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Reporting Other Income

In addition to wages, there are other income sources that a taxpayer is required to report to the IRS. Even employees that get their taxes withheld from their income are required to report money earned from other sources, if any, and pay taxes on it. Income other than wages that need to be reported include:

  • Interest and dividends
  • Tips and commissions
  • Cash earned from side jobs
  • Gambling proceeds
  • Money received from awards, prizes, contests, etc.
  • Barter exchanges of goods or services
  • Found property

Not reporting all income on a tax return can lead to an IRS audit and a potential tax debt. A clear understanding of what to report can help taxpayers in avoiding back taxes.

What to Report

Income earned from any source in any country is taxable and must be reported to the IRS. Generally, the IRS considers all income received as money, property or services to be taxable.
form 1040Capital gains: When you sell your assets and receive money from certain sales, you are required to pay taxes on the any profit. Capital losses can be deducted if certain conditions are met.

Income from self-employment: It is taxable if it’s $600 or more in a year.

Bartering: In the case of an exchange of property or services, the fair market value of the goods and services exchanged is taxed. This amount needs to be included on Form 1040 by both the parties.

Found Property: If you found and kept valuable property, you will need to pay taxes on it at its fair market value.

Gambling: Winnings from lotteries, horse races, raffles, casinos, poker tournaments and similar games of chance are fully taxable. If the winnings are in the form of cars, bikes, trips, etc. the fair market value of the prizes is considered and taxes paid on that amount.

Prizes and awards: The cash value of prizes or awards won in a beauty pageant, drawing competition, quiz show, etc. must be reported and have the correct amount in taxes paid.

Reporting

Taxpayers can use line 21 of Form 1040 to report additional income. Line 21 should not be used to report non-taxable income or income reported on a 1099-MISC.

It is important to include all taxable income. This will ensure that your return will be prepared accurately and reduce the likelihood of a problem with the IRS.