Bribes, thefts and other taxable income

Employment agency fees. If you get a job through an employment agency and the fee is paid by your employer, the fee is not includible in your income if you are not liable for it. However, if you pay it and your employer reimburses you for it, it is includible in your income. It remains deductible -- but as a miscellaneous itemized deduction subject to the 2% adjusted gross income floor.

Found property. If you find and keep property that does not belong to you that has been lost or abandoned, it is taxable to you at its fair market value in the first year it is your undisputed possession.

Free tour. If you received a free tour from a travel agency for organizing a group of tourists, you must include its value in your income. Report the fair market value of the tour on Form 1040, line 21, if you are not in the trade or business of organizing tours. You cannot deduct your expenses in serving as the voluntary leader of the group at the group's request. If you organize tours as a trade or business, report the tour's value on Schedule C or Schedule C-EZ (.pdf files).

Gambling winnings. You must include your gambling winnings on Form 1040, line 21. If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. This deduction is NOT subject to the 2% adjusted gross income floor.

Lotteries and raffles. Winnings from lotteries and raffles are gambling winnings. In addition to cash winnings, you must include in your income the fair market value of bonds, cars, houses and other noncash prizes.

Gifts and inheritances. Generally, property you receive as a gift, bequest or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited or distributed to you, that income is also taxable to you -- if it is deducted as income by the trust. If the gift, bequest or inheritance is the income from the property, that income is taxable to you.

Hobby losses. Losses from a hobby are not deductible from other income. A hobby is an activity from which you do not expect to make a profit.

If you collect stamps, coins or other items as a hobby for recreation and pleasure, and you sell any of the items, your gain is taxable as a capital gain. However, if you sell items from your collection at a loss, you cannot deduct the loss.

Illegal income. Illegal income, 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.

Jury duty. Jury duty pay you receive must be included in your income on Form 1040, line 21. If you must give the pay to your employer because your employer continues to pay your salary while you serve on the jury, you can deduct the amount turned over to your employer as an adjustment to your income.

Kickbacks. You must include kickbacks, side commissions, push money or similar payments you receive in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040), if from your self-employment activity.

Example: You sell cars and help arrange car insurance for buyers. Insurance brokers pay back part of their commissions to you for referring customers to them. You must include the kickbacks in your income.

Prizes and awards. If you win a prize in a lucky number drawing, television or radio quiz program, beauty contest or other event, you must include it in your income. For example, if you win a $50 prize in a photography contest, you must report this income on Form 1040, line 21. If you refuse to accept a prize, do not include its value in your income.

Prizes and awards in goods or services must be included in your income at their fair market value.

Pulitzer, Nobel and similar prizes. If you were awarded a prize in recognition of accomplishments in religious, charitable, scientific, artistic, educational, literary or civic fields, you generally must include the value of the prize in your income. However, you do not include this prize in your income if you meet all of the following requirements:

• You were selected without any action on your part to enter the contest or proceeding.

• You are not required to perform substantial future services as a condition to receiving the prize or award.

• The prize or award is transferred by the payer directly to a governmental unit or tax-exempt charitable organization as designated by you.

See Publication 525 for more information about the conditions that apply to the transfer.

Rewards. If you receive a reward for providing information, include it in your income.

Video: 3 tips for finding a good tax preparer

Sale of personal items. If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry or silverware, your gain is taxable as a capital gain. Report it on Schedule D (.pdf file). You cannot deduct a loss.

However, if you sold an item you held for investment, such as gold or silver bullion, coins or gems, any gain is taxable as a capital gain, and any loss is deductible as a capital loss.

Example: You sold a painting on an online auction Web site for $100. You bought the painting for $20 at a garage sale years ago. Report your gain as a capital gain on Schedule D.

Stolen property. 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.

Updated Dec. 3, 2009

< previous |  1 | 2 |