During my travels this week, I heard about ESOPs a couple times. The first was at the Schaumburg Business Association Leadership Lunch where John Costello shared his journey as a business owner of Cherry's Industrial. He went from sleepless nights and the weight of the world on his shoulders to a thriving company with financial transparency, employees that share and live out core values, a common destiny and a shake in the outcome of the company.

I then read the Sunday Daily Herald Business section. This got a little more in the mud on the good and bad of Employee Ownership. ESOP plans are growing in popularity as a great way for a business owner to exit (dailyherald.com)

An ESOP can take various forms, but generally setting one up involves creating a separate entity that's owned by a company's employees, with the ownership determined based on a variety of factors from compensation to tenure to job position. They can be complicated, but below outlines some steps.

​To form an Employee Stock Ownership Plan (ESOP) for a company, follow these steps:

1. Design: Determine the objectives and structure of the ESOP. Decide what percentage of the company's shares will be allocated to the plan and how those shares will be distributed among employees.
2. Consult Professionals: Seek guidance from professionals such as lawyers, accountants, and financial advisors experienced in ESOP formation. They can assist with legal and regulatory compliance, valuation, and plan design.
3. Valuation: Conduct a valuation of the company to determine the fair market value of its shares. This valuation is crucial for setting the price at which the ESOP will purchase the shares.
4. Trust Formation: Establish an ESOP trust, typically in the form of a trust agreement, which acts as the legal entity to hold and administer the shares on behalf of the employees.
5. Financing: Determine how the ESOP will finance the purchase of shares. This can be through cash contributions from the company or borrowing funds externally.
6. Plan Documentation: Develop a comprehensive plan document that outlines the rules and provisions of the ESOP, including eligibility criteria, vesting schedules, and distribution rules. Ensure compliance with relevant laws and regulations.
7. Employee Communication: Communicate the ESOP's purpose, benefits, and mechanics to employees, emphasizing how it aligns their interests with the company's success.
8. Purchase of Shares: The ESOP trust purchases the company's shares using the funds allocated for this purpose. This can be done directly from existing shareholders or by issuing new shares.
9. Ongoing Administration: Establish procedures to manage the ESOP, including record-keeping, annual valuations, and compliance with reporting and disclosure requirements. Consider appointing a trustee or forming a committee to oversee the plan.
10. Employee Participation: Allocate the shares among eligible employees according to the plan's distribution rules. Monitor and update employee accounts as per the vesting schedule and any additional contributions made to the ESOP.
11. Repurchase Obligations: If employees leave the company or retire, establish a mechanism for the ESOP to repurchase their shares at fair market value, providing liquidity to exiting participants.

It is important to note that forming an ESOP involves legal, financial, and regulatory complexities. Engaging professionals with expertise in ESOPs is crucial to ensure compliance and a smooth implementation process.

Social responsibility refers to a company's commitment to operating in an ethical and sustainable manner, taking into account the impact of its activities on society and the environment. Some of the benefits of social responsibility include:

1. Improved brand reputation: Companies that are socially responsible are viewed more favorably by consumers, employees, and other stakeholders, which can lead to increased loyalty and trust.
   
2. Increased employee engagement: When companies prioritize social responsibility, employees are more likely to feel that their work is meaningful and that they are contributing to a greater good. This can lead to higher levels of job satisfaction and engagement.
   
3. Enhanced risk management: Companies that take social responsibility seriously are better able to manage risks associated with environmental, social, and governance issues. This can include avoiding negative publicity, legal sanctions, and financial penalties.
   
4. Access to new markets: Companies that are socially responsible are often able to access new markets, particularly those that prioritize sustainability and ethical practices.
   
5. Improved financial performance: There is evidence to suggest that companies that are socially responsible perform better financially over the long term. This is because they are better able to attract and retain customers, employees, and investors who value sustainability and ethical practices.
   

Overall, social responsibility can have a range of benefits for companies, including improved brand reputation, increased employee engagement, enhanced risk management, access to new markets, and improved financial performance.

This law goes into effect 1/1/24 so clients have time to think about how they want to implement this.
 
What is required:  All employees in Illinois must accrue at least 1 hour of PAID SICK LEAVE for every 40 hours worked.  After 90 days of employment, employees must be permitted to take their accrued paid sick leave for their own or their family’s illness. 
 
