Every tax season comes with us delivering surprises to tax clients. Granted, some of these can be nice ones when people find out they will be receiving money they were not expecting. But some of them are unpleasant when people find they must pay money they were not expecting. Sometimes this happens because people didn’t know that money they received was going to be taxed and did not plan for it. So this week, I just wanted to give a little rundown of some of these types of income.
Of course, probably the biggest is freelance work for which one receives a 1099. This may not always be so much of a surprise, but it can be something that people did not plan for. After all, when you get paid, one can see many places where that money would be helpful that aren’t into an account where it waits for an eventual tax bill. This is also a type of income that an increasing number of people is receiving.
If this is a situation you are still working through and have questions about, I will point you to this recent article, which gives a very good overview. It also has a strong conclusion that warns how easily the IRS can know you made some of this money even if you choose not to report it on your taxes.
Also in the realm of “the new” is virtual currency. The IRS asks about it right on Form 1040. Of course, this is also something that people are dabbling in more and more, many of them for the first time. And if you dabble well, you can make some money from it. As it always does, though, the IRS wants to know about all money that you earn. And with this being such a new area where people do earn, the agency is working to try to find ways to make sure that it is captured and makes it something else that you cannot avoid reporting.
Finally, this is nowhere near as new a concept, but any money received through tips should also be reported on your tax return. Now granted, this is an area that can get a little grayer, because it can be more difficult for others to track money received in cash. But if this is something that is coming to your attention as an area you are not handling well, then the sooner you work on turning that around (instead of just hoping it never catches up to you), the better.
For overall, the better you are at keeping track of all monies you receive – and assume you will be taxed on it – the better handle you will have on your overall situation and the better chance you have at not receiving any bad surprises when tax time comes.
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