10 Surprising Things That Are Taxable

Wisdom from Sandra Block, Senior Editor with Kiplinger
Focused on You. Dedicated to Your Success.
April 1, 2019

Since we are deep into tax season, I thought it would be fun to share an article entitled 10 Surprising Things That Are Taxable by Sandra Block, Senior Editor with Kiplinger. Although I have spent my entire career in accounting, I am still surprised to learn that some items are taxable. I think you will be as well. Here are the 10 surprising things that are taxable, as well as the reason why according to Kiplinger:

  1. Buried Treasure – Found property that was lost or abandoned is taxable at its fair market value in the first year it’s your undisputed possession.
  2. Scholarships –- If you receive a scholarship to cover tuition, fees and books, you don’t have to pay taxes on the money. But if your scholarship also covers room and board, travel and other expenses, that portion of the award is taxable. Students who receive financial aid in exchange for work, such as serving as a teaching or research assistant, must also pay tax on that money, even if they use the proceeds to pay tuition.
  3. Stolen Property – If you robbed a bank, embezzled money or staged an art heist last year, the IRS expects you to pay taxes on the proceeds. “Income from illegal activities, such as money from dealing illegal drugs, must be included in your income,” the IRS says. Bribes are also taxable.
  4. Gambling Winnings – Gambling income includes (but isn’t limited to) winnings from lotteries, horse races, casinos and sports betting. The payer is required to issue you a Form W2-G (which will also be reported to the IRS) if you win $1,200 or more from bingo or slot machines, $1,500 or more from keno, more than $5,000 from a poker tournament, or $600 or more at a horse track if it’s more than 300 times the amount of your bet. Even if you don’t receive a W2-G, the IRS expects you to report your gambling proceeds on your tax return.
  5. Proceeds from Fantasy Sports – If you won $600 or more and played through a commercial website, you should receive a 1099-MISC reporting your earnings. The IRS will receive a copy of this form, too. Even if you won a private fantasy league among friends, your winnings are considered taxable. The rules for fantasy football fortunes are the same as those for gambling income. You can deduct your losses (including entry fees in leagues where you didn’t win) against your gains, as long as they occurred in the same year.
  6. Payment for Donated Eggs – Payments for this service generally range from $6,500 to $15,000, according to Egg Donation, Inc., a company that matches donors with couples. Those payments are taxable income, according to the U.S. Tax Court. Fertility clinics typically send donors and the IRS a Form 1099 documenting the payment.
  7. The Nobel Prize – If you were selected for this prestigious honor—worth about $995,000 in 2018—you must pay taxes on it. Other awards that recognize your accomplishments, such as the Pulitzer Prize for journalists, are also taxable. The only way to avoid a tax hit is to direct the money to a tax-exempt charity before receiving it. That’s what President Obama did when he was awarded the Nobel Peace Prize in 2009. If you accept the money and then give it to charity, you probably will have to pay taxes on some of it because the IRS limits charitable deductions to 60% of your adjusted gross income.
  8. Gifts from Your Employer – Ordinarily, gifts aren’t taxable, even if they’re worth a lot of money. But if your employer gives you a new set of golf clubs to recognize a job well done (or to persuade you to reject a job offer from a competitor), you’ll probably owe taxes on the value of your new irons. A gift from an employer can be excluded from the employee’s income if it was made out of “detached and disinterested generosity.” Gifts that reward an employee for his or her services don’t meet that standard. Gifts that help promote the company don’t meet that standard, either.
  9. Bitcoin – While you can use bitcoin to purchase a variety of goods and services, the IRS considers bitcoin—along with other cryptocurrencies—to be an asset. If the bitcoin you used to make a purchase is worth more than you paid for it, you’re expected to pay taxes on your profits at capital gains rates—just like stocks and bonds. If your employer pays you in bitcoin or some other virtual currency, it must be reported on your W-2 form, and you must include the fair market value of the currency in your income. It’s also subject to federal income tax withholding and payroll taxes.
  10. Bartering – When you exchange property or services in lieu of cash, the fair market value of the goods and services are fully taxable and must be included as income on Form 1040 for both parties. But an informal exchange of similar services on a noncommercial basis, such as carpooling, is not taxable. If you exchanged property or services through a barter exchange, you should expect to receive a Form 1099-B (or a similar statement) in the mail. It will show the value of cash, property, services, credits or scrip you received from bartering.

Feel free to contact any member of our team if you are not sure if a source of income is taxable at 610-828-1900 (PA) or 732-341-3893 (NJ). You can also contact Jackie Himes, CPA, Director - Tax Services at Jacquelyn.Himes@MCC-CPAs.com or me at Marty.McCarthy@MCC-CPAs.com . We are always here to answer your questions. 

Martin C. McCarthy, CPA, CCIFP
Managing Partner 
McCarthy & Company, PC 

Disclaimer:  This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).