Sometimes things happen that result in income to you, but you don’t know if you have to pay taxes on it in some instances. Do I need to report it on my tax return or not? Here are a few of those items and how they should be treated for taxes.
On Which Income Types Must I Pay Taxes?
- “No 1099, no reportable income, right?” Wrong! If you provide services in the amount of $600 or more for a business, the business is supposed to send you a 1099-MISC. You have to report that or you will get a letter from the IRS. If the business does not send you a 1099-MISC because they neglected to do so or they were not required to do so because you only billed $500 this year, you still have to report that as income.
- Remember the person who sued McDonald’s because the coffee she spilled burned her? The amount of the lawsuit she was awarded for her physical injuries was not reportable income. But if she was awarded extra money for emotional distress not directly related to the physical injuries, she would have to report that extra amount as income. Punitive damages awarded are also taxable.
- What if you sued your employer for not paying you overtime in accordance with the law? If you win that lawsuit, the amount of wages awarded to you is taxable and also subject to social security and medicare tax.
- Do you ever rent out your home for a big event? Here in the Fox Cities we have the Experimental Aircraft Association (EAA) AirVenture event every year drawing thousands to the area; more people than the number of available hotel rooms can accommodate. Some people rent out their homes to attendees for a week or so. In this case, if you rent your home for 14 days or less per year, you do not have to claim that as income. If you receive a 1099-MISC for that rental, you must report it but you can subtract it out and claim no rent because the rental period was for 14 days or less.
- A lawsuit to recover damage done to a personal residence is only taxable if it exceeds the basis in your home. Say you have a $200,000 home, and your neighbors had a garage fire that burned your house down too. If you sued and won for the value of the home which had increased to $225,000 since the time you bought it, you would have a capital gain for the difference of $25,000 which would be reportable on your tax return. If the amount awarded to you for your home value was $190,000 and your basis in the home is $200,000, you would not have to report any income, but you also would not be able to take the difference as a capital loss. It is considered a personal loss without any tax impact.