5-BIG TAX SUPRISES!

5-BIG TAX SUPRISES!

The tax law is complex, unfair, and difficult for even experts to negotiate. Here are five terrible tax surprises that you might watch out for this spring.

Unemployment benefits

Yes, it’s true. Under tax law, unemployment is considered wage income, and the IRS wants their fair share.

How can you prepare? When you apply for unemployment benefits, consider having federal income tax withheld. This process is similar to regular payroll withholding. Fill out the federal W-4V, Voluntary Withholding Request, or a similar IRS-acceptable document that the paying agency has created. This way, taxes will be withheld from each unemployment payment.

Alimony

If you receive alimony, you will have to pay the IRS tax just like most other forms of income that are taxable.  If you are the one paying alimony, you have better news; alimony is deductible for the ex-spouse paying it.

Alimony, separate maintenance payments and similar compensation from your former spouse are taxable to you in the year you receive them. Child support is not taxable. If your divorce decree calls for alimony and child support and specifies amounts for each, you owe the IRS only for the alimony payments. To avoid a big hit, plan your withholding or estimated tax payments accordingly.

Forgiven debt

Forgiveness of debt is income; IRS will collect tax unless you meet certain exceptions.  This cancelled debt can be in the form of a credit card, car loan, or a mortgage.

If you negotiate your credit card bill down then IRS will tax you on the amount of debt cancelled or forgiven.  The tax law generally considers the amount you get any creditor to write off as earned, and therefore taxable, income to you. Expect the accommodating debt holder to send you a Form 1099-C your discharge of indebtedness as miscellaneous income.

Mortgage debt relief is one of the most common provisions utilized today to get some tax relief from forgiven debt. The forgiven debt amount is limited to up to $2 million or $1 million for a married person filing a separate tax return. The tax relief applies only to mortgage debt discharged by a lender between 2007 and 2013.  The forgiven loan must have been taken out to buy, build or substantially improve a primary residence, not a second or vacation home or rental property.

Prize winnings

Prize winnings are included as “other” income that IRS says is taxable. And it’s not limited to cash awards. You have to pay taxes on the fair market value of any property you win too.

Be careful when reporting the value of a noncash price. In most cases, companies and groups that award prizes, cash and property will send you a 1099 form declaring the value of what you won. If your tax return reports less than what the giver claims, you are inviting an IRS audit.

Gambling Winnings are very common right here in our great state of NEVADA!  Yes, they are taxable. If you play your cards right, there is availability to offset those winnings with the very common losses.

Some Social Security benefits

Yes, Social Security is taxable.  I know you already paid tax on all the income throughout your working years!  I agree!  It is truly one of two common DOUBLE-TAXIATION’s we have in the United States of America!!!

It does take some other income in order to make your Social Security benefits taxable.  If Social Security is your only income, your benefits are not taxable. But if you have other retirement income or investment income than as much as 85% of those government checks could be subject to tax.

Give us a call if you are not sure about your personal income tax situation, we are here to help you with your tax planning and filing needs.