We asked three tax experts what people need to know before filing taxes this season. Whether you’re self-employed, employed, unemployed or own a business, these tips could be helpful for you.
Fabrice Metan, Owner and Founder of Simplify My Numbers
Q: I invested in cryptocurrency. What do I need to know?
A: if you’re buying, purchasing, or trading cryptocurrency, more than likely you’re using an application like Coinbase or Weibo. Most of these applications autogenerate a report at the end of the year that will break down everything you purchased and sold to determine if you had any gains and losses. You have no tax event with cryptocurrency unless you traded for another crypto or sold for cash. So now when you take that form to your tax preparer, they will include whether it’s a loss or gain and report it to the IRS.
Q: I drove for Uber this past year. What tax form should I use?
A: Uber is generally paying anyone that drives for them as contractors. If you earned more than $600 driving with Uber, you’re supposed to receive a 1099-MISC and you can show that income on your schedule C. You can also write off any expenses, like mileage, meals and fees, against that income.
Q: What’s the difference between a tax credit and a tax deduction?
A: Tax credits are dollar for dollar reductions of your tax liability. For example, if you owe $3,000 but have a $2,000 tax credit the amount of taxes that you owe goes down to $1,000 so it’s $1 for dollar reduction.
A tax deduction is a reduction of the amount of income that you have. For example, If my business brings in $100,000 income and I pay $40,000 in payroll, that $40,000 is a tax deduction. It only reduces the income from $100,000 to $60,000 and then my taxes are calculated based on the $60,000.
Q: I’ve been working remotely this year. Can I take the home office deduction?
A: If you did work as a W-2 employee for your home then you won’t be able to use the home office deduction. You can only use it as a business owner or a contractor.
The law changed in 2018 and eliminated the home office deduction for people who work for an employer.
Abram A. Oliver, professional tax preparer and owner of Show Me State Tax Refund Services in KCMO.
Q: What kinds of paperwork do I need to show my preparer in order to file my taxes?
A: An unprepared client can delay a return. Make sure you have all your income filing papers in order. The types of paperwork you need when filing depends on your situation. When filing, make sure you have proof of identity, W-2s and any 1098/1099 forms, Social Security cards or Tax ID numbers and banking information.
Q: What do I need to know about the Child Tax Credit?
A: This is a major question I receive. Know how much total money you were supposed to receive from the Child Tax Credit. You should have received a letter with the total amount you are due. If you did not receive any payments, that’s what you would need to claim on your taxes to get back on your return.
Q: What kind of tax preparer should I go to?
A: The national chains really don’t talk to clients personally, nor do they build a tax relationship. Those chains are trying to file people’s taxes as fast as possible. When you have an in-depth, one on one conversation with a preparer that you can build a relationship with over years, they can understand your tax situation and any possible deductibles.
When you come to a tax preparer like myself, we’re going to talk for about an hour and I advise you on how to fill out tax forms, so that next year, you’re in a better position.
Q: I’ve been receiving unemployment. Will I receive a refund?
A: Those who have been earning unemployment funds, they need to file a return too. If you have had federal taxes withheld from your unemployment checks, you are due a refund. If not, you will owe that amount
Cassie Moore, self-employment specialist and owner of Numbers Don’t Lie Tax Prep and Financial Services, Kansas City.
Q: Can I file with my last paycheck stub?
A: This is the number one question I receive. I could give rough estimates for your return with your last paycheck, however, you cannot always file completely with a last paycheck stub because it could be missing information we need to file a full tax return.
Q: I’m self-employed and had COVID-19 last year. Can I write that off?
A: Self-employed people can definitely get the COVID-19 deductions for anything that helped them keep safe from catching COVID-19, or if they took any time off because they caught COVID-19 or they had COVID-19 symptoms.
Q: I worked from home last year. Can I write off part of my rent?
A: There are lots of home office tax deductions for self-employed, gig workers and independent contractors who do not work with a company that gives them a W-2.
Taxpayers must exclusively use part of their home as their primary place of business. This includes a place where you greet clients, conduct business, store inventory or use as a daycare facility. Apartments and mobile homes are eligible. You can write-off a portion of the square footage of your work space, utilities, mortgage and rent.
Q: Do I have to report transactions from Cash App, Venmo and PayPal?
A: Taxpayers who use business accounts on Cash App, Venmo and PayPal now have to report transactions of more than $600 over the course of the year. Beginning Jan. 1, 2022, those third-party payment networks will send users Form 1099-Ks. This will impact your 2022 tax return, which will be filed in 2023