Surprise, Surprise, – These Things Are Taxable Please Be Wise!
Taxes are still complicated. The IRS still wants its fair share of things you receive, cash you earn, or money you don’t have to pay back, and other assets. That means reporting certain surprising items that are taxable like gifts over $15,000, items exchanged as barter, forgiven debts, and gambling winnings. They may be infrequent, but if you aren’t aware of them you could owe back taxes. So if you fail to declare your unemployment benefits, or that casino jackpot as income and wind up being audited, it’s going to cost you.
Avoid being caught off guard this April 15th, make sure you declare these 12 surprising things that are actually taxable on your next tax return:
1. Gifts of more than $15,000. Don’t worry about paying taxes on that $100 gift card you got for your birthday. Generally, a gift has to be fairly large before the IRS takes notice, and gifts between certain people or institutions are never taxed, regardless of size. For example, monetary transfers between a husband and wife and direct payments to a medical or educational institution are never taxable. Monetary gifts over $15,000 (as of 2019) to children are taxable. With proper planning however, Mom and Dad can give up to $60,000 to their married kids before the gift tax kicks in.
2. Gifts from your Employer. Ordinarily, gifts aren’t taxable, but if your employer gives you a new set of golf clubs to recognize a job well done or to keep you from taking another job offer, you’ll probably owe taxes. Ditto if your employer awards you a two-year lease on a car for winning a sales promotion, you will have to declare the value of the lease as income. A gift from an employer can be excluded from the employee’s income if it was made out of “detached and disinterested generosity.” Gifts that reward an employee for their services don’t meet that standard, nor do gifts that help promote the company. So if your employer gives you a $500 bonus, it’s automatically taxed. Suite tickets to a baseball game might be another story, ask your Fuoco Group professional.
3. Bitcoin. The IRS considers bitcoin and other cryptocurrencies an asset. If the bitcoin you used to make a purchase is worth more than you paid for it, you’re expected to pay taxes on your profits at capital gains rates—just like stocks and bonds. If your employer pays you in bitcoin or some other virtual currency, it must be reported on your W-2 form, and you must include the fair market value of the currency in your income. It’s also subject to federal income tax withholding and payroll taxes!
4. Scholarships. If you receive a scholarship that pays for anything other than tuition, fees and books, you have to pay taxes on it. But if your scholarship also covers room and board, travel and other expenses, that portion is taxable. Students who receive financial aid in exchange for work, such as serving as a teaching or research assistant, must also pay tax on that money, even if they use the proceeds to pay tuition. Work-study income may not always be taxable at the state level though.
5. Bartering. When you exchange property or services in lieu of cash, the fair market value of the goods and services are fully taxable and must be included as income for both parties. But an informal exchange of similar services on a noncommercial basis won’t be taxable. If you used a barter exchange, expect to receive a Form 1099 in the mail showing the value of cash, property, services, credits or scrip you received from bartering.
6. Gambling Income. Includes winnings from lotteries, horse races, casinos and sports betting, and even fantasy sports if you are playing for money. Payors are required to issue a Form W2-G, and report to the IRS if you win $1,200 or more from bingo or slot machines, $1,500 or more from keno, more than $5,000 from a poker tournament, or $600 or more from other wagers if your take is more than 300 times the amount of your bet. But even if you don’t receive a W2-G, the IRS expects you to report your gambling proceeds on your tax return. If you itemize, your gambling losses are deductible, but only to the extent of the winnings you report as income. The state you live in may want a piece of the action, too.
7. Cancelled Debt or Forgiven Loans. In most cases, the money you end up not paying because a loan is forgiven has to be reported as income, whether it is by a private company, a bank, or the government. This applies to credit card bills, car loans, mortgages, or any other debt that you owe. This is something many people who decide to take advantage of debt settlement are not aware of. A loan being forgiven by a loved one is considered a gift. Forgiven debt may not be taxed if it is part of a bankruptcy, insolvency or primary mortgage debt. If you do have a debt forgiven, the creditor may send you a Form 1099-C showing the amount of cancelled debt. The IRS will get a copy of the form, too—so don’t think Uncle Sam won’t know about it.
8. Social Security. The IRS will take its cut at tax time if you have enough outside income from a job or investments to move past its threshold. For the 2019 and 2020 tax years, single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If combined income was more than $34,000, you will pay taxes on up to 85% of your Social Security benefits. Remember, taking Social Security benefits while continuing to work may have the unexpected consequence of bumping a taxpayer into a higher tax bracket.
9. Unemployment Income. The federal government counts unemployment income as taxable income. How much tax you pay on unemployment income depends on the state you live in. Have taxes deducted every time you receive an unemployment payment is better than having to pay it all at once.
10. Alimony. For divorces finalized in the 2019 tax year, alimony is no longer taxable income for the recipient and is no longer a deduction for the person who paid it. Otherwise, the old rules still apply…….if your divorce agreement was executed in 2018 or earlier, and you’re receiving alimony payments, to the IRS it’s considered a paycheck from your Ex. Add the proceeds to the rest of your income and pay taxes on it based on your tax bracket. Alimony must be reported on your tax return as income. However, child support payments are protected from tax. The IRS doesn’t touch those.
