One thing is certain besides taxes….you probably will want to stay on IRS’s good side! Here are some common items you may come upon this tax season. These are a few terrible tax surprises and how to handle them!
Alimony Collected
Now that you made it through the divorce you will also have to accept the fact that the IRS is going to take some of your alimony.
It is important to know that alimony is completely taxable. Alimony and other similar payments of the type from your former spouse are taxable the year that you receive them. Child support money on the other hand is not taxable.
It is important to make your IRS payments on alimony and other untaxed income via estimated filings so that you will not have a large tax bill in April.
One positive for the person that is writing the alimony check, the check amounts are deductible.
Unemployment Benefits
Unemployment benefits are considered wage income; therefore, the IRS does receive a portion of these benefits.
So that you do not have to pay a big tax bill in April, it is important, that when you apply for unemployment benefits, you select the option to have your federal income taxes withheld. Similar to payroll withholding, you fill out a form called the federal W-4Voluntary Withholding Request, or a like IRS-acceptable form. This way 10% of your benefit amount will be taken out of each unemployment check.
Excused Debt
The IRS still collects from the total amount of debt owed, even if some debt is excused. For example, if you are able to modify your credit card bill from $10,000 to $5,000 you can expect the credit card holder to send you a form called the Form 1099-C or a similar statement. The rest of money owed from the debt will be labeled miscellaneous income and you will be expected to pay it.
It is important to keep in mind that there are certain debts that can be forgiven. The Mortgage Debt Relief of 2007 states that certain homeowners that qualify will be forgiven and will not have to pay taxes on that amount.
Money and Other Prizes Won
Are you lucky? Did you win a $1,000 raffle? Money won as a “prize” is listed on the lengthy list of taxes that needs to be paid.
Regardless of whether you win a monetary amount or any type of non-monetary gift you are expected to pay taxes on it. You must pay taxes on the fair market value of any property that you win. In most cases the company you won from will send you a 1099 form in which you will declare how much you have won.
It is important that you are careful when you report the amount of a non cash property. If you under report you could be subjected to an audit.
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