What is not permitted: Requiring employees to find a replacement to be able to take the time off (you can request an employee help find their replacement, but not require it).  Requiring proof of the illness or need for time off (you can request the reason, but not require the employee to answer or provide proof).  Requiring employees to take time off in full day increments.
 
Employers can require “reasonable” notice.  For planned time off, like appointments or procedures, this is no more than 7 days’ notice.  For unplanned time off, the required notice can’t be sooner than the employee is aware of the need.
 
Employers can require time off be paid in 2 hour increments if the schedule time is at least 2 hours.  If the scheduled work time is less than the employer can pay out only what was scheduled.
 
Employers can either accrue time or frontload time.  If time is accrued, then employees must be permitted to rollover their unused time from year to year.  However currently the requirement for pay out and accrual caps at 40 annually.  So employees may be stuck rolling over unused hours indefinitely.  Clarification may come on this before the launch.
 
If an employee leaves employment, their sick leave accrued does not need to be paid out to them (If an employer uses their vacation pay to meet the requirements of this law, then they must still pay it out as vacation pay must be paid to employees at employment termination).  If an employee returns to the company within a 12 month period, their accrued sick leave picks up where it left off.  The 90 day clock does not restart so a returning employee can take their time off immediately (or picks up where they left off if they worked less than 90 days). 
 
Paid Leave for All Workers Act (illinois.gov)
​

Tax season can be a stressful time for many individuals, especially if they are filing their tax return at the last minute. As the deadline approaches, it is common for people to have questions about their taxes. Here are some common last-minute tax return questions and answers that may help alleviate some of the stress.

Can I still file my tax return if I missed the deadline?
If you missed the tax filing deadline, you may still be able to file your tax return. In the United States, the deadline for filing taxes is typically April 15th, but it can vary from year to year. If you missed the deadline, you can file for an extension using Form 4868. This will give you an additional six months to file your tax return. However, it is important to note that an extension to file does not mean an extension to pay any taxes owed. You still need to estimate your tax liability and pay any taxes owed by the original deadline to avoid penalties and interest.

Can I still claim deductions and credits if I file my tax return late?If you file your tax return late, you may still be able to claim deductions and credits. However, it is important to note that some deductions and credits have specific deadlines or limitations. For example, if you contribute to an IRA for the previous tax year, you must make the contribution by the tax filing deadline to claim it on your tax return. Additionally, some tax credits, such as the Earned Income Tax Credit, have income limits and other eligibility requirements. Therefore, it is important to review the specific requirements for any deductions or credits you plan to claim.

What if I made a mistake on my tax return?If you discover a mistake on your tax return after you have filed it, you can file an amended tax return using Form 1040X. This form allows you to correct any errors or omissions on your original tax return. It is important to note that you cannot use an amended tax return to claim a refund for a year that is more than three years old. Additionally, if you discover a mistake on your tax return that resulted in an underpayment of taxes, you may need to pay penalties and interest.

How do I pay any taxes owed?If you owe taxes, you can pay them online using the IRS's electronic payment options, including direct debit from your bank account, credit or debit card, or the IRS's online payment agreement tool. If you cannot pay your taxes in full, you can request a payment plan using the IRS's online payment agreement tool. It is important to note that interest and penalties may apply if you do not pay your taxes by the deadline.
In conclusion, filing taxes can be a complex process, and it is common to have questions or concerns, especially as the deadline approaches. By understanding the options available for late filing, deductions and credits, correcting mistakes, and paying taxes owed, you can take steps to minimize stress and ensure that you meet your tax obligations.

If you need help, you can contact GLM
​Tom Gosche, 630-675-8971, tomg@goglm.com 

The IRS and tax professionals continue to see third parties aggressively promoting Employee Retention Credit schemes on radio and online.

Filers should carefully review the ERC guidelines before trying to claim the credit and be wary of offers promising tax savings that are too good to be true. Tax professionals are also reporting receiving undue pressure from clients to claim the ERC as a result of these scams.
These promoters push ineligible people to file a claim for the credit while charging the filer either large upfront fees or a fee that is contingent on the amount of their refund. Plus, the promoters may not inform taxpayers that they must reduce the wage deductions they claimed on the business’ federal income tax return by the amount of the credit.

