IRS Unveils New Online Resource for Freelancers

IRS Unveils New Online Resource for Freelancers

What is the Gig Economy Tax Center?

Freelancers aren’t a new part of the workforce, but the rapid growth of contract labor has popularized terms like “gig economy” and “on-demand work.” To help taxpayers, the Internal Revenue Service unveiled a new online resource: the Gig Economy Tax Center.

The IRS explains that the gig economy largely gained momentum through app-driven services: “The gig economy … usually includes businesses that operate an app or website to connect people to provide services to customers. While there are many types of gig economy businesses, ride-sharing and home rentals are two of the most popular.”

Taxpayers accustomed to earning their income as an employee might not realize they need to keep track of the extra money generated by their weekend Uber work: “Many don’t receive Form W-2s, 1099s, or other information returns for their work … [despite the fact that] income from these sources is generally taxable, regardless of whether workers receive information returns.” Further, newly minted freelancers also might not realize there are other responsibilities that come with taking on contracted work.

The IRS hopes to address these awareness problems with the Gig Economy Tax Center, which will help fill in the blanks on a number of freelance tax issues:

  • Filing requirements
  • Making quarterly estimated income tax payments
  • Paying self-employment taxes
  • Paying FICA, Medicare, and Additional Medicare
  • Deductible business expenses
  • Special rules for reporting vacation home rentals

While these resources are not a replacement for a qualified tax professional, they can be an excellent supplement for taxpayers to lean on when putting together their information packet.

How do I use the Gig Economy Tax Center?

The first thing you see after navigating to the Gig Economy Tax Center are subheadings addressing basic gig economy topics—“What is the Gig Economy?,” “Gig Economy Income is Taxable,” “What is Gig Work?”—and two blue buttons in the middle of the page: Manage Taxes for Your Gig Work and Digital Platforms for Businesses.

Manage Taxes for Your Gig Work provides a number of resources specific to independent contractors:

  • Accordion menu containing a to-do list that includes links to relevant publications and forms for topics like record keeping, making payments, and preparing tax information for filing a tax return
  • Help menu with links to pages that explain IRS notices, the 1099-K, and how to determine if you’re an independent contractor or an employee
  • Estimated tax information, like due dates and a Make a Payment button that links to the “Paying Your Taxes” page

Digital Platforms for Businesses has information tailored to taxpayers who “operate a digital platform, marketplace, or business in the gig economy.” At first glance, this page looks sparse when compared to Manage Taxes for Your Gig Work, but the accordion menu contains information for four important business topics: “Classify Workers,” “Report Payments,” “File and Pay Taxes,” and “Help Workers Meet Their Tax Obligations.”

Sources: IR-2020-04; “Gig Economy Tax Center

Story provided by TaxingSubjects.com

Standard Mileage Rates Tweaked for 2020

Standard Mileage Rates Tweaked for 2020

Updated January 15, 2020: We incorrectly listed the standard mileage rate for business use as 5 cents per mile. 

The Internal Revenue Service has set the optional standard mileage rates for 2020. These rates are used to figure the deductible costs of operating a vehicle for business, charitable, medical or moving purposes.

Beginning Jan. 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019,
  • 17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019, and
  • 14 cents per mile driven in service of charitable organizations.

The business mileage rate decreased one half of a cent for business travel driven and three cents for medical and certain moving expense from the rates for 2019. The charitable rate is set by statute and remains unchanged.

Deductions Eliminated by Tax Reform

The Tax Cuts and Jobs Act eliminated miscellaneous itemized deductions for unreimbursed employee travel expenses and moving expenses. Only members of the Armed Forces on active duty, who move under orders to a permanent change of station, qualify for a moving expense deduction. Rev. Proc. 2019-46 has more details.

The business standard mileage rate is based on an annual study of the fixed and variable costs of operating a vehicle. The medical and moving rates are based on variable costs only.

Taxpayers continue to have the option of using the actual costs of using their vehicle rather than the standard mileage rates.

Caveats

The IRS has a few cautions for taxpayers and tax preparers alike when it comes to using mileage rates to calculate the deduction.

“A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle,” an IRS release states. “In addition, the business standard mileage rate cannot be used for more than five vehicles used simultaneously.”

These limitations are discussed in more detail in Rev. Proc. 2019-46.

For more on mileage rates and other questions, check out Notice 2020-05, posted on IRS.gov. The Notice contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in figuring the allowance under a fixed and variable rate plan.

For employer-provided vehicles, the Notice provides the maximum fair market value of automobiles first made available to employees for personal use in calendar year 2020 for which employers may use the fleet-average valuation rule in § 1.61-21(d)(5)(v) or the vehicle cents-per-mile valuation rule in § 1.61-21(e).

Story provided by TaxingSubjects.com

2019 Filing Season to Start January 27, IRS Says

2019 Filing Season to Start January 27, IRS Says

The Internal Revenue Service has confirmed that it will begin accepting and processing 2019 returns on January 27, opening the gates for millions of individual tax return filers. The deadline for filing and paying any tax due remains Wednesday, April 15.

