As tax season begins, we share some information about many taxable items that might surprise you. Following are just a few of the more noteworthy items:
One of our favorites is publication 17 of the IRS:
- Illegal activities. Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.
- Insurance proceeds from damaged items. We have had several clients over the last year who have had vehicles or equipment catch on fire or some other casualty has occurred. The client receives insurance proceeds and don’t realize that those proceeds are taxable. Typically, with section 179, the asset has no tax basis and all proceeds would be taxable, unless of course they are buying replacement property for which it can be deferred.
- Personal assets. While not as shocking, it is important to know that personal assets sold at a gain are technically taxable. If you sell a used car for more than what you paid for it… it’s taxable.
The one we find most shocking? *Payments a woman got for agreeing to be faithful to her boyfriend are taxable. After dating for about a year, a couple pledged their fidelity to each other in writing. The agreement required him to pay her $400,000. Later, he accused her of cheating. They broke up, and he sued her. He also filed a 1099-MISC, reporting the payment. A state court found that she defrauded him and required her to repay the $400,000. Still, the Tax Court says she owes tax on the amount (Blagaich, TC Memo. 2016-2).
Davis & Hodgdon Associates CPAs is a full-service public accounting firm with offices in Williston and Rutland Vermont. The firm is a member of Vermont Businesses for Social Responsibility (VBSR), Vermont Business Environmental Partnership (VBEP), Lake Champlain Regional Chamber of Commerce (LCRCC), Vermont Chamber of Commerce, and Women Business Owners Network (WBON). The firm serves its clients by providing progressive, proactive services through expert staff, sophisticated technology, and unparalleled efficiency.
*The Kiplinger Tax Letter, January 25, 2016