35 Bizarre Things You Can Be Taxed On
Lifted edited and rewritten from an article on the internet, By Carrie Kirby on 19 December 2016
Once the Yuletide log burns out and the New Year’s ball drops, it’s soon time for a less joyful annual tradition: Calculating how much money you owe the Internal Revenue Service. We all know that Uncle Sam takes a share of our earnings, but have you considered other events in the past year that you may owe taxes on? You might be surprised at all the ways Uncle Sam can lighten your wallet.
Note: This is general information. Consult your tax professional for advice on your personal situation.
- You Caught a Baseball
You are the lucky fan who catches a historic home run ball from the outfield bleachers. The not-so-lucky part? The IRS could hold you responsible for the resale value of the ball as soon as it hits your glove – even if you weren’t planning to sell it.
- You Found a Pot of Gold
You finally found the cache at the end of the rainbow. Or maybe you found a stash of rare baseball cards hidden in the wall of your home during a remodel, or a treasure chest while scuba diving in a shipwreck. Under the same regulation that applies to the baseball cards, the treasure trove rule, that windfall is taxable to you the first year that you find it. Sadly, this
means that you may be forced to sell all or part of your find even if you wanted to keep it.
- You Held Up a Liquor Store
It doesn’t matter if you got it illegally: Stolen money or property should be reported, lest a tax evasion charge be added to your legal woes when you get caught. Says the IRS, “If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner.”
- You Accepted Hush Money
The IRS is blunt on this one: “If you receive a bribe, include it in your income.”
- You Dealt in Illegal Goods
If you made money dealing drugs or by any other illegal form of self-employment, the IRS requires you to report it on Schedule C.
- You Hit the Jackpot
Yes, you have to pay taxes on your lottery prize. Yes, if you have been buying lottery tickets all year, you can also deduct the expenses. But you have to keep a diary_ of wins and losses, and the IRS has specific instructions on how to do that.
- You Stuck the Landing and Won Gold
It’s estimated that Michael Phelps will owe $55,000 to the IRS on his Rio winnings – the medals and the cash prizes that come with each are taxable. Many other Rio champions will get off scot free, however. That’s because Congress recently passed a law to exempt Olympians from “victory taxes” – but only for athletes who earn a million dollars a year or less. Phelps earned an estimated $12 million in endorsements alone in 2016, so he doesn’t get that break.
- You Got a MacArthur Genius Grant
It would feel great to win this $625,000 no-strings stipend, or the approximately $1 million that comes with the Nobel Prize. That good feeling won’t protect you from the tax bite, though. You’re required to pay taxes on all such awards – unless you have them directly transferred to a recognized charity. That’s what President Obama did with his 2009 Nobel Peace Prize winnings.
- You Are Gifted
Usually, the presents you unwrap over the holidays come to you tax-free, but there are some exceptions. Cash or a gift card from your boss is taxable as a fringe benefit. A hostess gift you receive as a thank-you for having a sales party in your home is taxable as miscellaneous income. Personal gifts, though, are generally safe from the tax man.
- You Airbnb’d Your Pad
Just like regular rent payments, money you earn by hosting Airbnb guests is counted as part of your gross income. Unlike rent received from your rental house, short-term rental income is treated like a business and subject to regular federal and state income tax, plus Self-Employment tax (approx.15.3% S/E Soc. Sec. & Fica), as well as transit tax, and business licenses. The exception: You don’t have to pay if you live in the home and rent it out for a total of two weeks or less per year.
- You Got Your Social Security Check
It may seem nonsensical that the government pays retirement benefits from a fund you paid into (Fica withholdings) while working, then requires people report the gross amount (including the amount withheld for Medicare premiums) as income and then collecting tax on 50 to 80 percent of those payments, but that’s how it goes. However, SSI, or disability benefits, are generally not taxable.
- You Divorced Well
Alimony you receive from your ex is taxable income, but child support payments are not. For this reason, it’s important to know how payments are categorized in your divorce settlement. Make sure you show your tax professional a copy of your divorce decree.
- You Won a Scholarship
If you win a grant that covers your tuition and books, that’s tax-free. But if it pays for room and board or travel., pay up.
- Your Fantasy Football Team Won the Super Bowl
If you win at least $600 worth of cash and prizes from a business operating a fantasy sports league, they’ll file a 1099-MISC with the IRS. But even if you win less or your league is informal, you are still supposed to pay on your winnings.
- Triple 7s Came Up
Just like with the lottery, the IRS gets a cut of your casino winnings once they surpass the amount you document losing. Usually it’s a flat 25%.
- You Spun the Wheel of Fortune
It’s simple enough to pay the tax if you win a cash prize, but if you win a car or vacation, you still owe tax on its value – which can be tough to pay if you didn’t a/so win cash. Because of this, it’s often wise to take the cash equivalent of a prize if offered.
- Your Debt Was Forgiven
The IRS is very specific about this: If a debt is cancelled as a gift to you – for example, if Grandpa says, “Merry Christmas, you no longer owe me for that time I bailed you out!” – you don’t have to pay taxes, because Grandpa gave you a gift. Otherwise, you do.
- You Traded a Haircut for Cigarettes
This may surprise you, but if you receive goods or services in exchange for services you render, the IRS expects you to include the value of those in your gross taxable income.
