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Forbes
24-04-2025
- Business
- Forbes
Avoid Overpaying In Taxes: Smart Tax Strategies For Small Businesses
The April 15 tax deadline has now come and gone, and most small business owners have no plans to think about taxes again until this same time next year. Those taxpayers contribute to the hard truth that 93% of small businesses overpay in taxes. This statistic was reported nearly a decade ago by a Forbes analyst who supported small business owners. Serving in that same capacity, I'm disappointed to report that the statistic remains true today. The fact is, the IRS and state tax authorities are bill collectors. They are actively working to collect the maximum amount of tax revenue. Taxpayers tend to take a more passive role in tax matters, resulting in overpayment of taxes that are often avoidable. While federal income taxes garner the most attention, the IRS and state tax authorities collect billions of dollars in other tax types that are often overlooked. Learn more about three lesser-known ways you're paying more taxes than you should. There are nearly 31 million small businesses that filed taxes as a sole proprietorship in the US, according to the most recent data published by the IRS. This filing classification means that the business reports its income and expenses on its personal tax return, specifically on Schedule C. This filing status makes the business's profits subject to self-employment taxes at a rate of 15.3%. Self-employment tax is the payment that self-employed people and small business owners owe the federal government to fund Medicare and Social Security. They represent the FICA or payroll taxes that employees and employers pay when their compensation is reported on Form W-2. Sole proprietorships account for over 70% of all businesses in the U.S., according to a report from the Small Business Administration (SBA). Each of these are paying self-employment taxes. In short, these businesses granted the IRS a 15.3% profit share in their business. The IRS reports these businesses earned total net income of $544M, resulting in self-employment taxes of over $83 million in the most recent tax year. Again, this represents millions of dollars in overpaid taxes that are completely avoidable. You can establish an LLC and elect to have your LLC taxed as an S Corporation with the IRS, and your small business can completely avoid self-employment taxes and reduce their tax bill by 15.3%. It doesn't eliminate your exposure to all employment taxes, but it reduces them significantly. The IRS requires that owners of businesses taxed as S Corporations draw reasonable compensation that is reported on Form W-2. In short, you must become an employee of your own company and pay yourself a fair salary. This approach will result in you paying employment taxes. However, you will only pay tax on the amount you're paid as compensation. In contrast, self-employment taxes are paid on all your profits. For example, the table below shows a small business that elects to be taxed as a sole proprietorship vs an S Corporation. The small business that files taxes as a sole proprietorship pays self-employment taxes on its net income, resulting in a $76.5K tax due. In contrast, the business owner who elects to file taxes as an S corporation only pays payroll taxes of $15.3K on their compensation. This tax classification change reduces the S corporation's owners' tax liability for FICA taxes by over $60K. Connect with your CPA or tax professional to help you assess if electing to be taxed as an S corporation is optimal for your business to avoid self-employment taxes. Most business owners and tax professionals focus all their attention on their federal income tax bill. While this represents the biggest portion of your income taxes, you cannot overlook opportunities to reduce your state tax bill. According to statistics published by the Tax Foundation, state tax rates span from a low of 1.95% in North Dakota to a top rate of 13.3% in California. Additionally, nine states do not have a state income tax. The Tax Policy Center reports that total state tax revenue from income taxes totaled $545 billion in 2021, the most recent year for which complete statistics are available. This represents billions of dollars remitted by taxpayers, and at least some of it is avoidable. Considering the varying state income tax rates, the state in which you choose to operate your business will play a big role in your state tax bill. For example, a business with a $500K profit operating in California will have a $66.5K tax bill, while the same business operating in Texas will pay $0 in state taxes. Given this difference, it's important for business owners to consider where their operations should be located. Keep in mind, income is taxed based on the location where it is earned. If your operations are based in Texas, even if the business is registered in California, the tax on that company's earnings will