{"id":7178,"date":"2024-11-02T10:00:26","date_gmt":"2024-11-02T10:00:26","guid":{"rendered":"https:\/\/finderica.com\/the-irs-says-taxable-income-is-most-of-what-you-make\/"},"modified":"2024-11-02T10:00:26","modified_gmt":"2024-11-02T10:00:26","slug":"the-irs-says-taxable-income-is-most-of-what-you-make","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=7178","title":{"rendered":"The IRS Says Taxable Income is Most of What You Make"},"content":{"rendered":"\n
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There are an enormous number of side gigs that could help you earn a little extra cash each month. Whether you want to drive for Uber, deliver groceries, try your hand at freelance graphic design, or even officiate weddings, there have never been more opportunities to work for yourself.<\/p>\n

Come tax season, however, things can get confusing \u2014 especially if you\u2019ve earned income from multiple sources. You might find yourself wondering what income is actually taxable.<\/p>\n

As it turns out, the IRS has pretty much thought of everything. There are a lot of particular rules about what the IRS considers a taxable income source and what it doesn\u2019t \u2014 but, in general, most sources are subject to taxation.<\/p>\n

We chatted with tax experts to tackle this complex question and ease some of the confusion. We then compiled this list of obvious and not-so-obvious taxable income sources you should know about.<\/p>\n

For a full reference of what the IRS considers taxable versus nontaxable income, take a peek at its handy guide explaining all of the applicable tax rules<\/a> for preparing your next return.<\/p>\n

What Does the IRS Actually Consider Taxable Income?<\/b><\/h2>\n

Here are the things you must report to the IRS as taxable income.<\/p>\n

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5 Companies That Send People Money When They\u2019re Asked Nicely<\/h3>\n

When you log into your bank account, how do your savings look? Probably not as good as you\u2019d like.<\/p>\n

It always seems like an uphill battle to build (and keep) a decent amount in savings. But what if your car breaks down, or you have a sudden medical bill?<\/p>\n

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1. Your Salary<\/b><\/h3>\n

This one is the type of income most people are familiar with. If you get a steady paycheck from an employer, you need to report this income to the IRS. Your salary also includes bonuses and commissions.<\/p>\n

Bonuses or cash awards given to employees generally must be included in your income as wages. However, there are certain circumstances where bonuses can be excluded from income depending on how your employer awards them.<\/p>\n

2. Tips<\/b><\/h3>\n

Waitresses, waiters, bartenders and other folks who work for tips must report them as income to the IRS. This includes cash tips.<\/p>\n

\u201cAll income must be reported, even if it\u2019s not deposited into the bank. And yes, the IRS and state (government) have ways of figuring out that there may be unreported income,\u201d said Abby Eisenkraft, an IRS enrolled agent, accredited tax adviser and preparer, retirement planning counselor, and the author of \u201c101 Ways to Stay Off the IRS Radar.\u201d<\/p>\n

According to the IRS website<\/a>, the value of noncash tips including passes, tickets or other valuable items are also considered income and are subject to tax.<\/p>\n

The IRS suggests that employees keep a daily tip record, report tips to your employer, and report all your tips on your income tax return.<\/p>\n

3. Freelance Income<\/b><\/h3>\n

You should treat freelance income just like you\u2019d treat your regular salary. Even if you don\u2019t receive a 1099-MISC from the company you worked for, you still need to report it, according to Eisenkraft.<\/p>\n

Freelancers are responsible for paying regular income tax and a self-employment tax<\/a>. The self-employment tax is currently 15.3% \u2012 12.4% for Social Security and 2.9% for Medicare. These taxes represent taxes businesses normally pay that are usually taken out of employee\u2019s paychecks automatically.<\/p>\n

\u201cAll income gets reported, whether or not a reporting document is received,\u201d Eisenkraft said.<\/p>\n

4. Worldwide Income<\/b><\/h3>\n

Let\u2019s say you live in the United States but earn income from a company based overseas. Even if you don\u2019t receive a W-2 or 1099 from the overseas company, the IRS wants to know about this income. Worldwide Income must be reported to the IRS by filling out Form 2555<\/a>.<\/p>\n

Worldwide Income applies to earned income such as wages and tips as well as unearned income like interest, dividends, capital gains, pensions, rents, and royalties.<\/p>\n

\u201cIf you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S,\u201d according to the IRS website.<\/p>\n

5. Bartering<\/b><\/h3>\n

Bartering doesn\u2019t typically feel like money in your pocket. But if you trade a product or a service for something that has value, the IRS considers this income, said Eisenkraft. The rules and procedures for reporting bartering income depend on the type of bartering that takes place, so if you\u2019re big into making trades, check out the IRS\u2019s Bartering Income page<\/a>.<\/p>\n

One example of taxable bartering would be a plumber exchanging plumbing services for the dental services of a dentist.<\/p>\n

6. Gambling Winnings<\/b><\/h3>\n

Gambling winnings are fully taxable, and you must report them on your tax return,\u00a0according to the IRS<\/a>.<\/p>\n

\u201cGambling income includes but isn\u2019t limited to winnings from lotteries, raffles, horse races and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips,\u201d according to the IRS website.<\/p>\n

The upshot is that you can also deduct your gambling losses (yes, really), which might help offset some of the pain.<\/p>\n

7. Jury Duty Pay<\/b><\/h3>\n

If you served on a jury and got paid for your time, the IRS wants to know how much money you earned. \u201cIf you turn over your jury duty pay to your employer in exchange for continuing to receive salary pay you can deduct that amount,\u201d said Josh Zimmelman, owner of Westwood Tax & Consulting<\/a> in New York.<\/p>\n

