7 things that are surprisingly taxable
If you have a job, you probably know Uncle Sam wants his fair share of the income you earn every year.
But there are lots of other things the Internal Revenue Service considers taxable, from the buried treasure in your backyard to money you’ve earned doing illegal activities. Here are some of the surprising things you might have to declare on your tax return.
Unemployment benefits
Unemployment benefits are considered taxable by the IRS, but the agency is giving taxpayers a break for the 2020 tax year. If your modified adjusted gross income is less than $150,000, you can exclude up to $10,200 of unemployment compensation paid in 2020. Amounts over $10,200 for each individual are still taxable.
In January, your state government should send you a Form MISC 1099-G that includes the amount you received in unemployment benefits for the previous year. Include this amount on your income tax return. If you’re still collecting unemployment in 2021, you can avoid a big tax bill next year by asking your state to withhold taxes from your benefits each week.
Treasure troves
Some people dream of the day they stumble upon buried treasure. “While it’s not very common and may be underreported, buried treasure makes headlines on occasion,” said Leslie Tayne, a debt resolution attorney who’s based in New York.
The good news is that many states have a “finders keepers” rule, which says you won’t need to hand over the booty to authorities. The bad news? You owe taxes on the fair market value of what you’ve found.
Major cash gifts
If Mom, Dad, or anyone else gave you a serious chunk of change last year, the IRS might consider it a taxable event for the generous donor.
“Annually, an individual can gift up to $15,000 to another person without facing any IRS intervention,” Tayne said. But anything more, and the person who gave you the money must file Form 709 to disclose the gift to the tax agency.
This doesn’t mean the money is taxable right away, though. There’s an annual and lifetime limit you can receive as a gift from an individual. Anything that spills over the annual limit gets added to the lifetime gift limit of $11.58 million.
Gambling winnings
If you win money from gambling — anything from the jackpot in a Las Vegas casino to a friendly wager with your fantasy football league — you could owe taxes on the proceeds. The payer may be required to report your earnings on a Form W2-G if you win more than $600. But keep in mind: You owe taxes on your earnings even if you don’t receive a form.
Stolen property or illegal activities
If you robbed a bank, received money as a bribe, or otherwise engaged in illegal activities last year, the IRS expects you to pay taxes on the proceeds.
In reality, few criminals self-report illegal sources of income on their tax returns. But “the IRS will typically find out about income from illegal sources after a person has charges against them for their crimes,” Tayne said.
Law enforcement might not go easy on criminals who confess, though—they may simply add tax evasion to the criminal’s record.
Scholarships
Scholarships for higher education are not considered taxable income as long as you use the money to pay for education expenses like tuition, fees and books. But if you use the scholarship funds to pay for room and board, travel, and living expenses, that portion of the award is taxable.
Bartered goods
Even if no money is exchanged, bartered goods and services are considered taxable by the IRS.
“Much like gambling winnings and buried treasure, the bartering tax is based on the fair market value of the goods or services,” Tayne said. The parties can agree to the fair market value in advance, which can help keep the tax bill down.
However, you won’t owe taxes on informal exchanges, such as carpooling.
Read more information and tips in our Taxes section
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