be based on the location of its operations. Selecting a tax-savvy operations base could make a big difference in your state tax bill. Additionally, several U.S. states offer tax incentives to businesses operating within their borders to reduce or eliminate their state tax liability. For example, New York has an Innovation Hot Spot (IHS) program that provides tax benefits to early-stage companies in certified incubators. Eligible businesses can receive exemptions from state corporate income and sales taxes for up to five years. Additionally, partners in these businesses may deduct income earned from the incubator company. To qualify, companies must be in their first five years of operation (or seven for life sciences ventures), have less than $2 million in annual revenue, and be in the formative stages of development. This program could save eligible business owners 9.65% in state income taxes over a five-year period. Similarly, the State of Oklahoma offers a 10-year state tax exemption for small business incubator tenants. This means small business owners in Oklahoma who lease office space in a facility that houses a certified incubator are exempt from state taxes for a decade. This exemption remains in effect even after the tenant is no longer an occupant of an incubator facility. In short, if you secure a short-term lease in a co-working space that houses a certified incubator, you will qualify for the exemption for a full 10-year period. Other states offer their own state tax incentives to small business owners, resulting in millions of dollars in state tax avoidance for up to 10 years. Connect with your CPA or tax professional to help you assess the benefits of making your business operations in a state and office location that offers state tax incentives. The IRS treats income taxes as a pay-as-you-go requirement. You cannot wait until you file your tax return to meet your obligation; rather, you must pay your tax bill throughout the year. Those payments are typically made per pay period when you receive a W-2, or by making estimated payments throughout the year when you operate a business. If your payments throughout the year still result in over a $1,000 balance due when you file your tax return, you will be assessed an underpayment penalty. Adding insult to injury, the IRS will also charge interest on the penalty it assesses. The 2025 IRS interest rates for underpayment penalties are 7%. This is down from the 2024 rate of 8%. Adding to the impact of this penalty is that interest is compounded daily by the IRS. To calculate the penalty, the IRS multiplies the unpaid tax by the applicable interest rate for the full period during which the underpayment exists. For example, suppose an individual owes $10,000 as of April 15, 2025. The IRS expected the taxpayer to begin meeting the obligation for that balance as early as April 15, 2024, the due date of the first estimated tax payment. This timing aligns with the pay-as-you-go requirement. Therefore, the taxpayer would incur an annual penalty of $800 (8% of $10,000). Additionally, interest would be applied dating back 12 months to when the underpayment originated. With a 7% interest rate for all four quarters of 2024, compounded daily, $58 in interest will be added, resulting in an underpayment penalty of $858 with interest. The amounts are relatively small, in this example, but while the IRS treats this as an underpayment, it represents an overpayment in your obligation to the IRS, and it is completely avoidable. The most recently published statistics from the IRS disclosed the number of penalties and the amount of revenue collected for fiscal year 2023. They assessed 14.2 million penalties, totaling $7 million in underreported tax penalties. That's millions of dollars remitted by taxpayers that are completely avoidable. You can complete Form 1040ES to calculate what your tax burden will be for the year, and determine the appropriate W-2 withholdings or the amount of estimated quarterly payments due for each period. If you use a CPA or tax professional, they can prepare this form for you and help you plan to ensure you meet the IRS requirements to avoid underpayment penalties. If your income changed dramatically from the prior year, you may be able to avoid the underpayment penalty if you met at least 100% of your previous year's tax for individual taxpayers earning less than $75K in the prior year. If your individual income was over $75K, the IRS requires you to meet 110% of your previous year's tax to avoid penalties. Connect with your CPA or tax professional to help you ensure you're not subjected to this penalty and you are adhering to the pay-as-you-go requirement of the IRS. Complete a thorough review of your most recently filed tax return to assess if you overpaid in taxes in any of these three ways. Then, make plans to file the right tax elections, select the optimal location, and perform the necessary calculations to avoid overpaying in taxes this year.
