taxes

Good news! Not everything is taxed

Taxes » Income Taxes » Good News! Not Everything Is Taxed

There's not much the Internal Revenue Service doesn't consider taxable income. Of course, there are the standbys: salaries, wages, tips, commissions, interest and dividends, rent on property you lease, and all the money you make from that photography business on the side.

Bartering your services won't help, either. The value of noncash items must be determined and then counted as income.

Nor can you put money in a foreign bank to earn interest out of Uncle Sam's reach. If it's in your name and you can get to it, it's considered income, and the IRS has become really strict about these offshore tax havens in recent years.

And don't think for a minute you can get away with some underhanded ways to make a few extra bucks. The IRS specifically says kickbacks and embezzlement proceeds are taxable, too.

The tax folks don't care if you steal it, as long as they get their piece of the action. Remember, it was the IRS that tripped up Al Capone.

This stuff's going to cost you

Even trying to get a better grip on your finances could cost you at tax time.

Did you negotiate with a lender or other account holder to eliminate some of your debt? While you may no longer have a recurring payment, you'll probably now have to make one to the IRS. In most cases, debt you owe that is canceled or forgiven generally is considered income -- taxable income.

An exception is made for some canceled home mortgage debt under a law that was passed in late 2007. But this provision applies to specific residential loans and only those forgiven during tax years 2007 through 2013. It might be renewed in 2014, but nothing's guaranteed.

Then there are those minimal amounts you get when trying to do the right thing. Fulfill your civic duty as a juror and get a few bucks, and you owe taxes on that pay. Serve as the administrator or executor of an estate, and any stipend you get is taxable.

Efforts you made to reduce one year's tax bill also could come back to bite you if you get what the IRS terms "recoveries." For example, your itemized deductions last year included medical expenses, mortgage interest and real estate taxes. This year, however, your insurance company had a change of heart (or at least policy), and paid you back for some of those expensive tests. In an election-year frenzy, your county government rebated some of your past property tax payments. And your lender discovered it had misapplied some of your payments as mortgage interest when the money really went toward your home's principal. The IRS requires you to include these amounts as income in the year you receive them up to the amount you previously claimed them as a deduction or credit.

Rewards for a job well done could cost you, too. If you get a bonus, it's income. Many fringe benefits, such as a company car or use of a health club, are also included in your income as compensation unless you pay fair market value for them or the law specifically excludes them. Your employer generally must withhold income tax on these benefits from your regular pay.

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