More than 150 million individual tax returns are expected to be filed for the 2019 tax year, the vast majority of those coming before the April deadline.

“As we enter the filing season, taxpayers should know that the dedicated workforce of the IRS stands ready to help,” said IRS Commissioner Chuck Rettig. “We encourage taxpayers to plan ahead and use the tools and information available on IRS.gov. The IRS and the nation’s tax community are committed to making this another smooth filing season.”

The IRS says it set the opening date on January 27 so the agency could better ensure the security and readiness of its key tax processing computer systems while checking that IRS automated procedures are set to implement recent tax legislation for 2019 returns.

Commissioner Rettig says for best service, the taxpayer has a couple of important choices to make. “The IRS encourages everyone to consider filing electronically and choosing direct deposit,” Rettig said. “It’s fast, accurate and the best way to get your refund as quickly as possible.”

IRS reminds taxpayers that they don’t have to wait until January 27 to start their tax return or contact a reputable tax preparer.

In addition, IRS tax help is available 24 hours a day on IRS.gov, the official IRS website, where people can find answers to tax questions and resolve tax issues online. The Let Us Help You page helps answer most tax questions, and the IRS Services Guide (PDF) links to these and other IRS services.

Source: IR-2020-02

Story provided by TaxingSubjects.com

Final Regulations Issued for Revamped Foreign Tax Credit

Final Regulations Issued for Revamped Foreign Tax Credit

The Internal Revenue Service has announced that the final regulations have been issued on the revamped Foreign Tax Credit, which was modified as a result of tax reform in 2017. The credit generally allows taxpayers and businesses to claim a credit for income taxes paid or accrued to foreign governments.

 So What’s Different?

The tax reform legislation, termed the Tax Cuts and Jobs Act (TCJA), made major changes to the international tax system in the U.S.

Several Foreign Tax Credit provisions were changed. One was the repeal of section 902, which allowed deemed-paid credits in connection with dividend distributions based on foreign subsidiaries’ cumulative pools of earnings and foreign taxes.

The legislation also added two limitation categories for foreign branch income and amounts that are includible under the Global Intangible Low-Taxed Income (GILTI) provisions.

How taxable income is calculated when figuring the Foreign Tax Credit limitation was also changed by the tax reform package. Certain expenses have now been disregarded and the use of the fair market value for allocating interest expense has been repealed.

The IRS says the TJCA made “systemic” changes to taxation of international income that impact the Foreign Tax Credit calculation. These include the introduction of a participation exemption through a dividends-received deduction for certain section 245A dividends.

IRS changes also introduced the GILTI provisions which subjects certain foreign earnings to current U.S. taxation. Previously, these earnings would have been deferred – at a lower tax rate – and subject to extra Foreign Tax Credit restrictions.

Other Regulations Issued

Proposed regulations have also been issued that apply to the allocation and apportionment of deductions and creditable foreign taxes, foreign tax redeterminations, availability of Foreign Tax Credits under the Transition Tax, and the application of the Foreign Tax Credit limitation to consolidated groups.

For more information on the implementation of the Tax Cuts and Jobs Act, check out the Tax Reform Page of IRS.gov.

Story provided by TaxingSubjects.com

National Tax Security Awareness Week: Spotting Business Identity Theft

National Tax Security Awareness Week: Spotting Business Identity Theft

Main Street businesses might consider themselves too small to be the target of a business identity theft scam, but the Security Summit says that identity thieves are more than happy to steal their personally identifiable information (PII) in today’s National Tax Security Awareness Week topic.

Just like individual identity theft, criminals use stolen PII to fraudulently apply for business-related financial services and file business tax returns. The latter has become increasingly frequent, leading the Security Summit to increase its educational outreach efforts to business-owning taxpayers. 

What businesses are targeted by identity thieves?

Reports of international retail chains suffering data theft incidents might give the impression that large brands with millions of customers are the only targets that interest cybercriminals, but the Security Summit says that simply isn’t the case.

The reality is that all businesses are a ripe target for identity thieves. Despite not having as much customer information as an international corporation, a smaller business is unlikely to have robust data security systems in place.

Another thing to consider is that an identity theft incident might be part of a full-blown data breach. Any business that maintains customer information—like a retailer with an online storefront—is a ripe target for identity theft scams.

Tax practices in particular can be home to thousands of taxpayers’ PII. Making matters worse, that data is formatted in such a way that successfully impersonating victims on credit card applications is much easier.

What are the signs that my business has been a victim of identity theft?

The first step in mitigating the damage caused by identity theft is confirming that your company’s identity has been stolen.

As the IRS notes in today’s press release, the signs of business identity theft are similar to individual identity theft. Unfortunately, they only tend to pop up when victims try to file a tax return.  

The Summit urges businesses that experience any of the following issues to immediately reach out to the IRS:

  • Extension to file requests are rejected because a tax return with the Employer Identification Number (EIN) or Social Security number (SSN) is already on file.
  • An e-filed return is rejected because of a duplicate EIN or SSN is already on file with the IRS.
  • An unexpected receipt of a tax transcript or IRS notice that doesn’t correspond to anything submitted by the filer.
  • Failure to receive expected and routine correspondence from the IRS because the thief has changed the address.

