Typically, your income filing and payment responsibilities are fairly straightforward. The proverbial monkey wrench can appear when you overlook an unusual income source. Make no mistake, though, failing to report all of the money you earn throughout the year can lead to serious trouble.
A common issue with forgetting about certain sources of income is born from inexperience, not negligence. This is particularly true when you consider some of the more unorthodox forms of payment to which you might be entitled. Before you roll up your sleeves to handle your next return, check your list of benefactors, and check it twice.
The Wayward Gambler
You might assume that money won in a poker tournament or at the race track is tax-free, but you'd be wrong to think so. Earnings from games of chance, including the lottery, must be reported on your tax return. And while the threshold for your reporting responsibility is $600 and above, it's a good idea to go ahead and plug in any denomination you bring home – no matter how small. Remember, whoever paid you on your gambling venture will provide the details to the IRS; you definitely want the information you report to match.
Property Found, Income Earned
You've likely heard the random tale of some unwitting citizen stumbling upon an old coin collection, or discovering an antique violin lingering in their attic. Believe it or not, taking possession of such found treasures comes at a price. Specifically, you're liable for paying tax on the appraised value of the prize in question. And while the IRS won't necessarily receive documentation of your find, sudden spikes in income may peak their interest. Avoid having to provide an explanation during an audit by reporting your treasure in a timely fashion.
There's an outside chance that at some point during your lifetime, you'll participate on a gameshow. If you come away a winner, pay close attention to the fine print on any jackpot you sign off for. The IRS requires you to pay taxes on prizes, and not just those paid in cash. Vehicles, goods and vacations all come with a price tag from the federal government. Like gambling, you're expected to report possession of prizes valued at $600 or more.
If you're engaged in illegal activity, you likely have greater concerns than paying your taxes. But if your criminal enterprise creates a windfall, you're responsible for reporting and paying any eventual liability. While it might seem counterintuitive to admit to your participation in illicit dealings on your Form 1040, the IRS expects you to do just that. If you're ultimately caught and prosecuted for your unlawful endeavor, you can face additional trouble for failing to report the resulting income. Just ask Al Capone.
Regardless of how you make your money – and what backlash you experience from failing to report it – you have solutions available to you. This type of tax issue warrants the assistance of a licensed tax professional, who can ensure that you don't pay the ultimate price for your oversight. So, no matter what stage of collection action you're facing, consider consulting with a tax resolution company. Getting the help you need can mean the difference between a protracted row with the IRS and a painless resolution from a seasoned tax professional.