Benjamin Franklin once said, “In this world nothing can be said to be certain, except death and taxes.”
This statement has turned out to be exceptionally true as you are about to find out. Diego-based tax attorney Sam Brotman says, “”Technically, under Internal Revenue Code Section 62, the IRS can find a way to tax almost every way of receiving money … Even finding $20 on the street would be considered taxable, and the IRS would want their fair share of the money that you receive,”This basically means that any kind of money that arrives to you may be taxable according to him.
Of course most people won’t bother reporting that found $20 bill and the IRS won’t bother coming after them because “the reality of the situation also is that the IRS does not have enough enforcement resources to come after people who forget to declare little items on their return. It would cost them more to come after those people than they would get in tax revenue for the government.”
Despite this, there are still many things that the IRS gets a hold of. Read on and see for yourself.
1) Canceled Debt
Talk about bad news! While you’re struggling financially you’ll find out that achieving something as simple as cancelled debt will already be taxed by the IRS.
According to a Florida-based certified financial planner with Palisades Hudson Financial Group, Anthony Criscuolo, “If you are in financial trouble and are able to negotiate a cancellation of all or a portion of your debt, whether it is a mortgage, credit card or other personal loan (from a friend or family), the amount canceled is considered income to you.”
This means that you’ll have to consult with a tax professional especially if the involved money is significant in the eyes of the law which is approximately any amount exceeding $14,000. Meanwhile, the person who forgave you, if it’s a personal loan, would have to file a gift tax return.
2) Lawsuit Winnings
Let’s say you unfortunately had to go to court for suing someone. You could have settled and won the case giving you lawsuit winnings. This money will be taxed by the IRS. So you won but still you’d have to pay the state.
Tax accountant, Michael Eckstein, who is based in Huntington, New York says, “Unbeknownst to most, legal settlements and awards can be taxable. Their taxability is usually complicated and often depends on the details of a particular case. To oversimplify things, the taxability of compensatory damages depends on what loss the award was meant to make whole, whereas punitive damages are generally taxable.”
3) Gambling Prizes
Winning the lottery, as in the Powerball, is subject to taxes as most of us know. However, all other betting games are taxed as well, even the smallest ones.
Chicago tax attorney with Arnstein & Lehr, Bob McKenzie, says, “”Any gambling wins, including lottery and fantasy sports, are income [however there is a silver lining because] You can deduct your gambling losses against winnings.”
4) Work Rewards
Most of the time having the title of “Employee of the Month” or “Sales Agent of the Year” or “Best Worker of the Decade” entails monetary compensation other than the bragging rights. But you didn’t know is that seemingly virtuous awarding ceremony is also subject to taxes.
Tax and benefits attorney with Ivins, Phillips & Barker in the District of Columbia, Robin Solomon asserts, “”Rewarded for doing good work? Cash awards or bonuses from your employer are taxable. So are vacation trips for meeting sales goals.” But don’t lose hope yet, Solomon also declares, “”An exception applies for non-cash employee achievement awards – such as a gold watch or iPod shuffle – presented for your length of service or safety achievement. These are generally not taxable if valued below $400.”