The information in this article is up to date for tax year 2024 (returns filed in 2025).
Let’s say you’re walking down the street and out the corner of your eye you spot a $100 bill on the ground. Finders keepers, right? Not so fast. Whether you find money or property, the IRS expects you to report your windfall, so they can tax you accordingly. This windfall becomes part of your federal taxable income, which is the portion of your income that is subject to federal income taxes. But their greed doesn’t stop there, check out what other surprising things are taxable.
What is Taxable Income?
Taxable income is the portion of your income that is subject to federal income taxes. It’s what remains after you’ve taken all your deductions and exemptions into account. To get a clear picture of taxable income, it’s crucial to understand the various types of income that fall under this category. Taxable income includes wages, salaries, tips, bonuses, and self-employment income. But it doesn’t stop there. Income from investments, such as interest, dividends, and capital gains, also counts as taxable income. Additionally, if you have rental properties, partnerships, or S corporations, the income derived from these sources is taxable as well. Essentially, taxable income includes wages and much more, making it a broad category that encompasses various income streams. Understanding this can help you better manage your finances and prepare for income taxes.
10 Surprising Things Are Taxable
Social Security Benefits
The average Social Security check for all retired workers is $1,976. Depending on your lifestyle, that may not be enough to cover all the bills. Although the obvious solution is to earn extra income, it can actually end up costing you money. Social Security benefits usually aren’t taxable if it’s your only source of income. While Social Security benefits are generally nontaxable income if they are your only source of income, additional earnings can change this. However, those rules go out the window when additional income is involved. Single filers can be taxed on up to 50% of their benefits if their combined income is between $25,000 and $34,000. Married couples filing a joint return can face the same fate once they earn between $32,000 and $44,000. Up to 85% of your benefits may be taxable if you earn more than those amounts.
Receive Social Security and additional income? Use the formula below to determine if you’ll need to pay taxes on your benefits.
Your adjusted gross income + Nontaxable interest + ½ of your Social Security benefits = Your combined income
Canceled Debt
Sometimes when you’re over your head in debt, a lender will agree to settle for less. If that happens, the Internal Revenue Service (IRS) considers canceled debt as taxable income, even if the money never touches your hands. The IRS expects you to pay taxes on the canceled amount. Even if the cash never touches your hands, the IRS still views it as income. Typically, you’ll receive a Form 1099-C from your lender if the canceled amount exceeds $600. File your taxes fast and easy with ezTaxReturn today!
Unemployment Benefits
Unemployment benefits help countless people keep the lights on while they’re in-between jobs. But, by no means is it free money. It’s taxable income and is subject to income tax, for which you will receive a Form 1099-G to report on your tax return. The simplest way to avoid an unwanted surprise is to request to have taxes withheld from your pay. To do this, complete and submit Form W-4V to the paying agency.
Scholarships
With tuition prices continuing to rise, it’s no surprise that many students rely on scholarships to help foot the bill. However, winning a scholarship may get more than you bargained for. Generally, if your scholarship is used to pay for tuition, enrollment fees and course-related expenses, you’re in the clear. But, if your free ride covers room and board or living expenses, you’ll probably have to pay up.
Gambling Winnings and Prizes
Won money from a scratch off game? You’re not the only one doing a happy dance. When you win, Uncle Sam does too. To calculate taxable income from gambling winnings, you must report the total amount won and subtract any losses, up to the amount of your winnings. It doesn’t matter how you score your windfall, the IRS expects you to pay taxes on cash and non-cash prizes. You’ll receive a Form W2-G if you win:
$600 or more and it’s at least 300 times your wager
$1,200 or more from a bingo game or slot machine
$1,500 or more from a keno game
$5,000 or more from a poker tournament
Any other winnings subject to federal taxes
Illegal Activities
Income from illegal activities is taxable, and you are required to pay tax on it. So, if you earned a living by selling drugs, you must report the income on Schedule 1 (Form 1040), or on Schedule C (Form 1040) if it’s from your self-employment activity.
Jury Duty Pay
As a U.S. citizen, you are obligated to serve jury duty. If you are summoned, you will most likely be paid a daily rate for your time. Any pay you receive must be reported on your tax return. If you had to give the money to your employer because they paid your salary while you served, you can deduct the amount as an adjustment to your income through itemized deductions. Get your biggest possible refund with ezTaxReturn – start filing now!
Bartering
Bartering is when you and another person exchange one good or service for another. When bartering, calculating taxable income involves determining the fair market value of the goods or services received. Although no money is involved, the IRS still expects you to report the fair market value of the items you received.
Stolen Property
Sometimes when people can’t afford to buy what they want, they’ll use a five-finger discount instead. Clothes, jewelry, designer handbags, razors, laundry detergent – nothing is off limits. If you steal property, you must report the fair market value of the item in the year you stole it, unless you return it to the rightful owner the same year.
Unlike income from stolen property, contributing to retirement accounts is a legitimate way to reduce your taxable income.
Royalties and Virtual Currencies
Royalties are another form of taxable income that might surprise you. These are payments you receive for the use of your property, such as copyrights, patents, or natural resources like oil, gas, and minerals. Royalties are considered ordinary income and must be reported on Schedule E (Form 1040 or 1040-SR). On the digital frontier, virtual currencies like Bitcoin and Ethereum are also taxable. The IRS treats these digital assets as property, meaning that any sale or exchange of virtual currencies is considered taxable income. You’ll need to report these transactions on Schedule D (Form 1040 or 1040-SR). Whether you’re earning royalties from a creative work or trading in virtual currencies, it’s essential to recognize these as taxable income to stay compliant with tax laws.
No matter how you earned your income, ezTaxReturn makes filing your taxes fast, easy and stress-free. Started today and get the biggest possible refund, guaranteed!
The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
