If you work for a living, you know that your wages are
taxable, and you're probably aware that some investment income is
taxed, too. But the IRS doesn't stop there.
If you've picked up some extra cash through luck, skill or
criminal activities, there's a good chance you owe taxes on that
money as well. Here are nine things you may not know are
taxable.
Buried Treasure
In February 2013, a northern California couple were walking
their dog on their rural property when they discovered six cans
filled with 19th-century gold coins. The coins, which are being
sold by Kagin's Inc. of Tiburon, Calif. (and are also available
online via Amazon.com), may be worth up to $10 million. The
couple has wisely chosen to stay anonymous, but they won't be
able to hide their good fortune from the IRS. Found property that
was lost or abandoned is taxable at its fair market value in the
first year it's your undisputed possession, the IRS says. That
means the couple will have to pay federal taxes of 39.6% on their
windfall, plus California state tax of up to 13.3%.
The precedent for the IRS's "treasure trove" rule dates back
to 1964, a couple discovered $4,467 in a used piano they had
purchased for $15. The IRS said the couple owed income taxes on
the money, and a U.S. District Court agreed.
SEE ALSO:
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Scholarships
If you receive a scholarship to cover tuition, fees and books,
you don't have to pay taxes on the money. But if your scholarship
also covers room and board, travel and other expenses, that
portion of the award is taxable.
Likewise, students who receive financial aid in exchange for
work, such as serving as a teaching or research assistant, must
pay tax on that money, even if they use the proceeds to pay for
tuition.
SEE ALSO:
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Stolen Property
If you robbed a bank, embezzled money or staged an art heist
last year, the IRS expects you to pay taxes on the proceeds.
"Income from illegal activities, such as money from dealing
illegal drugs, must be included in your income on Form 1040," the
IRS says. Bribes are also taxable, the IRS says.
In reality, few criminals report their ill-gotten gains on
their tax returns. But if you're caught, the feds can add tax
evasion to the list of charges against you. That's what happened
to notorious gangster Al Capone, who served 11 years for tax
evasion. Capone never filed a tax return, the IRS says.
Gambling Winnings
What happens in Vegas doesn't necessarily stay in Vegas.
Gambling income includes (but isn't limited to) winnings from
lotteries, horse races and casinos. The payer is required to
issue you a Form W2-G (which will also be reported to the IRS) if
you win $1,200 or more from bingo or slot machines, $1,500 or
more from keno, more than $5,000 from a poker tournament, or $600
or more at a horse track if it's more than 300 times the amount
of your bet. Even if you don't receive a W2-G, the IRS expects
you to report gambling proceeds on line 21 (other income) of your
1040.
The good news: If you itemize, your gambling losses are
deductible, but only to the extent of the winnings you report as
income. For example, if you won $4,000 last year and had $5,000
in losing bets, your deduction for the losses is limited to
$4,000. You can't deduct the balance against other income or
carry it forward. Report the deduction on Line 28 (other
miscellaneous deductions) on Schedule A.
Olympic Victories
Along with a medal and a bouquet, U.S. athletes who win top
honors at the Olympics get a check from the U.S. Olympic
Committee: $25,000 for gold, $15,000 for silver and $10,000 for
bronze.
That prize money is taxable by the IRS. Athletes who can
demonstrate that their participation in sports is a business can
deduct their expenses--such as travel, training and
equipment--against that income.
SEE ALSO:
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Proceeds From Fantasy Sports
Your winning football (or baseball) team may be imaginary, but
if your brilliant lineup helped you win real money, it's taxable.
If you won $600 or more and played through a commercial Web site,
you should receive a 1099-MISC reporting your earnings. The IRS
will receive a copy of this form, too. Even if you won a private
fantasy league among friends, your winnings are considered
taxable.
The rules for fantasy football fortunes are the same as those
for gambling income. You can deduct your losses (entry fees in
leagues you didn't win) against your gains, as long as they
occurred in the same year.
Payment for Donated Eggs
Every year, thousands of young, healthy women donate their
eggs to infertile couples. Payments for this service generally
range from $5,000 to $10,000, according to Egg Donation Inc., a
company that matches donors with couples. Those payments are
taxable income, according to the IRS. Fertility clinics typically
send donors and the IRS a Form 1099 documenting the payment.
The Nobel Prize
If you were selected for this prestigious honor--worth
$918,000 million in 2015--you must pay taxes on it. Other awards
that recognize your accomplishments, such as the Pulitzer Prize
for journalists, are also taxable. The only way to avoid a tax
hit is to direct the money to a tax-exempt charity before
receiving it. That's what President Obama did when he was awarded
the Nobel Peace Prize in 2009. If you accept the money and then
give it to charity, you probably will have to pay taxes on some
of it because the IRS limits charitable deductions to 50% of your
adjusted gross income.
SEE ALSO:
Most Tax-Friendly States in the U.S.
Gifts from Your Employer
Ordinarily, gifts aren't taxable, even if they're worth a lot
of money. But if your employer gives you a new set of golf clubs
to recognize a job well done (or to persuade you to reject a job
offer from a competitor), you'll probably owe taxes on the value
of your new irons.
More than 50 years ago, the Supreme Court ruled that a gift
from an employer can be excluded from the employee's income if it
was made out of "detached and disinterested generosity." Gifts
that reward an employee for his or her services don't meet that
standard, the court said. Gifts that help promote the company
don't meet that standard, either.