The IRS has been warning about this scheme since last fall, but there continue to be attempts to claim the ERC made by ineligible filers during the 2023 tax filing season. This is a valuable credit for those who qualify but claiming it improperly could result in taxpayers having to repay the credit along with potential penalties and interest.

Qualifying for ERC
The ERC is a refundable tax credit for businesses who continued paying employees while shut down due to the pandemic or who had significant declines in gross receipts.
Eligible taxpayers can claim the ERC on an original or amended employment tax return during a qualifying period.
To be eligible for the ERC, employers must have:

• sustained a full or partial suspension of operations due to orders from an appropriate governmental authority due to COVID-19 during 2020 or the first three quarters of 2021,
• experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
• qualified as a recovery startup business for the third or fourth quarters of 2021.

Eligible employers can’t claim the ERC on wages that they reported as payroll costs in obtaining Paycheck Protection Program loan forgiveness or that they used to claim certain other tax credits.

Reporting ERC fraud
Employers can report illegal tax-related ERC claims and activities by submitting a completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations. The fax telephone number and mailing address are on the form.
Employers should also report instances of fraud and IRS-related phishing attempts to the IRS at phishing@irs.gov and Treasury Inspector General for Tax Administration at 800-366-4484.

More information:

• Employee Retention Credit - 2020 vs 2021 Comparison Chart
• Form 941-X Instructions (April 2022 Revision)
• Form 941 Instructions (December 2021 Revision)
• Form 941 Instructions (2020 Revisions)
• Form 943, 943-X, 944, 944-X, CT-1 and CT-1-X Instructions

What is a “Typical Situation” people are in when they realize they need your help?
People and businesses facing high tax liabilities from personal earnings, operating business profits including real estate, other investment transactions including crypto currencies and the sale of a business or other hard assets.

What is something someone might say that would lead me to think of you?
•         My taxes are too high.
•         I want to sell, but the taxes will eat up a big share of my profit.
•         I wish there was a way to reduce my crypto tax obligations.

What (Specifically) do you do? 
B10 helps HNW individuals and businesses reduce their biggest expense: TAXES, by offering unique compliant tax strategies that include tax credits, cost segregation, property tax litigation, charitable giving, crypto Moontax service, and capital gains deferral, among others.  

How do you do it?
Each strategy is assigned a dedicated expert team of CPAs and tax professionals that do all of the tedious analytical work and provide a final tax benefit report for the taxpayer and/or financial advisor.

Matching Ideas with Resources:

Good recordkeeping year-round helps taxpayers avoid tax time frustration-

Wading through a pile of statements, receipts and other financial documents when it’s time to prepare a tax return can be frustrating for people who haven’t managed their records. By knowing what they need to keep and how long to keep it, people can develop a good recordkeeping system year-round and make filing their return easier.

Good recordkeeping can also help taxpayers understand their situation when they receive letters or notices from the IRS.

Good records help:

• Identify sources of income. Taxpayers may receive money or property from a variety of sources. The records can identify the sources of income and help separate business from non-business income and taxable from nontaxable income.
• Keep track of expenses. Taxpayers can use records to identify expenses for which they can claim a deduction. This will help determine whether to itemize deductions at filing. It may also help them discover potentially overlooked deductions or credits.
• Prepare tax returns. Good records help taxpayers file their tax return quickly and accurately. Throughout the year, they should add tax records to their files as they receive them to make preparing a tax return easier.
• Support items reported on tax returns. Well-organized records make it easier to prepare a tax return and help provide answers if the return is selected for examination or if the taxpayer receives an IRS notice.

In general, taxpayers should keep records for three years from the date they filed the tax return. Taxpayers should develop a system that keeps all their important information together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.

Records to keep include:

• Tax-related records. This includes wage and earning statements from all employers or payers including payment apps or cards, such as Form W-2, 1099-K, 1099-Misc, 1099-NEC. Other records include interest and dividend statements from banks, certain government payments like unemployment compensation, other income documents and records of virtual currency transactions. Taxpayers should also keep receipts, canceled checks, and other documents that support income, a deduction, or a credit reported on their tax return.
• IRS letters, notices and prior year tax returns. Taxpayers should keep copies of prior year tax returns and notices or letters they receive from the IRS. These include adjustment notices when an action takes place occurs on the taxpayer's account.
• Property records. Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss.
• Business income and expenses. Business taxpayers should find a bookkeeping method that clearly and accurately reflects their gross income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.
• Health insurance. Taxpayers should keep records of their own and their family members' health care insurance coverage. If they're claiming the premium tax credit, they'll need information about any advance credit payments received through the Health Insurance Marketplace and the premiums they paid.

