In the Garden State and across the country as a whole, tax day is almost upon us. For many, it is a day associated with stress and frustration. While there’s nothing you can do to eliminate the complexity of the US tax code, there are some things you can do to make sure you’ve covered all your bases. You might be overlooking some financial areas of your life because you’ve never even considered them to be associated with tax season.
Even if you’re having a professional prepare your taxes, remember that you’ll still have to supply them with the proper documents to get the job done properly; they’re not mind readers.
Having just finished my own taxes, I’m going to discuss some of the areas that I might have overlooked had I not taken the time to consider all the areas where I’ve placed or invested earnings.
Cryptocurrency Trades Must Be Reported
I don’t know if crypto is best described as a cultural phenomenon, a passing fad, or the future of economics. What I do know is that the IRS is interested in what US citizens have been doing in the crypto markets. If you’re using one of the many apps that make trading crypto as easy as playing a game on your phone, your trades have likely already been reported to them.
The Robinhood app made a name for itself by making crypto trading quick and accessible to the masses, but there are countless platforms and exchanges out there, etoro, SoFi, and Coinbase being just a few of them. There are too many exchanges to determine which report to the IRS, so it’s best to assume they all are. The era in which crypto was a backwoods financial product that the IRS might not pick up on is over, and it has been over if we’re being honest about it.
Before even getting to Line 1 on your 1040, the IRS asks if you have dealt with any virtual currencies in the 2021 tax year. Keep in mind that this is a yes or no question, and lying about it immediately constitutes tax fraud. You do not want to open that door, as it could result in an audit that brings all your other financial reporting into question.
All crypto trading platforms should issue you a 1099 with all the information you need to report your crypto trades. Whether you’re doing your own taxes or having a professional handle it for you, that information should be entered into Form 8949. If you have multiple types of transactions, you’ll have to do a separate 8949 for each type. All this information should be compiled on your 1040 Schedule D for capital gains and losses.
Money Transfer Apps Getting a Closer Look by IRS
Just starting this year, commonly used apps to transfer money between individuals are now getting a closer look by the IRS. PayPal, Venmo, Cash App, and Zelle will now be reporting payments received in excess of $600 to the IRS.
This shouldn’t affect individuals who are simply paying their friends back for a dinner or a trip, but it will affect businesses and freelancers who use these platforms to accept payments for their services.
It’s a bit tricky, as the platforms aren’t perfectly aligned with IRS requirements, but that shouldn’t matter if you’re keeping a detailed record of your transactions on these apps. I say this as a person who’s keeping detailed records of my transactions because I’m using them for business.
I had read that the apps would supply tax forms, but when I went to collect mine from PayPal, they said they didn’t have a document for me. I learned that I didn’t exceed the $20,000 and 200 transaction threshold, so there was no 1099 waiting for me. That said, I still reported every last dollar that I received via PayPal, as I understand that they’ve reported what I’ve been paid to the IRS. Should I be audited, I’ve got my spreadsheet ready that details every payment received, from who, and on what date. The knowledge that absolutely every penny is accounted for is incomparable in terms of relief; I highly recommend it.
All that said, if you’re using any of these apps to receive payments, repeat the process for each app.
Savings, Investment, or Roundup Apps
It’s easy to forget that your investments need to be reported when they’re made on an app. E*Trade, Chase investments, and Acorns are all examples of apps that have issued you tax forms that you need to submit to your tax professional.
The threshold to making investments has gotten as low as downloading an app and transferring money into it. That said, lack of contact with another human while investing doesn’t change the fact that these are financial actions that generate tax information that needs to be reported.
Even on something like Acorns that merely rounds up the change leftover after a transaction on a card, it’s an investment portfolio that you need to report. Investments that could be generating profit and loss and potentially paying out dividends.
A Couple Rules For the Final Stretch of Tax Season
This sounds silly, but it works. Go through the complete list of apps on your phone and see which ones have anything to do with money. Go into the settings of those that do and see if there are any options to get tax documents; there usually are. Make sure you acquire all those documents for your tax pro.
After that, consider if there are any days in the year you look forward to because you get a dividend check. Yeah, that strange investment you don’t even know how you acquired, but for some reason, you now get a check every year from a private company. They should have sent you a 1099. If they didn’t, or it got lost, you can request another one or simply report the amount that you earned. Lastly, if there’s anything you’re still uncertain about, file for an extension! There’s no point in filing if you don’t have all the information you need or aren’t confident you’re properly prepared. You may be assessed penalties, but the penalties are generally far smaller than penalties for filing something fraudulently or failing to file.