- The Boss Lets You Take the Ice Cream Truck Camping
If you drive your company car to work and home, or use it on weekends, this is a taxable employee fringe benefit and you should be tracking and reporting your personal miles to your employer. The value based on the standard mileage rate should be added to your taxable wages.
- Your Bitcoins Doubled in Value
Bitcoin is a virtual currency that is represented by computer code, but it can be used to buy real goods and services. So of course, the IRS considers gains in this or any other virtual currency taxable. It’s considered a capital asset like stocks and bonds, so if you buy Bitcoins low and sell them high, the difference is your profit. But it can be even more complicated
than that: If you create new Bitcoins by mining, you have to count those as income, too.
- You Got a Blogger Freebie
If a widget maker sends you their Super-Widget 2000 to review and you get to keep it, you just received a taxable payment. However, you don’t owe taxes on the market value of the product – just what the company agrees it’s worth. Make sure to put an agreed-upon value in your contract.
- You Sold Stuff on eBay
If you occasionally sell your kids’ outgrown clothes on eBay, you won’t owe taxes because you most likely took a loss on the items. But if you create a resale business on eBay, you better believe you have to report your profits. If you sell something for more than your cost or basis you have taxable income. If you sell it at a loss, it’s a personal loss and generally not deductible.
- You Had a Yard Sale
Like eBay, most yard sale transactions are not income producers, but if you’re one of those people who holds a sale every weekend and resells stuff at a profit, do the right thing. If you sell something for more than your cost or basis you have taxable income. If you sell it at a loss, it’s a personal loss and generally not deductible.
- You’re a Child Entrepreneur
Starting a small business, whether it’s dog walking or selling handmade items, can be a great activity for a tween or teen. But don’t expect them to be IRS-exempt just because they’re kids. If the business earns more than $400, file a tax return.
- You Set Up a GoFundMe Campaign
This is one of those tricky gray areas. If you start a crowdfunding benefit for someone in need, the donations should be considered personal gifts. But if the gifts run into the large numbers, the crowdfunding site may file a 1099, reporting the transaction to the IRS. A word to the wise: If you are setting up a crowdfunding campaign for a needy friend, make sure it’s in their name so you don’t end up wondering if you need to pay taxes on money you handed over to them. And consult with us before going down this route.
- You Asked for Spare Change
The tax code says, all income from whatever source is taxable, unless there is an exception. There are differing opinions out there over whether quarters dropped in a panhandler’s cup are considered earned income or a gift. Gifts you receive from other individuals are generally not taxable to the recipient. Currently you can gift up to $14,000 per year to any one person and not have to file a gift tax return. Since panhandlers tend to live below the poverty line, they probably wouldn’t owe any income taxes, either way. However, if they are in the business of panhandling, or busking, only the first $400 of profit is exempt from Self-Employment (FICA) tax. A more pressing issue for many would be whether the panhandling counts as earned income, qualifying recipients for the earned income tax credit, which could lead to a cash payment from the IRS even if the panhandler pays no taxes. In addition, you cannot deduct as a charitable contribution amounts given to a panhandler, because the majority are not 503(c)3 not for profit organizations. If they are, you need to get a written receipt which includes the charity’s name, address, federal ID number, and a statement regarding their nonprofit status.
- You Received Punitive Damages
Court settlements vary in their tax treatment. If you get a settlement in court to compensate you for a physical injury or emotional distress stemming from an injury, the money isn’t taxable. But if you get paid for emotional distress not tied to an injury, or you receive punitive damages, you have to pay.
- You Cashed in Your Life Insurance Policy
If you die, your beneficiaries probably won’t be taxed on your life insurance portion of the payout, but will be taxed on the earnings (if any). But if you cash it in while you’re alive? Any profit you made on the policy – that is, the value in
excess of premiums paid – is taxable to you.
- Your Champion Pug Had a Litter
Whether you breed your dog as a business or a hobby, money made selling puppies is taxable income. However, it’s also not cheap to breed and raise puppies, so once you deduct stud fees and all those vet bills, you may not actually show a taxable profit for your prized pups.
- You Put on the Red Light
Just like dealing drugs, if you sell your body in a jurisdiction where that’s illegal, you still have to report the income on Schedule C. In fact, smart high-earning prostitutes declare their income to put themselves into the position to buy a house or get credit.
- You Couldn’t Get Out of Jury Duty
If you got $15 for sitting on a jury, that’s taxable income, even if you turn it over to your employer. However, if you did turn it over to your employer, you also can put in a deduction for the same amount on your tax form so your gross income will remain the same.
- You Got a Tax Refund
Last year’s state and federal refunds are taxable in most situations.
- You Exercised Stock Options
This is one that has gotten a lot of tech workers into financial hot water. If your company gives you stock options, that’s not a taxable event. But when you exercise the option by purchasing stock in your employer at a discount, that is a taxable event even if you don’t sell the stock right away. This can go bad if the stock declines in value after you exercise the option, because now you may owe the IRS more money than you can raise by selling the stock.
- Your Landlord Is Paying You to Get Out
In rent-controlled areas with high demand, such as San Francisco, it’s common for landlords to buy tenants out. This is often referred to as a relocation assistance. This is taxable, but whether to treat it as regular income or a capital gain is dicey, so you may need professional help with that one.
- You Are an Undocumented Worker
Despite a common belief that undocumented immigrants don’t contribute to society with tax dollars, anyone working in the U.S. is legally required to pay taxes, papers or not.