10 Surprising Things That Are Taxable
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10 Surprising Things That Are Taxable

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If you work for a living, you know that your wages are taxable, and you’re probably aware that some investment income is taxed, too. But the IRS doesn’t stop there.

If you’ve picked up some extra cash through luck, skill or criminal activities, there’s a good chance you owe taxes on that money as well. Here are 10 things you may not know are taxable.

SEE ALSO: The Most-Overlooked Tax Breaks and Deductions

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10 Surprising Things That Are Taxable | Slide 2 of 11

Buried Treasure

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If you unearth a cache of gold coins in your backyard or discover sunken treasure while deep-sea diving, the IRS wants a piece of your booty. Found property that was lost or abandoned is taxable at its fair market value in the first year it’s your undisputed possession, the IRS says.

The precedent for the IRS’s “treasure trove” rule dates back to 1964, when a couple discovered $4,467 in a used piano they had purchased for $15. The IRS said the couple owed income taxes on the money, and a U.S. District Court agreed.

SEE ALSO: 18 Red Flags for IRS Auditors

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10 Surprising Things That Are Taxable | Slide 3 of 11

Scholarships

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If you receive a scholarship to cover tuition, fees and books, you don’t have to pay taxes on the money. But if your scholarship also covers room and board, travel and other expenses, that portion of the award is taxable.

Students who receive financial aid in exchange for work, such as serving as a teaching or research assistant, must also pay tax on that money, even if they use the proceeds to pay tuition.

SEE ALSO: 10 Strangest Ways States Tax You (And Don’t)

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10 Surprising Things That Are Taxable | Slide 4 of 11

Stolen Property

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If you robbed a bank, embezzled money or staged an art heist last year, the IRS expects you to pay taxes on the proceeds. “Income from illegal activities, such as money from dealing illegal drugs, must be included in your income,” the IRS says. Bribes are also taxable.

In reality, few criminals report their ill-gotten gains on their tax returns. But if you’re caught, the feds can add tax evasion to the list of charges against you. That’s what happened to notorious gangster Al Capone, who served 11 years for tax evasion. Capone never filed a tax return, the IRS says.

SEE ALSO: 8 Tax Deductions Eliminated (or Reduced) Under the New Tax Law

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10 Surprising Things That Are Taxable | Slide 5 of 11

Gambling Winnings

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What happens in Vegas doesn’t necessarily stay in Vegas. Gambling income includes (but isn’t limited to) winnings from lotteries, horse races, casinos and sports betting. The payer is required to issue you a Form W2-G (which will also be reported to the IRS) if you win $1,200 or more from bingo or slot machines, $1,500 or more from keno, more than $5,000 from a poker tournament, or $600 or more at a horse track if it’s more than 300 times the amount of your bet. Even if you don’t receive a W2-G, the IRS expects you to report your gambling proceeds on your tax return.

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The good news: If you itemize, your gambling losses are deductible, but only to the extent of the winnings you report as income. For example, if you won $4,000 last year and had $5,000 in losing bets, your deduction for the losses is limited to $4,000. You can’t deduct the balance against other income or carry it forward.

Your state may want a bite, too. And there are some interesting variations on state lottery winnings (think Powerball). California exempts state lottery winnings from taxes—as long as you buy your tickets in the state. Maryland and Arizona withhold taxes on lottery winnings from nonresidents, so even if you hailed from no-income-tax New Hampshire, you’d be on the hook.

States are starting to tax sports betting, too. Wagering on sporting events is now legal in eight states, and more than 20 other states are considering legalizing it. If you make a winning bet on the Super Bowl, March Madness or any other sporting event, you’ll have to pay federal taxes on your winnings, and your state may want a cut, too (which is why so many states are eager to get in on the action).

SEE ALSO: Betting on March Madness Is Big Business

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10 Surprising Things That Are Taxable | Slide 6 of 11

Proceeds From Fantasy Sports

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Your winning football (or baseball) team may be imaginary, but if your brilliant lineup helped you win real money, it’s taxable. If you won $600 or more and played through a commercial website, you should receive a 1099-MISC reporting your earnings. The IRS will receive a copy of this form, too. Even if you won a private fantasy league among friends, your winnings are considered taxable.

The rules for fantasy football fortunes are the same as those for gambling income. You can deduct your losses (including entry fees in leagues where you didn’t win) against your gains, as long as they occurred in the same year.

SEE ALSO: Estate-Planning Mistakes Celebrities Made

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10 Surprising Things That Are Taxable | Slide 7 of 11

Payment for Donated Eggs

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Every year, thousands of young, healthy women donate their eggs to infertile couples. Payments for this service generally range from $6,500 to $15,000, according to Egg Donation, Inc., a company that matches donors with couples. Those payments are taxable income, according to the U.S. Tax Court. Fertility clinics typically send donors and the IRS a Form 1099 documenting the payment.

SEE ALSO: 14 Tax Breaks You Won’t Believe Are Real

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10 Surprising Things That Are Taxable | Slide 8 of 11

The Nobel Prize

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If you were selected for this prestigious honor—worth about $995,000 in 2018—you must pay taxes on it.

Other awards that recognize your accomplishments, such as the Pulitzer Prize for journalists, are also taxable. The only way to avoid a tax hit is to direct the money to a tax-exempt charity before receiving it. That’s what President Obama did when he was awarded the Nobel Peace Prize in 2009. If you accept the money and then give it to charity, you probably will have to pay taxes on some of it because the IRS limits charitable deductions to 60% of your adjusted gross income.

SEE ALSO: The Most Tax-Friendly States in the U.S. 2018
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10 Surprising Things That Are Taxable | Slide 9 of 11

Gifts from Your Employer

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Ordinarily, gifts aren’t taxable, even if they’re worth a lot of money. But if your employer gives you a new set of golf clubs to recognize a job well done (or to persuade you to reject a job offer from a competitor), you’ll probably owe taxes on the value of your new irons.

More than 50 years ago, the Supreme Court ruled that a gift from an employer can be excluded from the employee’s income if it was made out of “detached and disinterested generosity.” Gifts that reward an employee for his or her services don’t meet that standard, the court said. Gifts that help promote the company don’t meet that standard, either.

SEE ALSO: Claim These Tax Deductions Even If You Don’t Itemize

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10 Surprising Things That Are Taxable | Slide 10 of 11

Bitcoin

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While you can use bitcoin to purchase a variety of goods and services, the IRS considers bitcoin—along with other cryptocurrencies—to be an asset. If the bitcoin you used to make a purchase is worth more than you paid for it, you’re expected to pay taxes on your profits at capital gains rates—just like stocks and bonds.

If your employer pays you in bitcoin or some other virtual currency, it must be reported on your W-2 form, and you must include the fair market value of the currency in your income. It’s also subject to federal income tax withholding and payroll taxes.

QUIZ: Can You Tell If These Tax Deductions Are Legit?

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10 Surprising Things That Are Taxable | Slide 11 of 11

Bartering

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When you exchange property or services in lieu of cash, the fair market value of the goods and services are fully taxable and must be included as income on Form 1040 for both parties. But an informal exchange of similar services on a noncommercial basis, such as carpooling, is not taxable.

If you exchanged property or services through a barter exchange, you should expect to receive a Form 1099-B (or a similar statement) in the mail. It will show the value of cash, property, services, credits or scrip you received from bartering.

SEE ALSO: Best States for Low Taxes: 50 States Ranked for Taxes, 2018

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