​For more information on what to do to get ready to file taxes, taxpayers should visit the Get Ready page of IRS.gov.

​Aspiring entrepreneurs: learn the basics of setting up a business
New entrepreneurs can start out on the right foot by making sure they understand the tax responsibilities of running a business. The process can seem daunting, but IRS.gov has resources to help new business owners.
Here are a few things new entrepreneurs need to do when starting their business.
Choose a business structure
The form of business determines which income tax return a business taxpayer needs to file. The most common business structures are:

• Sole proprietorship: An unincorporated business owned by an individual. There's no distinction between the taxpayer and their business.
• Partnership: An unincorporated business with ownership shared between two or more people.
• Corporation: Also known as a C corporation. It's a separate entity owned by shareholders.
• S Corporation: A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
• Limited Liability Company: A business structure allowed by state statute.

Choose a tax year
A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:

• Calendar year: 12 consecutive months beginning January 1 and ending December 31.
• Fiscal year: 12 consecutive months ending on the last day of any month except December.

Apply for an employer identification number
An EIN is also called a federal tax identification number. It's used to identify a business. Most businesses need one of these numbers. It's important for a business with an EIN to keep the business mailing address, location and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party and mailing it to the address on the form.
Have all employees complete these forms

• Form I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services
• Form W-4 Employee's Withholding Allowance Certificate

Pay business taxes
The form of business determines what taxes must be paid and how to pay them.
Visit state's website
Prospective business owners should visit their state's website for info about state requirements.

​The Internal Revenue Service today reminded all taxpayers – particularly those who are identity theft victims – of an important step they should take to protect themselves from tax fraud.
 
Some identity thieves use taxpayers’ information to file fraudulent tax returns. By requesting Identity Protection PINs from the Get an IP PIN tool on IRS.gov, taxpayers can prevent thieves from claiming tax refunds in their names.
 
Identity Protection PINs and how to get one
An IP PIN is a six-digit number the IRS assigns to an individual to help prevent the misuse of their Social Security number or Individual Taxpayer Identification Number (ITIN) on federal income tax returns. The IP PIN protects the taxpayer’s account, even if they’re no longer required to file a tax return, by rejecting any e-filed return without the taxpayer’s IP PIN
 
Taxpayers should request an IP PIN:

• If they want to protect their SSN or ITIN with the IRS,
• If they want to protect their dependent’s SSN or ITIN with the IRS,
• If they think their SSN, ITIN or personal information was exposed by theft or fraudulent acts or
• If they suspect or confirm they’re a victim of identity theft.

 
Taxpayers can go to IRS/getanippin to complete a thorough authentication check. Once authentication is complete, an IP PIN will be provided online immediately. A new IP PIN is generated every year for added security. Once an individual is enrolled in the IP PIN program, there’s no way to opt-out.
 
The IRS may automatically assign an IP PIN if the IRS determines the taxpayer’s a victim of tax-related identity theft. The taxpayer will receive a notification confirming the tax-related ID theft incident along with an assigned IP PIN for future tax-return filings.
 
Taxpayers will either receive a notice with their new IP PIN every year in early January for the next filing season or they must retrieve their IP PIN by going to IRS/getanippin.
 
Tax-related identity theft and how to handle it
Tax-related identity theft occurs when someone uses a taxpayer’s stolen SSN to file a tax return claiming a fraudulent refund. In the vast majority of tax-related identity theft cases, the IRS identifies a suspicious tax return and pulls the suspicious return for review. The IRS then sends a letter to the taxpayer and won’t process the tax return until the taxpayer responds.
 
Depending on the situation, the taxpayer will receive one of three letters asking them to verify their identity:

• Letter 5071C, asks them to use an online tool to verify their identity and tell the IRS if they filed the return in question.
• Letter 4883C, asks the taxpayer to call the IRS to verify their identity and tell the IRS if they filed the return.
• For those who have been a victim of a data breach, they may receive Letter 5747C and be asked to verify their identity in-person at a Taxpayer Assistance Center.

