Reporting income to the IRS is not always straightforward, as there are various types of income that must be reported on federal tax returns. These include taxable distributions from education savings accounts, awards and recognition, gambling winnings, jury duty payments, and income from rental of personal property. Self-employment income must be reported on a Schedule C. The IRS offers free publications to help taxpayers understand where and how to report each type of income.
Claiming income may seem easy and straightforward when all a person has to list is income from employment. However, individuals may have other types of income that they must report to the Internal Revenue Service on line 21 of their federal tax returns. Depending on the unique set of circumstances, these forms of income may be subject to tax. However, even certain income that could escape tax often must be reported to the IRS. If a person fails to do so, they could face penalties.
Another type of income is taxable distributions from a Coverdell Education Savings Account. Taxable distributions from a qualified tuition program, a health savings account, and the Archer MSA also fall into this category. However, these distributions are not always taxable. They are generally only taxable if the beneficiary’s expenses were less than the distribution amount and were not included in a rollover. Other income from a health savings account may also fall under the category of other income.
Awards and recognition may also count as other income. This includes merchandise prizes won on game shows and cash prizes. As far as gambling is concerned, winnings are considered other income and are subject to tax. Lottery and sweepstakes winnings fit into this category.
Jury dues payments are also classified as other income. Alaska Permanent Fund dividend amounts, alternative trade adjustment payments, reimbursements for certain expenses, and income from certain things a person does without seeking profit. Income from the rental of personal property also counts, as long as the taxpayer does not rent the property as a business. Some types of dividends may also fall under this heading.
Sometimes people are tempted to include income from self-employment as other income, but it must be included on a Schedule C. A person is self-employed if they own their own business and work or provide services in exchange for money. You may also be classified as self-employed if you work for a company, but are classified as an independent contractor. In both cases, the person is responsible for tracking and reporting their own income. However, companies generally provide 1099s for independent contractors who have been paid at least $600 US Dollars (USD) in a fiscal year.
A taxpayer can get confused when trying to figure out where to include each type of income on their tax return. Fortunately, the Internal Revenue Service offers free publications that explain where and how to list each type of income. They can be found online at the IRS website.
Smart Asset.
Protect your devices with Threat Protection by NordVPN