10 things you won't believe are taxed

Introduction

If you’ve ever filed a tax return, you know that the Internal Revenue Service uses your job and investment-related income to determine your tax assessment. But did you know that you're also expected to pay taxes on your unemployment benefits? Or that jackpot you hit at the casino? Here are 10 taxes that might surprise you—and cost you, if you fail to declare them as income and wind up being audited.

1. Social Security

You may have worked all your life to qualify for Social Security, but the IRS still takes its cut come tax time if you have enough outside income to move past its threshold. If your 2021 taxable income is greater than $25,000 as a single taxpayer, or $32,000 if you're filing jointly, up to 85% of your benefits will be subject to taxation. You can have funds withheld or make estimated tax payments to the IRS quarterly to settle the obligation.

2. Alimony payments

If you’re getting alimony payments, it's the same thing as getting a paycheck to the IRS. You’re supposed to calculate the proceeds along with the rest of your income and pay taxes on it based on your tax bracket, the same as if it came from an employer and not your ex-spouse. Child support payments, however, receive greater protection. The IRS doesn’t touch those.

For divorce settlements entered into after 2018, alimony is no longer taxable income for the recipient and is no longer a deduction for the person who paid it.

3. Major gifts

Don’t worry—you won’t have to pay taxes on that $100 gift card you got for your birthday. If the sum starts getting larger, however, the IRS gets interested. If someone gives you more than $15,000 as of the 2021 tax year, or $30,000 if it's from a married couple—gift taxes might be owed on the overage by the person giving the gift. If the money is designed for a specific purpose, like college tuition, giving the money directly to the institution can help avoid this tax.

4. Scholarships

Many students think scholarships are tax free—and they are, as long as the funds pay for tuition, fees, books and supplies. But some scholarships cover room and board as well, or subsidize travel expenses to attend a conference or other similar activities. Scholarship money used for that purpose is taxable, since it's not directly tied to the classroom.

5. Gambling winnings

You’re not the only one with reason to celebrate that winning bet at the racetrack. Casinos, racetracks and other gambling venues generally must report to the IRS whenever a gambler has winnings that exceed $600, but other rules do apply for certain types of wagers. If you hit it big, then next year the venue will mail you a 1099 form. If you itemize your deductions, you can deduct gambling losses up to the amount of your winnings, but will need to have betting slips or other documentation to prove to any auditor that you’re not always that lucky.

6. Fantasy football

If you’re playing fantasy sports for money, those winnings are treated like any other gambling winnings, according to the IRS. The commissioner of your private league probably won’t send you a 1099, but if you’re playing in an online league for money, that website will. Either way, that’s considered taxable income—so if you brag about your payday on your Facebook page and wind up being audited, that’s something that could come up in the investigation and increase your bill.

7. Found property

Every kid dreams of finding buried treasure in the backyard. If you have that kind of good fortune—whether it’s suitcases of cash in the attic of an old house or a diamond ring in a jar you bought at an antique store—the IRS considers that to be income. Property that comes into your possession after being lost or abandoned is subject to tax at its fair market value the first year it comes into your undisputed possession.

8. Big prizes

If you’re fortunate enough to win a prize based on the quality of your work, that’s taxable income under IRS regulations. This is true whether the prize comes in the form of cash or something else. For example, 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.

9. Debt cancellation

One tax hit that catches some filers unaware is debt cancellation. If you’ve defaulted on credit card debt or reached a settlement to pay less than you owed, that unpaid amount is treated as income. The lender will send you a 1099 for the money, and you will have to include it in your taxable income.

10. Barter

Just because you didn’t get money in exchange for work doesn’t mean you didn’t receive something for it. Barter arrangements also fall under the aegis of the IRS, and you’re supposed to report the fair market value of items you receive. If you trade a luxury watch for having one of your rooms painted, the difference between your basis in the watch—the amount of money you paid for it—and the value of the paint job is considered income.

Remember, with TurboTax, we'll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.

Source: Read Full Article