Last Minute Tax Tips - These Items ARE Taxable
We’re all honest when we file our taxes. We work, we know that wages are taxable, investment income is
taxable. If you’ve picked up some extra cash through luck, skill or criminal activities, there’s a good chance you owe taxes on that money as well. Here are nine things you may not know are taxable.
1. Remember the couple in California in 2013, walking on rural property when they found six cans filled with 19th-century gold coins? The coins may be worth over $10 million. The couple is anonymous, but not to the IRS. Found property that was lost or abandoned is taxable at its fair market value in the first year it’s in your undisputed possession, the IRS says. That means the couple will have to pay federal taxes of 39.6% on their windfall, plus California state tax of up to 13.3%.
2. If you receive a scholarship to cover tuition, fees and books, you don’t have to pay taxes on the money. But if your scholarship also covers room and board, travel and other expenses, that portion of the award is taxable. Likewise, students who receive financial aid in exchange for work, such as serving as a teaching or research assistant, must pay tax on that money, even if they use the proceeds to pay for tuition.
3. If you robbed a bank, embezzled money or staged an art heist last year, the IRS expects you to pay taxes on the proceeds. “Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040,” the IRS says. Bribes are also taxable, the IRS says. In reality, few criminals report their ill-gotten gains on their tax returns. But if you’re caught, the feds can add tax evasion to the list of charges against you. That’s what happened to notorious gangster Al Capone, who served 11 years for tax evasion. Capone never filed a tax return, the IRS says.
4. What happens in Vegas doesn't necessarily stay in Vegas. Gambling income includes (but isn’t limited to) winnings from lotteries, horse races and casinos. The payer is required to issue you a Form W2-G (which will also be reported 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 at a horse track if it’s more than 300 times the amount of your bet. Even if you don't receive a W2-G, the IRS expects you to report gambling proceeds on line 21 (other income) of your 1040. Your state may want a piece of your action also. And each one is different. The good news is that you don’t have to report the $20 you won on a penny slot!
5. Did you win a medal in the Olympics? Along with a medal and a bouquet, U.S. athletes who win top honors at the Olympics get a check from the U.S. Olympic Committee: $25,000 for gold, $15,000 for silver and $10,000 for bronze. That prize money is taxable by the IRS. Athletes who can demonstrate that their participation in sports is a business can deduct their expenses—such as travel, training and equipment—against that income.
6. Fantasy sports, just like gambling winnings. Your winning football (or baseball) team may be imaginary, but if your brilliant lineup helped you win real money, it’s taxable. If you won $600 or more and played through a commercial Web site, you should receive a 1099-MISC reporting your earnings. The IRS will receive a copy of this form, too. Even if you won a private fantasy league among friends, your winnings are considered taxable.
7. Every year, thousands of young, healthy women donate their eggs to infertile couples. Payments for this service generally range from $5,000 to $10,000, according to Egg Donation Inc., a company that matches donors with couples. Those payments are taxable income, according to the IRS. Fertility clinics typically send donors and the IRS a Form 1099 documenting the payment.
8. The Nobel Prize. You didn’t tell us! Seriously, If you were selected for this prestigious honor—worth $918,000 in 2015—you must pay taxes on it. Other awards that recognize your accomplishments, such as the Pulitzer Prize for journalists, are also taxable. The only way to avoid a tax hit is to direct the money to a tax-exempt charity before receiving it. That's what President Obama did when he was awarded the Nobel Peace Prize in 2009. If you accept the money and then give it to charity, you probably will have to pay taxes on some of it because the IRS limits charitable deductions to 50% of your adjusted gross income.
9. Ordinarily, gifts aren’t taxable, even if they’re worth a lot of money. But if your employer gives you a new set of golf clubs to recognize a job well done (or to persuade you to reject a job offer from a competitor), you’ll probably owe taxes on the value of your new irons. More than 50 years ago, the Supreme Court ruled that 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 his or her services don’t meet that standard, the court said. Gifts that help promote the company don’t meet that standard, either.
Thank you for visiting our blog and reading our latest tips on being a better Roseville Home Insurance or Rocklin Home Insurance consumer!