If the taxpayer receives any of these letters, they don’t need to file an https://www.irs.gov/newsroom/when-to-file-an-identity-theft-affidavit(Form 14039). Instead, they should follow the instructions in the letter.
 
When to file an Identity Theft Affidavit
If a taxpayer hasn’t heard from the IRS but suspects tax-related identity theft, they should complete and submit a Form 14039, Identity Theft Affidavit. Signs of possible tax-related identity theft include:
 

• A taxpayer can’t e-file their tax return because a duplicate tax return was filed using their Social Security number. (Check that there’s no error in the SSN, such as transposed numbers.)
• A taxpayer can’t e-file because a dependent’s Social Security number or ITIN was already used by someone on another return without the taxpayer’s knowledge or permission. (Also check that the SSN or ITIN is correct and be sure the dependent hasn’t filed a separate tax return.)
• A taxpayer receives a tax transcript in the mail they did not request.
• A taxpayer receives a notice from a tax preparation software company confirming an online account was created in their name, and they did not create one.
• A taxpayer receives a notice from their tax preparation software company that their existing online account was accessed or disabled when they took no action.
• A taxpayer receives an IRS notice informing them that they owe additional tax, or their refund was offset to a balance due, or that they have had collection actions taken against them for a year they did not earn any income or file a tax return.
• The IRS sends a taxpayer a notice indicating that the taxpayer received wages or other income from an employer for whom they didn’t work.
• The taxpayer was assigned an Employer Identification Number (EIN), but they did not request or apply for an EIN.

 
The IRS will work to verify the legitimate taxpayer, clear the fraudulent return from the taxpayer’s account and, generally, place a special marker on the account that will generate an IP PIN each year for the taxpayer who is a confirmed victim.
 
For information about tax-related identity theft, see Identity Protection: Prevention, Detection and Victim Assistance and IRS Identity Theft Victim Assistance: How It Works on IRS.gov. The Federal Trade Commission website also includes information about tax-related identity theft.
 
Signs of non-tax-related identity theft; no need to file form 14039
Non-tax-related identity theft occurs when someone uses stolen or lost personal identifiable information (PII) to open credit cards, obtain mortgages, buy a car or open other accounts without their victim’s knowledge.
 
Potential evidence of non-tax-related identity theft can include:

• An individual receives balance due bills from companies with whom they didn’t conduct business, magazine subscriptions they didn’t order, notifications of a mortgage statement and/or credit cards for which they didn’t apply.
• An individual receives notices of unemployment benefits for which they didn’t apply.
• An individual receives a Notice CP 01E, Employment Identity Theft.
• An individual receives a Form W-2 or 1099 from a corporation or employer from whom they did not receive the income reported and they have not received a notice or letter from the IRS questioning them about that income.
• A taxpayer can’t e-file because a dependent’s SSN or ITIN was already used by someone who is known to the taxpayer but is not the parent or legal guardian, and the taxpayer did not provide permission for that person to claim the dependent. For additional information about this issue, see Publication 1819, Divorce and non-custodial, separated, or never married parents.

 
Victims of non-tax-related identity theft don’t need to report these incidents to the IRS but should take steps to protect against the type of identity theft they’ve experienced.

Direct from the IRS- February 10, 2023

WASHINGTON – The Internal Revenue Service provided details today clarifying the federal tax status involving special payments made by 21 states in 2022. 

The IRS has determined that in the interest of sound tax administration and other factors, taxpayers in many states will not need to report these payments on their 2022 tax returns. 

During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief. This means that people in the following states do not need to report these state payments on their 2022 tax return: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. Alaska is in this group as well, but please see below for more nuanced information.
In addition, many people in Georgia, Massachusetts, South Carolina and Virginia also will not include state payments in income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit. 

The IRS appreciates the patience of taxpayers, tax professionals, software companies and state tax administrators as the IRS and Treasury worked to resolve this unique and complex situation.
The IRS is aware of questions involving special tax refunds or payments made by certain states related to the pandemic and its associated consequences in 2022. A variety of state programs distributed these payments in 2022 and the rules surrounding their treatment for federal income tax purposes are complex. While in general payments made by states are includable in income for federal tax purposes, there are exceptions that would apply to many of the payments made by states in 2022.

To assist taxpayers who have received these payments file their returns in a timely fashion, the IRS is providing the additional information below.

