7 Most Commonly Overlooked Sources Of Taxable Income
- Social Security Income
Social Security benefits may be non-taxable, or partially taxable. It depends on your total income from other sources. If your sole source of income during the tax year was Social Security, your benefits are probably not taxable. But, if you have other forms of income, including tax-exempt income, it could make your Social Security benefits taxable. If you add half the amount of your Social Security Benefits to all other forms of income, and the total exceeds a ?base? amount, then a portion of your benefits will be taxable. In 2008, the base amount is $25,000 if single, married filing single, or head of household, and $32,000 if married filing jointly.
- Unemployment Compensation
People are always surprised that unemployment compensation is taxable income. This includes any amounts you received under federal or state unemployment compensation laws, state unemployment insurance paid by a state (or District of Columbia) from the Federal Unemployment Trust Fund. If you received unemployment compensation during the year, you should receive IRS Form 1099-G, showing the amount you were paid, and if any taxes were already withheld. If your unemployment benefit payments were made from a private, non-union fund to which you voluntarily contribute are only taxable if you received more money than you put into the fund.
Please note that as a result of passing the American Recovery and Reinvestment Act (ARRA), starting in 2009, the first $2,400 earned in unemployment compensation is excludable as taxable income.
- Gambling Winnings
Gambling winnings are fully taxable and must be reported on your tax return. Gambling winnings include any winnings from lotteries, raffles, horse races, or casinos. Both cash winnings and the fair market value of prizes such as cars and trips are counted as taxable income. If you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must also include it in your income. A payer (such as the casino or track, etc.) is required to issue you an IRS Form W-2G if you receive certain gambling winnings or if your gambling winnings are subject to Federal income tax withholding. All gambling winnings must be reported no matter if any portion is subject to withholding or not.
Please note that you may deduct gambling losses only if you itemize deductions. You may claim your gambling losses as a miscellaneous deduction, however, the amount of losses you deduct may not be more than the amount of gambling income you have reported on your return.
Bonuses or awards from your employer based on work performance are included as taxable income. Money, gift cards, property, or prizes such as a vacation trip all count as ?bonuses?. If the award you receive is a good or service, then you need to include the fair market value in your income. Even holiday bonuses count if your employer gives you cash, a gift certificate, or a similar item that you easily can exchange for cash.
Please note that if you receive personal property (e.g. something other than cash, gift card, or its equivalent) as an award for length of service exceeding five years, the fair market value of the award is less than $1,600, and the award is presented as part of a meaningful presentation, it can generally be excluded as income.
- Punitive Damages
If you were awarded damages for actual monetary losses (due to property damage or medical care for injuries) the funds are generally not taxable. However, if any damages were awarded beyond compensating you for monetary losses, like punitive damages, (usually to punish or make an example of a defendant based on outrageous conduct), interest, emotional distress, injury to reputation etc these are all taxable income.
- Reimbursed Business Expenses
Reimbursed business expenses may be considered taxable income, depending upon whether your employer meets the requirements for an Accountable Plan. To be considered an Accountable Plan, your employer?s reimbursement or allowance arrangement must meet all of the following rules:
Employee paid or incurred expenses that are deductible while performing services as an employee.
Employee adequately accounts for these expenses to employer within a reasonable time period.
Employee returns any excess reimbursement or allowance within a reasonable time period.
If your employer?s reimbursement arrangement does not meet all three requirements, the reimbursements you receive for business expenses should be shown on your W-2, and the payments should be reported as income. You can get this income back by itemizing your deductions and completing IRS Form 2106 with your return.
- Severance Pay
Any type of severance pay or payment on the cancellation of your employment contract is taxable income. This includes a lump-sum payment for accrued vacation or leave time, or back pay awards as the result of a judgment or settlement. If you choose a reduced severance payment in exchanged for your former employer paying for an outplacement service or employment agency, you must include the unreduced severance pay as income.