Business identity theft victims will also want to take the same steps as individuals whose identity has been stolen: contact credit bureaus and apply for credit-monitoring services.

How do tax professionals spot business identity theft?

Tax professionals will immediately spot the reject codes outlined above, but the Security Summit stresses that they should also “step up the ‘trusted customer’ procedures” by asking the following questions:

  • Is this person authorized to sign the return?
  • Were estimated tax payments made?
  • [What is the] total income amount from prior-year filings?
  • Is there a parent company? If yes, the name?
  • [Is there any] additional information based on deductions claimed?
  • [What is your] filing history?

According to the release, the programs tax professionals use to file returns also helps in the fight against identity thieves: “Tax software products now share many data elements with the IRS and state tax agencies. These data elements assist the IRS and states to identify suspicious tax returns and to reduce the impact to legitimate filers … [and] allow legitimate returns to be processed as usual.”

What is the final National Tax Security Awareness Week topic?

On Friday, the Security Summit will address data security plans for financial institutions. As every tax professional knows, having a written data security plan in place is required by law. Tomorrow’s blog will include resources to help tax professionals create and improve those plans.

Source: IR-2019-198 

Story provided by TaxingSubjects.com

National Tax Security Awareness Week: Making Secure Passwords

National Tax Security Awareness Week: Making Secure Passwords

Passwords are a ubiquitous part of life in the Digital Age, but many of us aren’t particularly good at making them. That’s why the Security Summit is highlighting tips for creating strong passwords on the third day of National Tax Security Awareness Week.

The IRS press release opened with a nod to the frenetic nature of the holiday shopping season, a time when taxpayers across the US access online accounts to take advantage of sales. Unfortunately, cybercriminals know that many of those accounts store personally identifiable information (PII) and financial data.  

Considering how often taxpayers save their payment information on retailers’ websites—and just how many of those sites they’re frequently logging into from Thanksgiving to Christmas—it’s painfully obvious why protecting those accounts with a strong, secure password is essential.

How do I create a strong password?

The IRS and Security Summit partners recommend longer, but easy-to-remember passwords that are unique to every online account.

Part of that advice—creating a password that’s easy to remember—may seem at odds with what your third-party webmail accounts recommended a few years ago. Predictably, the shift is directly related to human habits.

“Experts previously suggested something like ‘PXro#)30,’ but now suggest a longer phrase like ‘SomethingYouCanRemember@30,’” the IRS says. “By using a phrase, users don’t have to write down their password and expose it to additional risk. Also, people may be more willing to use strong, longer passwords if it’s a phrase rather than random characters that are harder to remember.”

The rest of the password-creation tips covered account usernames, password storage, and programs designed to help users manage the exponential growth of online account passwords. Here’s the full list from the IRS:

  • Use a minimum of eight characters; longer is better.
  • Use a combination of letters, numbers and symbols in password phrases, i.e., UsePasswordPhrase@30.
  • Avoid personal information or common passwords; use phrases instead.
  • Change default or temporary passwords that come with accounts or devices.
  • Do not reuse or update passwords. For example, changing Bgood!17 to Bgood!18 is not good enough; use unique usernames and passwords for accounts and devices.
  • Do not use email addresses as usernames if that is an option.
  • Store any password list in a secure location, such as a safe or locked file cabinet.
  • Do not disclose passwords to anyone for any reason.
  • When available, a password manager program can help track passwords for numerous accounts.

From that list, choosing a unique username that’s different from your email address might seem strange, but there are a few reasons for that recommendation:

  1. Knowing an email address gives identity thieves another piece of PII that they can use to build a credible profile for fraudulently applying for loans and credit cards.
  2. Having the email address in hand means being able to start the password recovery process.
  3. Using the same email address and password for everything—including bank account logins—is a pretty common mistake that cybercriminals are more than happy to leverage against victims.

Remember, taking every possible precaution can better protect you from cybercriminals.

Should I use multi-factor authentication to protect my online accounts?

Aside from creating unique passwords and user names, the Security Summit also recommends that taxpayers use multi-factor authentication to protect online accounts. For those who are unfamiliar with the term, multi-factor authentication is any process that adds another step to the account login process.

An account just protected by a password would be considered to have single-factor authentication. Accounts that have another step, like security questions or a code sent via text message that you have to enter during login, would be considered protected by multi-factor authentication.

The IRS says, “The idea behind multi-factor authentication is that a thief may be able to steal usernames and passwords, but it’s highly unlikely they also would have access to the mobile phone to receive a security code or confirmation to actually complete the login process.”

What’s the next topic for National Tax Security Awareness Week?

So far, the Security Summit has covered online shopping safety tips, how to spot phishing scams, and password-creation tips. On Thursday, the Summit will cover how big a business needs to be for cybercriminals to target them.

Source: IR-2019-196 

Story provided by TaxingSubjects.com