of property.” (Emphasis added.)

Read More

End Of The IRS Revenue Officer “Pop-In” Visit

The IRS announced it is ending the practice of unannounced visits from its revenue officers. The policy change is due to the rise in tax scams and taxpayer confusion over verifying an IRS employee’s identity, leading to safety concerns for both taxpayers and IRS employees. This is good news for taxpayers since they will no longer be caught off guard and unprepared to discuss their unpaid taxes. Additionally, there is the benefit of an improved taxpayer experience when taxpayers receive advance notice and other information in the mail.

The end of unannounced visits does not mean revenue officers have stopped working outstanding tax due cases. It just changes the way they contact taxpayers in person. In the past, a revenue officer would conduct a preliminary investigation and then visit the taxpayer’s home or place of business unannounced. Now, prior to any face-to-face visit, you will generally (there are some rare exceptions) receive an appointment letter, Letter 725-B. Appointments can be held at the IRS office, your home or business, or by telephone. A revenue officer may request subsequent appointments at your home or place of business to secure additional financial information or view assets.

It’s vitally important that you keep the scheduled appointment or call the revenue officer to reschedule. If you don’t, the IRS might levy your bank account or wages.

How will you or your representative know it is actually the IRS writing or calling? The IRS has published this fact sheet to help. If you have any doubts the person is an actual IRS revenue officer, schedule your appointment in person at the IRS office or request the option of sending any information to the IRS via secure messaging using your online account.
Read More

Reconsidering The IRS’s Approach To Supervisory Review

Some penalties require supervisory approval before they can be assessed by the IRS. The applicable statute, however, is vague regarding the point at which this approval must occur. This statutory ambiguity has generated conflicting decisions among the courts, which leaves taxpayers unsure about how they should be treated by the IRS and leads to unnecessary litigation that is bad for everyone. In hopes of bringing additional certainty to this area, the IRS has proposed regulations, for which public comments were open until July 10, 2023. The next step in this regulatory process will be a public hearing to be held on September 11, 2023.

TAS has encouraged the IRS and Congress to draw a clear line in the sand to clarify the issue, but our recommendation of where to draw the line is different than the IRS’s approach. The proposed regulations succeed in providing clarity, but it would be nice if they did so in a way that helps taxpayers rather than harming them.

Timing of Supervisory Approval
IRC § 6751(b)(1) generally requires that no penalty be assessed unless the initial penalty determination has been approved in writing by an applicable supervisor. Courts, however, have been all over the map when it comes to interpreting this requirement. For example, the U.S. Tax Court, in Clay v. Commissioner, held that supervisory approval for penalties subject to deficiency procedures was required prior to sending the taxpayer a formal communication that included the right to go to the IRS Independent Office of Appeals. On the other hand, the U.S. Court of Appeals for the Second Circuit held in Chai v. Commissioner that approval for these penalties could occur anytime up until issuance of the statutory notice of deficiency.

Under the proposed regulations, for pre-assessment penalties subject to Tax Court review, supervisory approval can be obtained anytime before issuance of the statutory notice of deficiency. Penalties not subject to pre-assessment Tax Court review can be approved up until the time of the assessment itself. Thus, the proposed regulations establish the broadest possible window and allow the requisite supervisory approval to occur at the latest possible moment. On the other hand, TAS has long urged the IRS to require supervisory approval before a proposed penalty is communicated in writing to a taxpayer.
Read More