Forbes
31-03-2025
- Business
- Forbes
How The IRS Decides To Audit You: A Tax Expert Explains
How does the IRS decide which tax returns to audit? In this Q&A series, a former IRS lawyer and ... More current law-school professor explains. This is the second part of my two-part Q&A with a tax-law expert, professor, and former IRS lawyer. The first part is How The IRS Picks Tax Returns To Audit: A Tax-Law Expert Explains. 'April is the cruelest month' wrote the poet T.S. Eliot—and for taxpayers in the US, that may often be true. The filing deadline for federal tax returns is coming up on April 15. While nobody really likes doing tax-return homework for the IRS, it's safe to say that IRS audits and other forms of unwanted IRS attention are even more unpleasant, making diligence with your tax return a wise course. For expert insights into how the IRS decides which tax returns to audit and how to prepare for an audit if it happens, I turned to tax expert Professor Bryan Camp. He is a professor at Texas Tech School of Law, a former staff member of the IRS Office of Chief Counsel, and a longtime tax attorney. Between teaching, doing academic research, and playing the fiddle at bluegrass jams, he kindly took time amid his busy schedule to answer my questions with his inside knowledge and personal flair. In the first part of this Q&A, Professor Camp explained how the IRS selects which tax returns to audit, different types of audits, and how to handle IRS requests. In the second part, presented below, he explains more about how to avoid getting audited by the IRS, what to do if you are audited, tax-return areas that are likely to trigger an audit, and whether someone at the IRS can intentionally select you for an audit or release your tax information. The biggest way to reduce the chance of any unpleasant interaction with the IRS is to be sure your tax return is consistent with any information returns submitted to the IRS about you, such as a Form 1099 or Form W-2. When those returns are incorrect, you basically have three choices: (a) suck it up and report consistently with the incorrect information return; (b) attach to your return an explanation for why the information return is incorrect, or (c) make the correct return and then keep all your records because if the discrepancy is large enough you will indeed get a 'love letter' from the IRS asking about it, and you will generally only have a very short timeframe to respond. Let me give you an example from my own experience. When my grandma died, she left her house to her three grandkids: my two sisters and me. We sold the house. The Title Company then sent the IRS a 1099 reporting that it had paid the ENTIRE sales proceeds to me. That 1099 was wrong for two reasons. First, I split the proceeds with my sisters. More importantly, the proceeds were excluded from gross income by Internal Revenue Code Section 102 (which allows inheritances to be excluded from income). Pissed, I (properly) did not report any of that money. But you see how the IRS computers thought I had underreported income when they compared the 1099s with my tax return. But I did not get audited. Instead I received what the IRS calls a 'compliance check.' About two years later I got a love letter (called a CP2000 notice) from the IRS telling me it believed I had overlooked some income I should have reported, and it gave me 30 days to explain why I should have not reported it. Since I was expecting that, I was prepared to respond and so that got cleared up. Notice two points: (1) it took the IRS systems about two years to catch the discrepancy and ask me about it; (2) I had only 30 days to respond. If I had missed that deadline, then the IRS would have assessed a deficiency, and I would have had a much more difficult time working it out. First, low incomes. You can look at the IRS Data books for details. Basically, Congress is very concerned that low-income taxpayers are cheating by improperly claiming tax credits such as the Earned Income Tax Credit. Second, very high incomes. They get reviewed more because their errors cost the government a lot more lost revenue. For example, some large corporations are under continuous examination. In addition, very-high-income taxpayers are more likely to participate in the type of tax-shelter transactions that the IRS targets. Third, self-employed taxpayers who report income on Schedule C may be more likely to be selected for audit. That is because while the IRS computer matching programs do a great job at spotting potential unreported income, they cannot spot erroneous deductions. So, again, if you report a very large loss on Schedule C and you use that loss to offset your decent wage income, that may trigger a higher DIF score (see the first part of this Q&A). Yes. But that does not mean the IRS computer systems are shut down and, as I explained earlier, everyone's return is 'looked at' by the IRS computers. The IRS computers will attempt to correct perceived errors in returns by sending out notices like the CP2000 and then propose assessments if the taxpayer does not respond in a timely manner. Those actions are not audits. But they are still unpleasant experiences, even when you are correct. The IRS almost never does a tip-to-toe audit. Almost always the IRS is looking into a particular