Income Items That Are Taxable

Sources of Taxable Income

Tax Advice

Sources of Income

Having prepared tax returns for over 40 years both professionally and my own, there are several items that many taxpayers over look when considering taxable income.

To add salt to injury, debt forgiveness is a taxable event; you will receive form 1099-C from your creditor for the amount that was canceled. Example you owed $8,000 on your credit card and the credit card company settles for payment of $5,000 leaving $3,000 that will be reported on tax form 1099-C.

This $3,000 amount will be reported on your tax return as ordinary income. If you are in say the 25 percent tax bracket, then 25 % of $3,000 will be your tax liability for that debt forgiveness.

The exception to this rule is debt that is discharged in bankruptcy is not counted as income for both chapter 7 (total insolvency) or chapter 11 (partial forgiveness).

Renting out your home– The IRS considers any short-term rental income taxable if you rent out space for 15 days or more a year. Be aware that you may also owe local taxes such as a bed tax likes hotels.

Employer Perks – Most sizable gifts from your employer are regarded as taxable income, both federal and state. Have you ever watch Under-Cover Boss on TV, those employees that are offered extra money will find that they must report that as income at tax time.

Gambling Winnings – you must report all winnings regardless of the amount minus any losses as taxable income. If you enjoy gambling keep records on both your annual winnings as well as your losses as the net profit will be considered taxable income.

Internal Revenue Service considers all sources of income taxable regardless of the amount unless it is specifically exempted such as tax-free bonds. Tax-free bonds may also be exempt on the state level as well if the bond is local to your state.

 

Financial Quote of the week

In rising financial markets, the world is forever new. The bull or optimist has no eyes for past or present, but only for the future, where streams of revenue play in his imagination.

James Buchan

If in doubt, ask a tax professional for assistance.

Daniel F. Iuculano, AAMS CMFC

Accredited Asset Management Specialist

Chartered Mutual Fund Counselor

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