A short quiz<\/a> featured on the IRS website will help you determine whether or not your jury duty payment is taxable.<\/p>\n

8. Hobby Income<\/b><\/h3>\n

Even if your love of buying and selling old stuff is just a hobby, you have to tell the IRS<\/a> if you make any money from antiquing (or any other hobby). And, unfortunately, you can no longer deduct your hobby expenses in the process. The same applies to items that you sell or flip online.<\/p>\n

The primary distinction between a business and a hobby is intent<\/i> \u2014 in this case, intent to make a profit. The IRS has a useful list of factors to consider<\/a> when determining if your hobby is actually classified as a business. In either case, though, you need to report your earnings.<\/p>\n

9. Illegal Activity<\/b><\/h3>\n

This one is a head-scratcher. If you earn income from illegal activities, \u201csuch as money from dealing illegal drugs,\u201d\u00a0the IRS says you must report it<\/a>. An honest criminal, perhaps?<\/p>\n

10. Bribes<\/b><\/h3>\n

Speaking of stuff that\u2019s illegal, the IRS also says you must report any bribes you receive as income. There are even separate sections about stolen property and kickbacks \u2014 you need to report these, too.<\/p>\n

An example of a taxable kickback would be if you sell cars and you help arrange car insurance for your buyers in exchange for part of the insurance broker\u2019s commission. This form of bribery is one the IRS says must be included in your tax income.<\/p>\n

11. Canceled Debts<\/b><\/h3>\n

If creditors forgive some or all of your debt, the IRS considers this income. There are some exceptions to this rule, such as debt canceled as a gift or inheritance and student loan debt forgiven under certain programs.<\/p>\n

You can view the full list of exceptions (it\u2019s a long one!)\u00a0on the IRS website<\/a>. Debt forgiveness is a complex topic \u2014 we highly recommend discussing\u00a0 your specific situation with a tax expert.<\/p>\n

\n\t\t\t\t\t\tThe American Rescue Plan made student loan forgiveness tax-free from Dec. 31, 2020, through Dec. 31, 2025. Here\u2019s other important info about taxes on student loan forgiveness.
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12. Prizes and Awards\u00a0<\/b><\/h3>\n

Prizes and awards are also considered taxable income by the IRS. This extends to \u201cif you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income.\u201d For example, if you won a $50 prize for a drawing contest, you would need to report this source of income to the IRS.<\/p>\n

This also extends to prestigious awards won from accomplishments such as a Pulitzer, Nobel, or similar prizes. There is however a list of requirements<\/a> that would exclude you from needing to report this income.<\/p>\n

What Does the IRS Not<\/em> Consider Taxable Income?<\/b><\/h2>\n

Here\u2019s where things start to get interesting. There are also dozens of things the IRS does not<\/i> need you to report as income. Again, it\u2019s a long list, so be sure to visit the\u00a0IRS\u2019s official tax guide<\/a> before filing your taxes.<\/p>\n

1. Olympic Medals and Other Winnings<\/b><\/h3>\n

Olympic and Paralympic medals come with associated prize money. You won\u2019t have to pay income tax on the winnings if you made less than $1 million that year. In the past, athletes were subject to a \u201cvictory tax\u201d on their winnings, but no longer.<\/p>\n

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Getty Images<\/figcaption><\/figure>\n

2. Child Support<\/b><\/h3>\n

Divorce has confusing tax implications. Fortunately, one thing is clear: child support is not considered taxable income<\/a>. This is good news because raising kids is expensive \u2014 every SS Reader helps.<\/p>\n

3. Carpool Money<\/b><\/h3>\n

If you\u2019re a regular driver in a carpool, the IRS does not consider any money you get from your passengers as income, unless you started a legit, for-profit carpooling business. The IRS considers these payments reimbursement for your expenses.<\/p>\n

4. Holocaust Victim Restitution<\/b><\/h3>\n

The IRS does not consider restitution payments to Holocaust victims (or the heirs of victims) taxable income. This also includes European insurance payouts made as a result of World War II.<\/p>\n

5. Holiday Food Gifts<\/b><\/h3>\n

The IRS sees a difference between a Christmas cash bonus and other gifts you might receive from your employer. \u201cIf your employer gives you a turkey, ham or another item of nominal value at Christmas or other holidays, don\u2019t include the value of the gift in your income,\u201d according to the IRS.<\/p>\n

6. Crowdsourced Money<\/b><\/h3>\n

Crowdsourced funds from sites like GoFundMe<\/a> are not considered taxable income by the IRS \u2014 provided a few conditions are met. The money must be given as a gift, with no goods or service provided in exchange, and it must go to an individual, not a business.<\/p>\n

7. Alimony<\/b><\/h3>\n

If you receive alimony (court-ordered payments from one spouse to another) after a divorce, you do not<\/i> have to report it as income,\u00a0according to the IRS<\/a>.<\/p>\n

Our list isn\u2019t exhaustive by any means, but it should give you a good sense of how the IRS views your money. If you\u2019re earning income that we haven\u2019t covered here, be sure to consult with a tax expert or the IRS directly.<\/p>\n

Frequently Asked Questions (FAQs) About Taxable Income<\/b><\/h2>\n

If you\u2019ve got questions about what the IRS considers taxable income, you\u2019re in the right place. We\u2019ve rounded up the most common questions about taxable income below.<\/p>\n

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What Is Considered Taxable Income?<\/p>\n<\/div>\n

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The vast majority of income sources are considered taxable by the IRS. Although there are some exceptions, they\u2019re few and far between, and generally fall into pretty specific categories.\u00a0<\/span><\/p>\n

All of the most common forms of income are taxable:<\/span><\/p>\n