issue or set of issues. So you want to be sure you know what the IRS is concerned about. You want to be sure to ask the IRS Revenue Agent what information they need and then give them that information—but ONLY that information. If the IRS needs more, let them ask for it. You want to avoid letting them come to your home or business, so being cooperative and offering to bring the information to them is generally the best way to respond. However, if you are worried about being criminally prosecuted, then you want to take the opposite approach and not volunteer information you think could help convict you of a crime. We call these 'eggshell' audits because while it starts out civil, you are walking on eggshells trying to avoid criminal investigation. Don't walk alone. There are many law firms that specialize in these kinds of audits. Oh yes! If the auditor comes to believe that the taxpayer engaged in fraudulent behavior, the auditor must stop the audit and refer the matter to Criminal Investigation (CI). If CI decides not to work the case, the auditor can resume the audit. Meanwhile, the auditor is prohibited from contacting the taxpayer during the time CI does its investigation. So if you are being audited and, suddenly, you are totally unable to communicate with your auditor, that's a baaaaaad sign. The eggshells are breaking. As many years as are necessary to resolve the audit issues. For example, if the audit is about whether you properly reported income from the sale of property, the Revenue Agent is entitled to ask for all your property records back to the time you bought it to establish the proper basis. For a recent Tax Court case where the taxpayer was unable to establish basis on his rental property and therefore was not allowed a depreciation deduction, see Smith v. Commissioner, T.C. Memo. 2025-24 (March 24, 2025). Another example is if you are claiming tax benefits in the audit year from stuff you did in a prior year; the Revenue Agent is entitled to look at that prior year to see if you did that right. Even though that prior year is not under audit, understanding what happened there may be necessary to resolve the year that is under audit. As a practical matter, however, IRS employees rarely go beyond the year they are examining. Training and structure. Informally this is called 'UNAX' for 'Unauthorized Access.' Training: Employees learn that Congress wrote a statute that makes this behavior a crime. They learn they can go to prison. They also learn that they can be fired. Structure: Employees have no ability to select a taxpayer for audit. As explained in Part 1 of this Q&A interview, all audit decisions must be made through the proper channels of authority. And employees who identify a taxpayer for audit are not permitted to conduct the audit. So if a Revenue Agent auditing my tax return comes to believe that I am in cahoots with Joe and recommends opening an examination on Joe, then that recommendation must be approved by a series of IRS supervisors. If approved, Joe's audit must be done by another Revenue Agent. And my Revenue Agent cannot access that information because doing so would be UNAX. IRS employees are incredibly cautious about accessing information not directly relevant to their jobs. That sometimes interferes with their ability to conduct a thorough audit, because in their mind the risks of UNAX outweigh the benefit to their examination. IRS employees are not evaluated on how many lost tax dollars they uncover. They are instead evaluated on how well they process their workload. That is one reason for cooperating. You help them 'git-er-done.' Training and consequences. All IRS employees are trained not only that they must keep information confidential but also that they are not even allowed to look at any taxpayer's information unless they are working on that taxpayer's case (either in examination or in collections at the IRS). To enforce these prohibitions, Congress wrote a statute in 1998 that creates what we call the '10 Deadly Sins.' Professor Keith Fogg wrote an excellent article about that statute, which provides that any IRS employee who improperly discloses taxpayer information may (and sometimes must) be fired. Congress also wrote another statute on the unauthorized inspection or disclosure of tax returns or return information. That permits the taxpayer to sue the government and recover, at a minimum, $1,000 per improper disclosure Thus, if the improper disclosure goes out on a social media post that receives 1,000 hits, that's 1,000 improper disclosures.
Wall Street Journal
29-03-2025
- Business
- Wall Street Journal
‘No Tax on Tips' Plan Excludes Uber, DoorDash Drivers
WASHINGTON—Uber and DoorDash are pressing Republican lawmakers to expand President Trump's no-tax-on-tips promise beyond employees to include independent contractors who drive ride-share vehicles and deliver food. The leading tax-free tips proposal, from Sen. Ted Cruz (R., Texas) and Rep. Vern Buchanan (R., Fla.), would let many restaurant and casino workers claim the deduction. But Uber and other ride-share drivers are typically independent contractors, not employees, and they receive Form 1099, not Form W-2, to detail their income and then report that money—minus expenses—as business profits. They wouldn't be eligible under the bill.
