The April 18 tax filing deadline is approaching rapidly. The closer we get to the deadline, the more likely it is that people make mistakes. One major mistake is failing to declare income sources that you might not know are taxable. There are potentially dozens of unexpectedly taxable sources of revenue, but here are the most common ones.

Canceled Debts

If you owe someone money, and the debt is canceled, forgiven, or defaulted on, then it is considered taxable income to the person who owed the money. This became a serious issue in the aftermath of the financial meltdown, when people were defaulting on their mortgages. This applied not just to people who were walking away from their homes (strategic default), but also, people who were doing "short sales" of their homes, selling them for less than the full amount owed on the mortgage. Lenders were issuing IRS Form 1099-C for the amount of the deficiency, which was often taxable to the former homeowner. But it isn't just defaulted mortgage balances that are taxable. If the debt to a relative is forgiven, it's taxable. So is the amount owed on a credit card or other debt that’s charged off by the lender.

Found Money, a.k.a., Buried Treasure

If you find an antique on the side of the road, and sell it for several thousand dollars, you're supposed to declare that money as taxable income. The money received from the sale of the found item represents a windfall and is therefore recognized as income by the IRS.

Gambling Winnings

Gambling winnings are fully taxable, and you will be issued a 1099 if you win more than $600 at a casino. But a lot of people are not aware that gambling winnings are taxable, in large part because you can also write off gambling losses. But if you have a net gain after your losses, that amount is fully taxable. Technically speaking, this also applies to gambling winnings earned from non-casino gambling, such as card games with your friends or gambling winnings on online.

Municipal Bond Income From Other States

Income from municipal bonds is fully tax-exempt for federal income tax purposes. It is also tax exempt if you live in the state where the bonds are issued. However, if you live in California, and you own municipal bonds issued by the state of New York, interest income on those bonds is fully taxable for California income tax purposes. Only municipal bonds issued within your state of residence are tax exempt from your state’s income tax. Still another point on municipal bonds – even though interest received on municipal bonds is tax exempt for federal tax purposes, any capital gains that you earn from the sale of the bonds is taxable as capital gains income.

Employer or Client Gifts

Most people understand that employer issued bonuses are taxable, as they will be included in your W-2. But non-monetary gifts are also taxable. This can include gift cards or merchandise awarded to you as a result of winning a contest at work, or as a sign of appreciation for a job well done. If you're self-employed, similar gifts from your clients are also taxable.

Employer Provided Services

Discounts that you receive on employer provided services are fully taxable. For example, let's say that you work for an auto repair shop, and your employer charges you only for parts, but not for labor, in connection with the repair of your car. The portion of the repair that would have been paid for labor is taxable.

Game Show Prizes

It can be exciting to watch people win major prizes on TV game shows, but the tax man lurks close behind the fortunate winners. If the prize is something tangible, such as a car, the winner will have to declare the full value of the vehicle as income. Complicating the arrangement is the fact that the prize is a car, and not cash. That means the winner will either have to pay the income tax out of other resources, or be forced to sell the vehicle to pay the taxes.


At least some of the confusion here stems from the fact that child support is generally received on a nontaxable basis. The story is very different with alimony. That's because alimony is not specifically earmarked for the care of children, but actually represents a division of income. The payer of alimony can deduct the payments from his or her taxable income. But the recipient must include the alimony on his or her income tax return as taxable income.

Gifts You Give to Others in Excess of $14,000

What trips people up on this one is that it seems as if the donor of a gift shouldn't have to pay any taxes on it at all – the recipient should. But that's not how the IRS sees it. Under current tax law, you can gift up to $14,000 per person without having to pay tax - gift tax in this case - on the amount of the gift. But if the gift exceeds $14,000, you will have to pay tax on the excess. It’s likely that this tax was implemented as a way to prevent wealthy people from dispersing their estates to their heirs before death, that way they could escape estate taxes. But here we are with the gift tax, as illogical as it seems. Fortunately, there are ways to get around paying the gift tax that are perfectly legal. If you plan to make a gift to any individual of more than $14,000, make sure you discuss the plan with your recipient. 

Unemployment Benefits

Recipients of unemployment benefits often don't realize that they are taxable, and there are a couple of good reasons for this. Years ago, unemployment benefits were not taxed. And it seems to fly in the face of fairness that someone would be taxed on what is essentially insurance payments to cover lost wages for a loss of a job. But taxable it is, and this is why you should opt to have income taxes withheld from your unemployment benefits when you sign up for them. The last thing you need when you are unemployed is an unexpected tax liability when filing your return.

The Bottom Line

If you want to avoid failing to report income that is, in fact, taxable, make sure you keep records of any financial increase that you receive and discuss it with your tax preparer. It may turn out that it's not taxable. But then again, maybe it is.

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