Miscellaneous Taxable Income
As more tax revenue is sought to alleviate the growing US government budget deficit, the IRS is working to assure reporting of income from all sources-including miscellaneous income. Expanded requirements are in place for reporting of paid amounts on Form 1099. In addition, the IRS requires tax professionals to follow ethical standards for helping taxpayers identify and report all sources of income. Enrolled agent continuing education requirements include an enrolled agent ethics course.
The fiscal deficits of state governments are also leading to increased scrutiny of income by state tax collection agencies. In addition to requirements for California tax preparers to guide taxpayers toward accurate income reporting, other states are initiating registration of tax preparers. Tax continuing education requirements in most of these states is similar to coursework for CA enrolled agents.
Many taxpayers neglect to account for income from miscellaneous sources, such as side jobs, bartered exchanges, gambling, contest winnings, prizes, and awards. Income from all of these sources is taxable. Such income is subject to income tax for US citizens even when earned in another country. It usually incurs state income tax for the state in which it’s earned.
Many types of income from odd jobs are not reported on Form 1099, usually because the amount paid by any single source is less than $600. This includes fees received for babysitting, lawn care, house cleaning, and repair services. All of these amounts are reportable by the recipient as self-employment income. The only exception is for recipients with income that’s too low to require filing a tax return. Ordinary and necessary expenses incurred to generate the income are deductible before calculating the tax liability. Self-employment tax is also assessed on this income.
Even when no money changes hands, income may be reportable. This occurs when property is exchanged for services in a barter arrangement. In such cases, the fair market value of the goods-or services-obtained in the exchange are taxable income.
Gambling winnings are taxable as miscellaneous income. This includes amounts received from casinos and racetracks plus winnings from lotteries, raffles, and tournaments. The full amount received is reported as income. Taxpayers who itemize deductions and have accurate records may deduct gambling losses up to the amount of gambling winnings.
In most cases, an amount received as a prize or award is miscellaneous taxable income. This includes cash prizes and the fair market value of any merchandise or products awarded.
These sources of income can have substantial effects on tax liability. Penalties apply when an insufficient amount of tax liability is paid through either withholding or quarterly estimated tax payments. This requires taxpayers with miscellaneous income to anticipate the tax consequences as well as accurately report final results. Enrolled agent continuing education provides the knowledge to help taxpayers address these matters.