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

I Owe Tax on That? 5 Surprising Taxable Items. PART 2

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 two more taxable items that might surprise you:

1) Social Security Benefits:
If your income is high enough after you retire, you could owe income taxes on up to 85% of Social Security benefits you receive.

Tip: Consider if delaying when you start collecting Social Security benefits makes sense for you. Waiting to start benefits means you’ll avoid paying taxes on your Social Security benefits for now, plus you’ll get a bigger payment each month you delay until you reach age 70.

2) Alimony:
Prior to 2019, alimony was generally deductible by the person making alimony payments, with the recipient generally required to report alimony payments received as taxable income. Now the situation is flipped: For divorce and separation agreements executed since December 31, 2018, alimony is no longer deductible by the payer and alimony payments received are not reported as income.

Tip: Alimony payments no longer need to be made in cash. Consider having the low-income earning spouse take more retirement assets such as 401(k)s and IRAs in exchange for reduced alimony payments. This arrangement would allow the higher-earning spouse to make alimony payments by transferring retirement funds without paying income taxes on it.

When in doubt, it’s a good idea to keep accurate records so your tax liability can be correctly calculated and you don’t get stuck paying more than what’s required.