If you work for a living, you know that your wages are taxable, and you’re probably aware that some investment income is taxable too. But the IRS doesn’t stop there.
If you’ve picked up some extra cash through luck, skill or criminal activities, there’s a good chance you owe taxes on that money as well. To avoid being caught off guard on April 15, take a look at our list of 10 surprising things that are actually taxable.
If you collected any of the income or property on the list, make sure you declare it on your next tax return!
- Scholarship
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.
- Gambling Winnings
What happens in Vegas doesn’t necessarily stay in Vegas. Gambling income includes (but isn’t limited to) winnings from lotteries, horse races, casinos and sports betting (including fantasy sports). 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 from other wagers if your take is more than 300 times the amount of your bet. But even if you don’t receive a W2-G, the IRS expects you to report your gambling proceeds on your tax return.
The good news if you itemize, your gambling losses are deductible, but only to the extent of the winnings you report as income. For example, if you won $4,000 and had $5,000 in losing bets, your deduction for the losses is limited to $4,000. You can’t deduct the balance against other income or carry it forward.
Your state may want a piece of the action, too. Your home state will generally tax all your income (if it has an income tax)—including gambling winnings. But also watch out for a tax bill if you place a winning bet in another state. You won’t be taxed twice, though. The state where you live should give you a tax credit for the taxes you pay to the other state. Also, check to see if your state allows a deduction for gambling losses.
- Cancelled Debt
Don’t get too excited if a credit card company says you don’t have to pay off the rest of your balance. That’s because debt that is cancelled or otherwise discharged for less than the amount you owe is generally treated as taxable income. This applies to credit card bills, car loans, mortgages, or any other debt that you owe. So, for example, if your bank says you don’t have to pay $2,000 of the $6,000 you still owe on a car loan, you have $2,000 of cancellation of debt income that you must report on your next tax return.
There are some exceptions to the general rule, such as for certain student loans, debts discharged in bankruptcy, qualified farm indebtedness and a few other types of debt. Also, in the case of “nonrecourse” debt—i.e., where the lender can repossess any collateral property if you fail to pay, but you’re not personally liable for the unpaid debt—any cancelled debt is not considered taxable income (although you might realize gain or loss from the repossession).
If you do have a debt forgiven, the creditor may send you a Form 1099-C showing the amount of cancelled debt. The IRS will get a copy of the form, too—so don’t think Uncle Sam won’t know about it.
- 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.
More than 50 years ago, the Supreme Court ruled that 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, the court said. Gifts that help promote the company don’t meet that standard, either.
- 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. As the use of cryptocurrency has increased, the IRS has begun to crack down. In 2019, it sent letters to more than 10,000 people who may not have reported transactions in virtual currencies.
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.
- 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.
- Donated Eggs
Every year, thousands of young, healthy women donate their eggs to infertile couples. Payments for this service generally range from $6,500 to $30,000, 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.
- The Nobel Prize
If you were selected for this prestigious honor—worth more than $900,000 in 2019—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.