Do I Have to Report This Income?
Today we're going to play a game called "Do I Have to Report This Income?" It will teach us a little about tax filing requirements and present some interesting situations about what income is taxable and what can be left off a tax return.
When doing taxes, there are a ton of ways to get around reporting income. How can the IRS track cash transactions? Nobody will report a few items you sell online, right?
While it may be easy to hide some money from the government, there can be serious repercussions. If caught, it could cost you a lot more in the long-term. (See also: Top 10 Red Flags That Trigger IRS Audits)
So if you're one of those trustworthy folks and are trying to file your taxes properly, you should be aware of which income you have to report.
Ready to learn what you need to include as income on your taxes? The questions will get increasingly harder, but I think you will catch on fairly quickly.
1. I just received a W-2 from work. It lists all my earnings for the year. Do I have to report this income?
Definitely! Your employer sends one copy to you and sends another one to the IRS. If the amount of income from your employer that you report doesn't line up with the amount your employer reports, it will raise a red flag and you will be more likely to be audited.
2. I made about $6 in one of my savings accounts this year. I also made another $7 in a separate account. Do I have to report this income?
If you earned over $10 in a bank account, you will likely be issued a 1099-INT. However, even if you aren't issued a tax form, you are still responsible for reporting it, no matter how small. You still earned it and are therefore responsible for reporting the income.
3. I just sold a watch on eBay. They took fees out. Do I have to report this income?
While these transactions are a good way to earn some extra cash, you are still earning some income in the process, so you technically have to report it. The fees that eBay takes out are fees for using their service and have nothing to do with taxes.
4. I love my tutoring job; I get paid in cash! Do I have to report this income?
With no W-2 or 1099, there's no paper trail and that means you can just pocket the cash, right? Wrong! You are responsible for keeping your own records. In fact, you may need to make estimated quarterly tax payments! Suddenly, no paper trail really means more responsibility for you!
5. Yay! I just won a prize on a blog! Just a small gift card, but I'm super pumped! Do I have to report this income?
Congrats on your luck, but guess what? You have to count the value of the prize as income. So while you definitely come out ahead, you still have to pay taxes on that gift card. if it's a big prize, you may want to set aside some cash because you'll likely owe the government money come tax time.
By now, I'm sure you've caught on that you need to report all income you earn in any form. Hopefully I've hit on a few situations that most people don't consider, and now you'll be better prepared when filing your taxes in the coming weeks. Good luck!