Tax Tip #2: I Owe Tax on That? Part 1

I Owe Tax on That? 5 Surprising Taxable Items. PART 1

Wages and self-employment earnings are taxable, but what about the random cash or financial benefits you receive through other means? If something of value changes hands, you can bet the IRS considers a way to tax it. Here are three taxable items that might surprise you:

1) Scholarships and Financial Aid:
Applying for scholarships and financial aid are top priorities for parents of college-bound children. But be careful — if any part of the award your child receives goes toward anything except tuition, it might be taxable. This could include room, board, books, travel expenses or aid received in exchange for work (e.g., tutoring or research).

Tip: When receiving an award, review the details to determine if any part of it is taxable. Don’t forget to review state rules as well. While most scholarships and aid are tax-free, no one needs a tax surprise.

2) Gambling Winnings:
Hooray! You hit the trifecta for the Kentucky Derby. But guess what? Technically, all gambling winnings are taxable, including casino games, lottery tickets and sports betting. Thankfully, the IRS allows you to deduct your gambling losses (to the extent of winnings) as an itemized deduction, so keep good records.

Tip: Know when the gambling establishment is required to report your winnings. It varies by type of betting. For instance, the filing threshold for winnings from fantasy sports betting and horse racing is $600, while slot machines and bingo are typically $1,200. But beware, the gambling facility and state requirements may lower the limit.

3) Unemployment Compensation:
Congress gave taxpayers a one-year reprieve in 2020 from paying taxes on unemployment income. Unfortunately, this tax break did not get extended for the 2021 tax year. So unless Congress passes a law extending the 2020 tax break, unemployment will once again be taxable starting with your 2021 tax return.

Tip: If you are collecting unemployment, you can either have taxes withheld and receive the net amount or make estimated payments to cover the tax liability.

Items 4 and 5 coming in PART 2!