Refund of state taxes paid
If the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied) the payment is not included in income for federal tax purposes.
Payments from the following states in 2022 fall in this category and will be excluded from income for federal tax purposes unless the recipient received a tax benefit in the year the taxes were deducted.

• Georgia
• Massachusetts
• South Carolina
• Virginia

General welfare and disaster relief payments
If a payment is made for the promotion of the general welfare or as a disaster relief payment, for example related to the outgoing pandemic, it may be excludable from income for federal tax purposes under the General Welfare Doctrine or as a Qualified Disaster Relief Payment.  Determining whether payments qualify for these exceptions is a complex fact intensive inquiry that depends on a number of considerations. 

The IRS has reviewed the types of payments made by various states in 2022 that may fall in these categories and given the complicated fact-specific nature of determining the treatment of these payments for federal tax purposes balanced against the need to provide certainty and clarity for individuals who are now attempting to file their federal income tax returns, the IRS has determined that in the best interest of sound tax administration and given the fact that the pandemic emergency declaration is ending in May, 2023 making this an issue only for the 2022 tax year, if a taxpayer does not include the amount of one of these payments in its 2022 income for federal income tax purposes, the IRS will not challenge the treatment of the 2022 payment as excludable for income on an original or amended return.

Payments from the following states fall in this category and the IRS will not challenge the treatment of these payments as excludable for federal income tax purposes in 2022.

• Alaska[1]
• California
• Colorado
• Connecticut
• Delaware
• Florida
• Hawaii
• Idaho
• Illinois[2]
• Indiana
• Maine
• New Jersey
• New Mexico
• New York2
• Oregon
• Pennsylvania
• Rhode Island

For a list of the specific payments to which this applies, please see this chart.

​Other payments
Other payments that may have been made by states are generally includable in income for federal income tax purposes.  This includes the annual payment of Alaska’s Permanent Fund Dividend and any payments from states provided as compensation to workers.

​[1] Only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend.
[2] Illinois and New York issued multiple payments and in each case one of the payments was a refund of taxes, which should be treated as noted above, and one of the payments is in the category of disaster relief payment.

In recent years, the gig economy has changed how people do business and provide services. Taxpayers must report their gig economy earnings on a tax return – whether they earned that money through a part-time, temporary or side gig. The IRS’ Gig Economy Tax Center provides information and resources to help this group of entrepreneurs and workers understand and meet their federal tax obligations.
Here are key things for individuals involved in the gig economy to remember as they get ready to file in 2023.

Gig economy income is taxable

• Taxpayers must report all income on their tax return unless excluded by law, whether they receive an information return such as a 1099 or not.
• Individuals involved in the gig economy may also be required to make quarterly estimated tax payments to pay income tax and self-employment tax, which includes Social Security and Medicare taxes. The last estimated tax payment for 2022 is due Jan. 17, 2023.

Workers report income according to their worker classification
Gig economy workers who perform services, such as driving a car for booked rides, running errands and other on demand work, must be correctly classified. Classification helps the taxpayer determine how to properly report their income.

• If they are employees, they report their wages from the Form W-2, Wage and Tax Statement.
• If they are an independent contractor, they report their income on a Schedule C, Form 1040, Profit or Loss from Business - Sole Proprietorship.

The business or the platform determines whether the individual providing the services is an employee or independent contractor. The business owners can use the worker classification page on IRS.gov for guidance on properly classifying employees and independent contractors.

Expenses related to gig economy income may be deductible
Individuals involved in the gig economy may be able to deduct expenses related to their gig income, depending on tax limits and rules.

• Taxpayers may be able to lower the amount of tax they owe by deducting certain expenses.
• It is important for taxpayers to keep records of their business expenses.

Pay the right amount of taxes throughout the year
An employer typically withholds income taxes from their employees' pay to help cover taxes their employees owe.
Individuals involved in the gig economy have two ways to cover their taxes due:

• If they have another job where they are considered an employee, they can submit a new Form W-4, Employee's Withholding Certificate to their employer to have more taxes withheld from their paycheck to cover the tax owed from their gig economy activity.
• They can make quarterly estimated tax payments throughout the year.

More information:
Publication 525 Taxable and Nontaxable Income
Publication 1779, Independent Contractor or Employee

​Share this tip on social media -- #IRSTaxTip: Tax tips for gig economy entrepreneurs and workers. http://ow.ly/TZ4T50MnUmE
​