Know What Types of Income can be Taxed by the IRS
Tax laws are very complex. Individuals can face serious penalties for failing to comply with tax laws in the United States. Certain tax regulations can be very surprising, especially if you are unaware of the tax consequences.
It is important to understand common tax surprises now before you run into them in the future. Different sources of income can play a big role in what you pay in taxes, and failing to claim certain sources of income can result in tax penalties and other consequences.
What different types of income are taxable by the Internal Revenue Service? Listed below are some of the most common types of income that can be taxed by the IRS:
- Unemployment benefits.This is considered wage income and federal income taxes will be withheld from these benefits or you can pay estimated taxes on these benefits to avoid a lump-sum tax when you file taxes.
- Alimony.Alimony received from a former spouse is taxable. It is also important to note that the person paying alimony can deduct these payments on their taxes.
- Debt.Even if a creditor has written off a part of your debt, it is still taxable by the IRS.
- Prize winnings.Prize winnings can include both cash prizes and noncash prizes. This type of income is considered “other” income and is taxable.
- Social Security benefits.If you have other income besides Social Security benefits, your benefits can be taxed up to 85 percent.
Understanding what types of income can be taxed by the IRS can help you in the long run. Due to the complicated nature of tax laws and rules, working with a skilled tax law attorney can help you understand all of your options and make sure you are following tax laws correctly.