11. Airbnb. If you earn money from renting out your room or house for more than 15 days, you have to pay taxes on that income. As the personal rental industry continues to grow this rule will be more strictly enforced.
12. Fertility. If you are a woman who offers your eggs to an infertile couple, you have to pay taxes on the amount you received for them. Men must report income they receive from donating sperm.
2. Gifts from your Employer. Ordinarily, gifts aren’t taxable, but if your employer gives you a new set of golf clubs to recognize a job well done or to keep you from taking another job offer, you’ll probably owe taxes. Ditto if your employer awards you a two-year lease on a car for winning a sales promotion, you will have to declare the value of the lease as income. A gift from an employer can be excluded from the employee’s income if it was made out of “detached and disinterested generosity.” Gifts that reward an employee for their services don’t meet that standard, nor do gifts that help promote the company. So if your employer gives you a $500 bonus, it’s automatically taxed. Suite tickets to a baseball game might be another story, ask your Fuoco Group professional.
3. Bitcoin. The IRS considers bitcoin and other cryptocurrencies an asset. If the bitcoin you used to make a purchase is worth more than you paid for it, you’re expected to pay taxes on your profits at capital gains rates—just like stocks and bonds. If your employer pays you in bitcoin or some other virtual currency, it must be reported on your W-2 form, and you must include the fair market value of the currency in your income. It’s also subject to federal income tax withholding and payroll taxes!
4. Scholarships. If you receive a scholarship that pays for anything other than tuition, fees and books, you have to pay taxes on it. But if your scholarship also covers room and board, travel and other expenses, that portion is taxable. Students who receive financial aid in exchange for work, such as serving as a teaching or research assistant, must also pay tax on that money, even if they use the proceeds to pay tuition. Work-study income may not always be taxable at the state level though.
5. Bartering. When you exchange property or services in lieu of cash, the fair market value of the goods and services are fully taxable and must be included as income for both parties. But an informal exchange of similar services on a noncommercial basis won’t be taxable. If you used a barter exchange, expect to receive a Form 1099 in the mail showing the value of cash, property, services, credits or scrip you received from bartering.
6. Gambling Income. Includes winnings from lotteries, horse races, casinos and sports betting, and even fantasy sports if you are playing for money. Payors are required to issue a Form W2-G, and report to the IRS if you win $1,200 or more from bingo or slot machines, $1,500 or more from keno, more than $5,000 from a poker tournament, or $600 or more from other wagers if your take is more than 300 times the amount of your bet. But even if you don’t receive a W2-G, the IRS expects you to report your gambling proceeds on your tax return. If you itemize, your gambling losses are deductible, but only to the extent of the winnings you report as income. The state you live in may want a piece of the action, too.
7. Cancelled Debt or Forgiven Loans. In most cases, the money you end up not paying because a loan is forgiven has to be reported as income, whether it is by a private company, a bank, or the government. This applies to credit card bills, car loans, mortgages, or any other debt that you owe. This is something many people who decide to take advantage of debt settlement are not aware of. A loan being forgiven by a loved one is considered a gift. Forgiven debt may not be taxed if it is part of a bankruptcy, insolvency or primary mortgage debt. If you do have a debt forgiven, the creditor may send you a Form 1099-C showing the amount of cancelled debt. The IRS will get a copy of the form, too—so don’t think Uncle Sam won’t know about it.
8. Social Security. The IRS will take its cut at tax time if you have enough outside income from a job or investments to move past its threshold. For the 2019 and 2020 tax years, single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If combined income was more than $34,000, you will pay taxes on up to 85% of your Social Security benefits. Remember, taking Social Security benefits while continuing to work may have the unexpected consequence of bumping a taxpayer into a higher tax bracket.
9. Unemployment Income. The federal government counts unemployment income as taxable income. How much tax you pay on unemployment income depends on the state you live in. Have taxes deducted every time you receive an unemployment payment is better than having to pay it all at once.
10. Alimony. For divorces finalized in the 2019 tax year, alimony is no longer taxable income for the recipient and is no longer a deduction for the person who paid it. Otherwise, the old rules still apply…….if your divorce agreement was executed in 2018 or earlier, and you’re receiving alimony payments, to the IRS it’s considered a paycheck from your Ex. Add the proceeds to the rest of your income and pay taxes on it based on your tax bracket. Alimony must be reported on your tax return as income. However, child support payments are protected from tax. The IRS doesn’t touch those.
11. Airbnb. If you earn money from renting out your room or house for more than 15 days, you have to pay taxes on that income. As the personal rental industry continues to grow this rule will be more strictly enforced.
12. Fertility. If you are a woman who offers your eggs to an infertile couple, you have to pay taxes on the amount you received for them. Men must report income they receive from donating sperm.
CONTACT US: Don’t fumble your financial future to save a few $$$$. Follow the IRS rules and avoid an Audit. Tax laws change periodically, so you should consult with your Fuoco Group tax professional for the most up-to-date advice. Call toll free 855-534-2727. Offices in Long Island and Westchester, New York, as well as Miami, Fort Lauderdale, and West Palm Beach, Florida.
