Taxable or Not? How to Handle 5 Types of Income on Your Return

When filing their income tax forms, most Americans rely on the tax forms that they receive from employers or brokerage companies. But in reality, there could be other sources of income that may need to be declared. How can you know what you might need to pay taxes on that isn't put on a Form W-2? Here is what you should know about five of the most common other income sources.

1. Work Benefits. Many benefits through your employer are not taxable income. This is why they are not reported on Form W-2. Tuition reimbursement, for instance, is nontaxable up to a certain limit ($5,250 in 2019). Health insurance and most fringe benefits are also usually handled in a way that makes them nontaxable. If you do reach a threshold for taxation, such as with company-provided life insurance, your employer will generally report this in Form W-2's miscellaneous boxes. 

2. Gifts. Received a large amount of money or an asset (like a car or home) from a friend or relative? Gifts generally aren't taxable to the recipient as it's presumed that the giver has already paid taxes on the money. The gift-giver may need to calculate a gift tax or track the value of their gifts for future estate tax return needs. 

3. Life Insurance. The money paid under a standard life insurance contract upon the passing of the holder is generally not taxable. The exception is if this money was paid directly to the estate. However, if you terminated a whole life insurance policy and received a check for its value that went above and beyond your premium payments, you may have to pay taxes on a portion of it. 

4. Gambling Winnings. Anything you win from gambling — even if you put it all back into the slots subsequently — is considered taxable income. You may be able to deduct your losses, though, so keep your receipts. The gambling institution will generally provide you Form W-2G to declare your winnings. Keep it and provide it during your tax preparation appointment. 

5. Inherited Money. As with life insurance, inheritances generally are not taxed to the receiver. The deceased person's estate was responsible for calculations of any estate tax due and payment of such. Going forward, though, reporting money earned by investing your inheritance will be your responsibility. 

Did you receive money last year from one or more of these sources? You may be either relieved that taxes will not be involved or surprised to find that you must include them. Whichever situation you find yourself in, consult with an experienced tax preparation service like Hammernik Associates to learn more about minimizing your tax bill and enjoying more of your hard-earned money.