April 6, 2016 2:28 am
With more taxpayers relying on the sharing economy, their tax obligations and benefits have become more complex. Taxpayers who gig are generally subject to a 15.3 percent self-employment tax and must file quarterly estimated payments, unless they have sufficient tax withheld from another job where they earn wages.
The increased tax complexity also means new tax benefits in the form of deductible expenses, which could include health insurance premiums, retirement plan contributions, one-half of self employment taxes, the cost of advertising, licensing, insurance, repairs and supplies.
"Keeping a business-only bank account usually makes it easier to keep good records and file accurate tax returns, but in the sharing economy, it isn't always possible to keep separate business and personal accounts,” explains Kathy Pickering, executive director of The Tax Institute at H&R Block. “For example, a driver will probably use the same car for both business and personal use. This makes good record-keeping all the more important, and, unfortunately, the tax-filing process all the more complicated for those participating in the sharing economy. We have seen clients who rent out their home through a website who now are accidental landlords and are seeing their tax situation change dramatically.”
The ACA is also a point of confusion for taxpayers, who are concerned both about avoiding the penalty—which has more than doubled since last year—or how to qualify for an exemption if they were without insurance.
Like last year, taxpayers enrolled in marketplace insurance need to use information on the 1095-A to reconcile their advance premium tax credit and file a complete tax return. More than one million taxpayers put their tax credit at risk by either not filing or reconciling the credit appropriately last tax season.
“Even those who have received the Advance Premium Tax Credit for a second year are still asking questions about how it impacts their tax returns,” Pickering says. “Add in additional forms for millions more taxpayers and we are hearing more questions than in the past regarding ACA.”
Additionally, taxpayers have expressed confusion over anti-fraud efforts, albeit tempered by understanding. Some states have increased their review processes to validate returns, and some have delayed distributing refunds until March 1 or later. Taxpayers may have to verify their return online or by submitting documentation before they can receive their refund. States are issuing checks in lieu of direct depositing the refund into bank accounts in some circumstances.
“Tax identity theft can take victims several months or even years to resolve,” Pickering says. “Taxpayers understand the importance of reversing the growth of tax identity theft and a majority are willing to wait a little longer for their refund if it helps combat tax fraud.”
Source: H&R Block
Published with permission from RISMedia.