Did you know that the buried treasure you found in your grandparents’ garden is actually taxable? This is just the beginning. You may be surprised to learn that the following 10 items are taxable, whether it’s things you receive, money you earn, or money you don’t have to pay back.
Key points to remember
- When it comes to filing your taxes, the IRS wants to make sure you’re paying your fair share, which means filing some things that may seem surprising.
- Gifts over $16,000, items exchanged in the form of barter, canceled debts, and unemployment income are some of these items.
- Although many of these circumstances are unusual or infrequent, if you are unaware of them, you could end up with back taxes.
1. Some Important Gifts
Generally, a donation must be large enough before the IRS finds out, and donations between certain people or institutions are never taxed, regardless of size. Monetary transfers between spouses, for example, and direct payments to a medical or educational institution are never taxable.
Donations up to a certain value per donee and per year are subject to the annual disqualification. The amount is $16,000 for the 2022 tax year. However, this amount can be increased if the donation is made strategically.
Spouses can each give a gift to the same person, doubling the donation: this means that each can give $16,000, giving together $32,000. Let’s say two parents want to give as much as they can to their child and their child’s spouse. In 2022, parents can give up to $64,000 before the gift tax comes into play. How? One parent can give each half of the young couple a gift of $16,000 and the other parent can do the same (4 x $16,000 = $64,000).
2. Exchanged Items
It may seem like barter wouldn’t be taxable since the money is never exchanged, but that’s not always the case. This depends on the value of the items being exchanged and whether or not those items would normally earn the donor income.
For example, if you and your neighbor take turns watching each other’s dogs while the other person is on vacation, you don’t have to claim it on your taxes because you both got something equal value and neither of you are in the animal shelter. Company. However, if you put in an hour of work in your neighbor’s yard in exchange for your neighbor’s help building your website, which he does for a living, the IRS says you must report the market value service on your tax return.
Alimony or separate maintenance payments are is no longer deductible of the payor spouse’s income, or to be included in the payee spouse’s income, if entered into under a divorce or separation agreement signed after December 31, 2018. These changes have been among the many promulgated under the Tax Cuts and Jobs Act (TCJA). Payments initiated before 2019 are not affected.
4. Canceled loans
In most cases, the money you end up not paying because a loan is canceled must be reported as income, whether it is canceled by a private company, such as a bank, or the federal government. It’s something that a lot of people decide to take advantage of debt settlement are not aware.
In some cases, you are not required to pay tax on a canceled loan, such as a loan canceled by a loved one, which counts as a gift. In addition, the canceled debt may not be taxed if it is part of a bankruptcyinsolvency or principal mortgage debt.
5. Illegal activity
If you are earning income from illegal activity, you technically have to report it. This includes selling drugs or extorting money. This probably has the distinction of being the least followed tax rule in the book.
6. Scholarships and work-study
If you receive a scholarship that pays for anything other than tuition, fees, and books, you must pay taxes on it. Work-study earnings will also be taxed, but not always at the state level.
Scholarship and work-study income may be taxable if the beneficiary meets the income reporting threshold, which in 2021 is $12,550 or less.
7. Unemployment income
The amount of tax you have to pay on your unemployment income depends on the state in which you live. The federal government considers unemployment income taxable income, but not all states do. To minimize the pain at tax time, you can have taxes deducted each time you receive unemployment benefit instead of having to pay them all at once.
If you earn money from the renting of your room or your house for more than 15 days, you must pay taxes on this income. As the personal rental industry continues to grow and gain recognition, expect this rule to be more strictly enforced.
9. Gifts from your boss
If your employer gives you a bonus of $500, it is automatically taxed. But what about other gifts? An engraved name tag doesn’t count, but a season ticket to your local basketball team is another story.
10. Sell gametes
If you donate your eggs to an infertile person, you must pay taxes on the amount you received for them. Sperm donors must also declare any income they receive from donating their sperm.
Chances are you haven’t experienced most of these situations. But you’ve probably encountered at least one, and you never know which tax blunder will lead to a full audit. “I didn’t know” is almost never a valid excuse, and that’s especially true during tax season. Don’t gamble with your financial future just to save a few dollars. Follow the rules and avoid getting on the wrong side of the IRS.
How much is the gift tax?
Gift tax is only triggered on annual donations above a certain amount – $16,000 in 2022. The gift tax rate is based on the size of the taxable gift and ranges from 18% to 40%.
Are unemployment income taxed?
Yes. Unemployment is treated as ordinary income by the federal government. And as of 2021, 11 states tax unemployment income: Colorado, Georgia, Hawaii, Idaho, Kentucky, Minnesota, Mississippi, North Carolina, New York, Rhode Island and South Carolina.
Is alimony tax deductible?
The Tax Cuts and Jobs Act (TCJA) eliminated the tax deduction for child support payments. This applies to divorce agreements signed on or after January 1, 2019.
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