Bartering is the trading of one product or service for another. Often there is no exchange of cash. Some businesses barter to get products or services they need. For example, a gardener might trade landscape work with a plumber for plumbing work.
If you barter, you should know that the value of products or services from bartering is taxable income. This is true even if you are not in business.
Here are a few facts about bartering:
If you gave money or property to someone as a gift, you may wonder about the federal gift tax. Many gifts are not subject to the gift tax. Here are seven tax tips about gifts and the gift tax.
1. Nontaxable Gifts. The general rule is that any gift is a taxable gift. However, there are exceptions to this rule. The following are not taxable gifts:
2. Annual Exclusion. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you give a gift to someone else, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion for the year. For 2014 and 2015, the annual exclusion is $14,000.
3. No Tax on Recipient. Generally, the person who receives your gift will not have to pay a federal gift tax. That person also does not pay income tax on the value of the gift received.
4. Gifts Not Deductible. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
5. Forgiven and Certain Loans. The gift tax may also apply when you forgive a debt or make a loan that is interest-free or below the market interest rate.
6. Gift-Splitting. You and your spouse can give a gift up to $28,000 to a third party without making it a taxable gift. You can consider that one-half of the gift be given by you and one-half by your spouse.
7. Filing Requirement. You must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply:
Millions of people enjoy hobbies that are also a source of income. Some examples include stamp and coin collecting, craft making, and horsemanship.
You must report on your tax return the income you earn from a hobby. The rules for how you report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions you can claim for a hobby. Here are five tax tips you should know about hobbies:
1. Is it a Business or a Hobby? A key feature of a business is that you do it to make a profit. You often engage in a hobby for sport or recreation, not to make a profit. You should consider nine factors when you determine whether your activity is a hobby. Make sure to base your determination on all the facts and circumstances of your situation. For more about ‘not-for-profit’ rules see Publication 535, Business Expenses.
2. Allowable Hobby Deductions. Within certain limits, you can usually deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.
3. Limits on Hobby Expenses. Generally, you can only deduct your hobby expenses up to the amount of hobby income. If your hobby expenses are more than your hobby income, you have a loss from the activity. You can’t deduct the loss from your other income.
4. How to Deduct Hobby Expenses. You must itemize deductions on your tax return in order to deduct hobby expenses. Your expenses may fall into three types of deductions, and special rules apply to each type. See of Publication 535 for the rules about how you claim them on Schedule A, Itemized Deductions.
For more on these rules see Publication 535. You can get it on IRS.gov.
When it comes to filing a federal tax return, many people discover that they either get a larger refund or owe more tax than they expected. But this type of tax surprise doesn't have to happen to you. One way to prevent it is to change the amount of tax withheld from your wages. You can also change the amount of estimated tax you pay. Here are some tips to help you bring the amount of tax that you pay in during the year closer to what you’ll actually owe:
If you don’t have taxes withheld from your pay, or you don’t have enough tax withheld, then you may need to make estimated tax payments. If you’re self-employed you normally have to pay your taxes this way.
Here are six tips you should know about estimated taxes:
1. You should pay estimated taxes in 2014 if you expect to owe $1,000 or more when you file your federal tax return. Special rules apply to farmers and fishermen.
2. Estimate the amount of income you expect to receive for the year to determine the amount of taxes you may owe. Make sure that you take into account any tax deductions and credits that you will be eligible to claim. Life changes during the year, such as a change in marital status or the birth of a child, can affect your taxes.
3. You normally make estimated tax payments four times a year. The dates that apply to most people are April 15, June 16 and Sept. 15 in 2014, and Jan. 15, 2015.
4. You may pay online or by phone. You may also pay by check or money order, or by credit or debit card. If you mail your payments to the IRS, use the payment vouchers that come with Form 1040-ES, Estimated Tax for Individuals.
5. Check out the electronic payment options on IRS.gov. The Electronic Filing Tax Payment System is a free and easy way to make your payments electronically.
6. Use Form 1040-ES and its instructions to figure your estimated taxes.
IRS Virtual Currency Guidance: Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply
WASHINGTON – The Internal Revenue Service today issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as Bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency.
In some environments, virtual currency operates like “real” currency -- i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance -- but it does not have legal tender status in any jurisdiction.
The notice provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:
Further details, including a set of 16 questions and answers, are in Notice 2014-21, posted today on IRS.gov.
If you are an independent contractor or run your own business, there are a few basic things to know when it comes to your federal tax return. Here are six tips you should know about income from self-employment:
Estimated Tax Payments - English | Spanish | ASL
Estimated Tax Payments – English | Spanish
When you file your tax return, you usually have a choice whether to itemize deductions or take the standard deduction. Before you choose, it’s a good idea to figure your deductions using both methods. Then choose the one that allows you to pay the lower amount of tax. The one that results in the higher deduction amount often gives you the most benefit.
The IRS offers these six tips to help you choose.
1. Figure your itemized deductions. Add up deductible expenses you paid during the year. These may include expenses such as:
Special rules and limits apply. Visit IRS.gov and refer to Publication 17, Your Federal Income Tax for more details.
2. Know your standard deduction. If you don’t itemize, your basic standard deduction for 2013 depends on your filing status:
Your standard deduction is higher if you’re 65 or older or blind. If someone can claim you as a dependent, that can limit the amount of your deduction.
3. Check the exceptions. Some people don’t qualify for the standard deduction and therefore should itemize. This includes married couples who file separate returns and one spouse itemizes.
4. Use the IRS’s ITA tool. Visit IRS.gov and use the Interactive Tax Assistant tool to help determine your standard deduction.
5. File the right forms. To itemize your deductions, use Form 1040 and Schedule A, Itemized Deductions. You can take the standard deduction on Forms 1040, 1040A or 1040EZ.
6. File Electronically. You may be eligible for free, brand-name software to prepare and e-file your tax return. IRS Free File will do the work for you. Free File software will help you determine if you should itemize and file the right tax forms. It will do the math and e-file your return – all for free. Otherwise, you may file electronically with commercial software, or through a paid preparer.
Did you change your name last year? Did your dependent have a name change? If the answer to either question is yes, be sure to notify the Social Security Administration before you file your tax return with the IRS.
This is important because the name on your tax return must match SSA records. If they don’t, you’re likely to get a letter from the IRS about the mismatch. And if you expect a refund, this may delay when you’ll get it.
Be sure to contact SSA if:
You can file Form SS-5 at an SSA office or by mail. Your new card will have the same SSN as before but will show your new name.
If you have an adopted child who does not have a SSN, use a temporary Adoption Taxpayer Identification Number on your tax form. You can apply for an ATIN by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS. Get the form on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable:
If you received a refund, credit or offset of state or local income taxes in 2012, you may be required to report this amount. If you did not receive a 2012 Form 1099-G, check with the government agency that made the payments to you. That agency may have made the form available only in an electronic format. You will need to get instructions from the agency to retrieve this document. Report any taxable refund you received even if you did not receive Form 1099-G.