The IRS loves to get a fair share of the money you earn by hook or crook even if it is only $20. If you find a $10 on the street and take it, you may have to pay tax to the IRS.
Love it or hate it, you can’t ignore the IRS. If you have received cash through criminal activities, luck, or other skills, there’s a great probability you have to pay tax.
The tax season has begun from January 29, 2018. It’s time to file your income tax returns. So it’s sensible to know about the things you may not know are taxable.
1. Scholarships:
Did you receive a scholarship for buying books and covering tuition fees? If so, then be happy. You don’t have to pay tax. But if your scholarship covers travel, room, and board expenses, then that part of the award is taxable.
Students who receive financial aid for working as a research assistant or a teacher must file tax on that money, even if it is used for covering tuition fees.
2. Stolen properties:
As per the IRS, ‘Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040.’
In most cases, criminals don't report their income from illegal activities. Most of them don’t even file income tax returns. But if the police arrest them, the feds can include tax evasion in the list of alleged charges against them. Al Capone had to serve 11 years since he never filed income tax returns. Know how much you have to pay for tax evasion.
Please note: you have to pay tax on bribes too.
3. Unemployment income:
Irrespective of the state you live in, unemployment income is taxable. It’s best to have tax deducted after you receive the money rather than paying a big amount during tax season.
4. Treasure:
Suppose you find a can full of gold coins on a rural property. Your heart jumps with joy after seeing the glittering gold coins. Lord Jesus has bestowed you with good fortune. Now, nothing can stop you from selling those gold coins and earn $10 million dollars. You’re a millionaire right now.
Stop daydreaming dude. Come back to the real life. The IRS won’t allow you to enjoy wholeheartedly.
You have to pay 39.6% federal tax and state tax on this lost property. For instance, in California, you have to pay 13.3% tax on buried treasure.
Yeah, I know you’re surprised because most people are not aware of this tax rule. But this rule was implemented in 1964 when a couple found $4467 in a used piano purchased for only $15. The IRS claimed that the couple should pay tax and the court agreed.
5. Crowdfunding:
Online funding platforms help to raise money easily. It is easy to fulfill your dreams with the money received from crowdfunding. But the IRS won’t allow you to walk scot-free. You have to fill out the form 1099-K and pay tax when your campaign raises $20,000 or more from 200 people. That’s the general rule. If the money is below $20,000, then also you have to pay tax in one scenario. If you have given any gift to donors, you could owe tax when your expenditures are less than you earned.
6. Donated eggs:
Healthy women donate their eggs to infertile couples and earn between $5000 and $10000 every year. This income is taxable. The fertility clinics send the form 1099 to the IRS and the donor documenting the payment.
7. Gifts from your employer:
Usually, you don’t have to pay tax on gifts even if they’re worth a lot of money. However, if your boss gives you a cash reward or a car for doing a fantastic job or other reasons, you have to pay tax on the monetary value of the item.
If your boss gives you a gift out of disinterested generosity, then it is excluded from your income. But if it’s a reward for your services or promoting the company, then you (the employee) has to pay tax.
8. Gambling income:
Gambling income consists of earning from lotteries, casinos, and horse races. You need to issue the form W-G under the following circumstances:
- You win $5000 from a poker tournament
- You win $1200 from slot machines
- You win $600 at a race course if the amount is 300 times the bet amount
You have to report the gambling income on line 21 of the form 1040.
Fortunately, if you itemize, gambling deductions becomes deductible till you report the winning amount as your income.
For instance, if you earned $6000 last year and lost $7000 in bets, then your deduction amount is capped at $4000.
9. eBay:
Have you sold many items on eBay? Have you made a lot of money? If yes, then you have to pay tax depending on if your eBay dealing is considered as a hobby or a business.
Don’t know if it’s a hobby or a business?
Ask yourself a few questions like:</p>
- Do you spend a huge amount of time working on the hobby?
- Are you financially dependent on the income from your hobby?
- Do you carry out your hobby in the business like manner?
You have to calculate how much profit you made. If you purchased a book at $10 and sold it at $40, then your total profit is $30. You have to pay tax on that. You can get tax deductions for the postage you paid and the travel expenses. If you sold a product at loss, then no need to report it on your income tax returns.
10. Nobel Prize:
If you ever receive the coveted Nobel Prize or the Pulitzer Prize, remember you have to pay tax on it. You can avoid paying tax by donating the money to the tax-exempt charitable organizations. When Obama received Nobel Prize, he donated the money to the charitable organizations for getting tax deductions. The IRS caps charitable deductions at 50% of your adjusted gross income.
11. Bitcoins:
The demand for cryptocurrencies have increased a lot in the last few years. Bitcoins are rampantly used in online transactions and the currency’s value has escalated in the past few years. There are no stringent laws on bitcoins since they are not acknowledged as legal currency except online. However, Bitcoin holders should consider them as investments. If they trade their coins for U.S dollars, then the profit would be taxable.
12. Renting out a home:
Consult a tax professional if you rent out your home or a home through Airbnb. The tax laws are still hazy but if you rent your home for more than 15 days, you have to pay tax on the profit. However, you can deduct maintenance cost, mortgage interest, and utility cost. Some states impose bed tax and occupancy tax as well.
Conclusion
Previously, you had to pay income tax on the alimony received from your ex-spouse. But from January 1, 2019, your income from the alimony won’t be considered as a taxable income. So this is a good news for you if your income is less than your ex-spouse. The high-earner ex-spouse won’t even get tax deductions for paying the alimony.
Victory ax has been eliminated. Previously, athletes had to pay victory tax on the value of their Olympic medals and reward money. But not anymore. That tax has been withdrawn. However, high-profile athletes whose income is higher than $1 million every year have to pay tax when they bring home medals for the country.
