How to Navigate Tax Reporting for Digital Assets, Gig Work, and Tips

Answer The Question

Now, onto the nitty-gritty of reporting digital asset transactions. No matter if you're filling out Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120, or 1120-S, there's one crucial question you need to answer: Did you deal with digital assets in any way during the tax year? You've got two options: "Yes" or "No." And here's the kicker: this question applies to everyone, not just those who made transactions involving digital assets in 2023.

If you check "Yes," it means you've had some involvement with digital assets. This could be receiving them for services, getting them as gifts, earning them through mining or staking, or even selling them. If you've done any of these things, you need to report all the income related to those transactions.

Let's break it down a bit. If you sold, exchanged, or transferred digital assets, you'll need to use Form 8949 to calculate your capital gain or loss on those transactions. Then, you report that on Schedule D (Form 1040), the section for Capital Gains and Losses. If you gave away digital assets as a gift, you might also have to file Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return.

Now, if you received digital assets as wages, you need to report their value as part of your income. Similarly, if you're an independent contractor who got paid in digital assets, that income goes on Schedule C (Form 1040), which is for Profit or Loss from Business (Sole Proprietorship). And if you sold, exchanged, or transferred digital assets as part of your business, and you're not operating through a separate entity, Schedule C is where you report that too.

On the flip side, if you check "No," it means you didn't engage in any transactions involving digital assets during the tax year. You're in the clear if your digital asset activities were limited to holding them in a wallet or account, transferring them between your own accounts, or buying them using regular currency like dollars or euros.

For more detailed info and FAQs, head over to the Digital Assets page on IRS.gov. It's your one-stop shop for all things related to reporting digital asset transactions come tax time.

Taxes and the Gig Economy

Alright, let's talk about tips in the service industry. If you're working in places like restaurants, hotels, or salons, chances are you're getting tipped by customers for your stellar service. But here's the scoop: those tips? They're taxable, whether they come in the form of cold hard cash or other non-cash goodies.

First off, if you're getting cash tips, it's on you to report them to your employer. They'll then include them on your Form W-2, which is your Wage and Tax Statement. And hey, this doesn't just cover tips handed directly to you; if your co-worker slips you a few bucks from their tip jar or if tips are shared among employees, those need to be reported too. Even tips paid electronically or through some tip-sharing scheme fall under this rule.

Now, let's talk noncash tips. These are basically anything that's not cash, like concert tickets or gift cards. You don't have to tell your employer about these, but they still need to be reported on your tax return.

If you forgot to spill the beans on some of your tips to your employer, no worries. You'll just need to report them separately using Form 4137, which is all about Social Security and Medicare Tax on Unreported Tip Income. Oh, and don't forget: you'll have to cough up the Social Security and Medicare tax that's due on those unreported tips.

Now, here's a little relief: if your tip haul from one employer is less than 20 bucks in a month, you're off the hook as far as reporting to your employer goes. But if you're pulling in more than that, you'll need to let your employer know about those tips by the 10th of the following month.

For more on keeping track of your tips and how to report them like a pro, check out the Tip Recordkeeping and Reporting section. It's your go-to guide for navigating the ins and outs of tip reporting.

Get Compliant and Get Tax Relief

Morris and Associates are experts when it comes to helping individuals and companies find tax relief in Georgia but can help no matter where you live or whatever tax questions you have. Contact us to help with your taxes and possibly even reduce the amount that you owe.