Fox News
15-02-2025
- Business
- Fox News
Why reselling concert and sporting tickets online could cause you an IRS audit
Be careful if you sell online. The Internal Revenue Service may know a lot more about your side hustle this tax season. And the agency is cracking down on those who fail to report the added income. Anyone who earned more than $5,000 in 2024 selling tickets, musical instruments or other goods and services online should expect to get a 1099-K tax form this month. Online platforms such as StubHub, Etsy and eBay previously only had to send these forms to users who earned more than $20,000 in most cases. Beginning Jan. 1, 2024, payment platforms such as PayPal, Square and Venmo must report payments totaling $5,000 or more in a calendar year, with no transaction minimum. The 1099-K threshold will drop to $2,500 in 2025 and finally $600 in 2026 unless the IRS makes more changes. It's time you get your financial house in order this tax season. The lowered threshold means forms will be sent to millions more taxpayers to make sure they account for the income on their tax returns. "The IRS wants to get the message out that they're enforcing the laws around people who have a part time business on eBay, Etsy, or reselling tickets on Ticketmaster," said Lee Heisman, a partner at Exit Wealth Advisors in Atlanta. The threshold was supposed to be dropped to $600 in 2021 after Congress passed changes to ensure taxes get paid on income from gig work and selling concert tickets or other things online. When online platforms complained about the extra record-keeping this required and the confusion it caused, the rules were delayed. Instead, the IRS chose to phase in the change, setting the $5,000 threshold for the 2024 tax year, $2,500 for 2025 and $600 for 2026. Even without the forms, taxpayers were already required to report their income on returns, but many never did. In general, people tend to underreport income when no forms are sent to them. This has been my experience over the past 30 years of giving financial advice. Almost no one lies about their salary income, on the other hand, since the details are reported on Form W-2. So, this may be the first tax season where if you sold candles and soap online, resold some of your sports memorabilia, or put half of your season tickets up for resale that you may have an additional tax bill. The IRS has generally had questions for those who never report their online income, and those people who don't report may face steep penalties. The IRS has launched an investigation into taxpayers who earned money as experts on the online platform and allegedly failed to accurately report income from 2017 through 2020. As an example, Just Answer experts such as veterinarians and mechanics were generally paid between $15 and $25 for each question they responded to. A judge in December authorized the IRS to issue a summons requiring Just Answer to provide the names of anyone who earned $5,000 or more on the platform in any one year in that time period, when the company apparently wasn't sending out 1099 forms. One taxpayer audited in 2020 had more than $400,000 of unreported income for four years of answering questions, according to an IRS agent's declaration. As part of the investigation, the agent identified four Just Answer users who appear to have failed to report their Just Answer compensation on their tax returns. One is suspected of having unreported income of more than $1.3 million earned from answering over 86,000 questions. Whether you get a 1099-K or not, when you start to generate revenue, you should consider this a business. This is true even if you only sell $2,500 of products or tickets on one of the online selling marketplaces. In my view, it's always a best practice to have a separation of church and state. Meaning that you should set up an official LLC or plan to file a Schedule C, set up a separate credit card, and a set up a separate bank account. This way, you can make a demarcation line from your business of selling items online away from the day to day of your personal finances. In general, if your business claims a net loss for too many years (three out of five) or fails to meet other requirements deemed by the IRS then it may be classified as a hobby. If the IRS deems that it is a hobby, then all your business deductions could be disallowed. Being ignorant around the changes in the tax law and telling the IRS you didn't know isn't going to be an appropriate defense if you get audited. If you make any money at all trading collectibles, selling tickets, or living out your side hustle on Etsy, it's important you understand these rules changes for 2024 and the upcoming years in 2025, 2026, and beyond. Hopefully the IRS will never audit you, but if they do you can prepare to have your "tax" ducks all lined up and ready to go!
Yahoo
07-02-2025
- Business
- Yahoo
What is a W-2 form? A starting point for filing your taxes.
If you've ever been an employer or an employee in America, chances are you've filled out, or at least seen, a W-2 form. That's because this form is used by the Internal Revenue Service (IRS) to help estimate tax withholding. If you earned taxable wages or compensation over $600, you should receive a W-2. Employers are required to send them, either through the mail or electronically, by Jan. 31 of the year taxes are due. The IRS refers to Form W-2 as the Wage and Tax Statement. This document summarizes your income for the tax year and tracks the income, Social Security, and Medicare taxes that were withheld. Because a W-2 records the amount of taxes you've already paid, it's an important document to have for completing your federal tax return In addition to reporting how much your employer withheld in payroll taxes, sometimes referred to as FICA taxes, your W-2 provides tax reporting about other compensation such as employer-provided health insurance, retirement and health savings account contributions, dependent care benefits, and more. Your employer must send you and the IRS a W-2 form for tax purposes. Employers who have 10 or more Form W-2s are required to e-file information