- Credit Cards
- Blog Sections
- Personal Loans
- Credit Center
One question that comes up during tax time is this: Do I have to report that income? In most cases, the answer is yes. For most types of income, you are required to report what you make to the IRS. You might even be surprised at what income you are expected to pay taxes on.
Reporting Side Income
You are expected to report side income that you earn from a business – even if you aren’t an “official” business. If you have been acting as a contractor, you probably received a 1099-MISC. You probably won’t receive a 1099-MISC unless you have been paid at least $600 in a year by one client or customer. However, the IRS still expects you to report your income. Some believe that you don’t have to report income under $400 a year, but the truth is that you do have to report it; you just don’t have to pay self-employment tax on income that is less than that amount.
If your side income comes from selling items online, you might also have to report your income. The key, though, is that you report your income if you are making profits. If you are selling old items from your attic, chances are you aren’t making anything – especially if you sell for less than you paid. However, if you are selling items for more than you paid, that is income that should be reported.
You can offset your business earnings with expenses, though. When you report your income, you also list your expenses, and that offsets what you make, so you aren’t paying taxes on your gross income. You can ease the burden by paying quarterly estimated taxes, rather than waiting to pay all at once. Besides, if your tax bill is too high, the IRS might charge you interest for not making quarterly payments.
Other Income that You Report and Pay Taxes On
There are other types of income that you are expected to pay taxes on. Investment income, held in accounts outside of tax-advantaged accounts, should be reported. When you sell investments, you report the gains and losses, and pay taxes on the gains. Dividend income is also reported and taxed. Even if the dividends are reinvested, as with DRIPs, you still report it, and pay taxes – even though you don’t have the cash in hand.
Another type of income that you are required to report is loan forgiveness. If part of your mortgage is forgiven, or if some other debt is forgiven, the amount forgiven is considered income. So, even though you don’t have the money, it is still added to your income, and you pay taxes on it.
Finally, you are also expected to pay taxes on unemployment income and might have to pay taxes on Social Security benefits. When you receive unemployment benefits, you are taxed on the amount that you receive. The income is reported, and considered taxable. You might also have to pay taxes on some of the Social Security benefits you receive. The IRS has a formula for determining whether or not you are required to pay taxes on your Social Security benefits.
This guest post is from Pinyo Bhulipongsanon, the owner of Moolanomy Personal Finance and an entrepreneur with over 20 years of business experience. He is interested in business management, investing and wealth management. He has written for many online publications, including American Express Currency and U.S. News Money.
You May Also Like:
- Retail Tracking and Credit Card Data Mining … You’re Being Watched
- Americans Renouncing their Citizenship for Greater Freedoms Abroad
- Five Credit Card Mistakes That Should Make You Lose Sleep
- Bank of America Shoots Itself in the Foot…
- Student Loan Crisis Becomes a Potential Credit Crisis for Borrowers
Tagged with: Personal Finance Blog
Articles by Category