INDIVIDUAL FEDERAL INCOME TAXES
WHAT IS INCLUDED IN GROSS INCOME
MISCELLANEOUS INCOME
UNEMPLOYMENT BENEFITS
All unemployment benefits received by the taxpayer are taxable. They are reported on Form 1099-G. Unemployment benefits from a private or union fund to which you voluntarily contribute dues are taxable as other income but only to the extent the benefits exceed your contributions to the fund. Worker’s compensation payments are not taxable.
GAMBLING WINNINGS AND LOSSES
For the nonprofessional gambler, all winnings must be reported on your tax return. Not only those winnings reported on Form W-2G, but all winnings must be included in income. A Casino print-out should be obtained to show the total winnings.
Gambling losses are reported on Schedule A as an itemized deduction in the miscellaneous deduction section not subject to the 2% floor. Gambling losses are limited to the year’s gambling gains. Only the cost of wagering is treated as a gambling loss. No out-of-pocket costs such as travel, meals and lodging can be deducted as a gambling loss for the nonprofessional gambler.
The question is, how do you prove gambling losses? IRS Revenue Ruling 77- 29 states that the taxpayer should have an accurate diary or similar record regularly maintained by the taxpayer, supplemented by verifiable documentation such as Form W-2G or a Casino print-out. This will usually be acceptable evidence of substantiation of wagering winnings and losses. The diary should contain the following information:
- Date and type of specific wager or wagering activity;
- Name of gambling establishment;
- Address or location of gambling establishment;
- Name of other persons present with taxpayer when gambling;
- Amount won or lost.
LOTTERY AND SWEEPSTAKE WINNINGS
Sweepstake, lottery, and raffle winnings are taxable as other income on your return. The cost of the tickets is deductible only to the extent you report winnings and only if you itemize deductions.
If lottery or sweepstakes winnings or casino jackpots are payable in installments, you pay tax only as installments are received. If upon winning a prize you have an option to choose a discounted lump-sum payment instead of an annuity, and you elect the annuity, you are taxed as the annuity payments are received. Just having the cash option does not make the present value of the annuity taxable in the year you won the prize.
REFUNDS OF STATE AND LOCAL INCOME TAX DEDUCTIONS
A state or local tax refund received in the current year is taxable only if you claimed the tax as an itemized deduction in the prior year and only to the extent that your itemized deductions in that year exceeded the standard deduction you could have claimed. In other words, you had to have received a tax benefit in the prior year by deducting the state or local tax that you received as a refund in the next year.
GIFTS AND INHERITANCES
Gifts and inheritances that you receive are not taxable. However, if you receive distributions taken from an inherited traditional IRA or distributions from inherit6ed qualified plan accounts such as 401(k) and profit sharing plans are taxable, except for amounts attributable to nondeductible contributions made by the deceased account owner.
Income earned from gift and inherited property after you receive it is taxable.
Describing a payment as a gift or inheritance will not necessarily shield it from tax if it is, in fact, a payment for your services.
CANCELED DEBTS
Generally, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount on your tax return. You have no income from the canceled debt if it is intended as a gift to you. A debt includes any indebtedness for which you are liable or which attaches to property you hold. Canceled debt will be reported on Form 1099-C and the amount shown in box 2 is the amount that must be put on your tax return.