returns with the IRS. You may hear some confusing jargon about Copy A, B, and C of the W-2 form, but this just refers to duplicates of the same form. Copy A is for your employer to submit to the IRS, Copy B is for you to file with your tax return, and Copy C is tax information for your records. A Copy 2 of your W-2 form may also be included and reflects any state, city, or local income tax withheld. Employers are also responsible for filing a Form W-3 for each of their W-2 employees with the Social Security Administration (SSA) to determine Social Security tax and earned benefits. Although your employer files a W-2 associated with your Social Security number with the IRS, you are also responsible for including a copy with your individual tax return. Read more: How to determine your tax withholding to avoid surprises Staring down a W-2 form and not really sure what you're looking at? With 20 different fields of information, there's plenty to overwhelm the average taxpayer. Here's what you'll find in each box of the current Form W-2 Wage and Tax Statement. On the top of a W-2 form is the employee name, address, and Social Security number. This is listed alongside the employer address and the employer's identification number or the employer's state ID number if applicable. There's also a box for a control number, which refers to a number your employer may have assigned you in their system. Box 1 shows your taxable income, including total wages and other compensation. Box 2 shows your federal income tax withholding for the year. These boxes are all about Social Security, including how much of your income is taxable for Social Security purposes and the amount of Social Security tax withheld. These boxes on the W-2 shows how much of your wages are subject to Medicare tax and the amount of Medicare tax you had withheld. These two boxes are for the extras you might have earned, such as tips, that are subject to Social Security taxes in box 7 and allocated tips in Box 8. The IRS defines allocated tips as 'amounts your employer assigned to you in addition to the tips you reported.' If you don't see anything in Box 9, don't worry. It was a field for a tax credit that no longer exists. Box 10 reports how much you received from your employer in dependent care benefits. Box 11 has some confusing language about nonqualified plans, but this just refers to deferred compensation typically offered to executives. Box 12 shows other types of compensation, such as 401(k) or health savings account contributions. This line is a catchall for information that doesn't fit elsewhere. Box 13 has three smaller boxes for reporting withholdings from an employer-sponsored retirement plan or sick pay. Box 14 is for all the leftovers like state disability insurance, union dues, and health insurance premiums. At the bottom of your W-2 form, there may be additional boxes that reflect state tax information, such as any state income tax or local income tax withholdings. If your state or local government doesn't offer or require automatic withholding, these boxes may be left blank. Read more: Free tax filing: How to file your 2024 return for free If there's a mistake on your W-2, such as an incorrect amount or a misspelled name, point out the error to your employer and ask for a corrected form. It may take time and be a hassle, but if it involves a significant amount or big mistake, the IRS could issue a fine to your employer. It's worth waiting for the corrected form for your own peace of mind as well. If the taxable income on your federal or state return doesn't match what's on your Form W-2, it could trigger an IRS audit. The IRS has instructions for filling out a supplemental form in case you don't get your corrected W-2 before the tax filing deadline. If your W-2 withholdings were more than your tax liability for the year, the IRS will issue you a refund. But if you don't want to wait until tax season to get your own money back next time, work with your employer to correct and adjust your withholdings. Your employer is required to mail your W-2 by Jan. 31, but that doesn't mean you'll receive it by then. Wait until mid-February before you follow up, and check if you have access to a copy online or through your HR department. If you don't have your W-2 form by the end of February and your employer has been unresponsive, you can contact the IRS at 800-829-1040. They'll follow up with your employer and send you a substitute form to fill out so you can complete your taxes. W-2 and W-4 forms are easy to confuse, but a W-2 is a form your employer fills out that reports how much you've made and the amount withheld for federal and state tax purposes. A Form W-4 is one you fill out that tells your employer how much tax to withhold. A W-4, also referred to by the IRS as an Employee's Withholding Certificate, tells the company or small business you work for how much you'd like to have withheld for taxes, depending on your marital status, how many kids you have, and other information. All employees with taxable wages or compensation over $600 should receive a W-2. Some employees may even receive several W-2s if they worked more than one job during the calendar year. The exception to this rule is self-employed taxpayers, such as independent contractors, gig workers, or freelancers. Unless they're defined as statutory employees, these workers receive a Form 1099 instead of a W-2 form. Because they don't have federal income tax withheld, these taxpayers can use the 1099 to calculate their taxable income and estimate any remaining tax obligations. Read more: How do self-employment taxes work? A step-by-step guide While it's your employer's responsibility to file a W-2 (and a W-3) with the IRS and Social Security Administration, you'll also need to file one with your federal and state tax return. The exception is if you made less than $600, in which case the IRS will not require a W-2, but still encourages taxpayers to report the income. Independent contractors and freelancers file Form 1099 instead of Form W-2, which details their taxable income and other compensation for the tax year.
