Five Surprising Taxable Items

Wages and self-employment earnings are taxable, but what about the random cash or financial benefits you receive through other means? If something of value changes hands, you can bet the IRS considers a way to tax it. Here are five taxable items that might surprise you:

• Scholarships and financial aid. Applying for scholarships and financial aid are top priorities for parents of college-bound children. But be careful - if any part of the award your child receives goes toward anything except tuition, it might be taxable. This could include room, board, books, travel expenses or aid received in exchange for work (e.g., tutoring or research). Tip: When receiving an award, review the details to determine if any part of it is taxable. Don't forget to review state rules as well. While most scholarships and aid are tax-free, no one needs a tax surprise.
• Gambling winnings. Hooray! You hit the trifecta for the Kentucky Derby. But guess what? Technically, all gambling winnings are taxable, including casino games, lottery tickets and sports betting. Thankfully, the IRS allows you to deduct your gambling losses (to the extent of winnings) as an itemized deduction, so keep good records. Tip: Know when the gambling establishment is required to report your winnings. It varies by type of betting. For instance, the filing threshold for winnings from fantasy sports betting and horse racing is $600, while slot machines and bingo are typically $1,200. But beware, the gambling facility and state requirements may lower the limit.
• Unemployment compensation. Unfortunately the IRS doesn't give you a break on the taxes for unemployment income. Unemployment benefits you receive are taxable. Tip: If you are collecting unemployment, you can either have taxes withheld and receive the net amount or make estimated payments to cover the tax liability.
• Crowdfunding. A popular method to raise money for new ventures or to support a special cause is crowdfunding through websites. Whether or not the funds are taxable depends on two things: your intent for the funds and what the giver receives in return. Generally, funds used for a business purpose are taxable and funds raised to cover a life event (e.g., special causes or medical assistance) are considered a gift and not taxable to the recipient. Tip: Prior to using these online tools to raise money, review the terms and conditions and ask for a tax review of what you are doing. If you need to account for taxes, reserve some of what you raise for this purpose.
• Cryptocurrency. Cryptocurrencies like Bitcoin are considered property by the IRS. So if you use cryptocurrency, you must keep track of the original cost of the coin and its value when you use it. This information is needed so the tax on your gain or loss can be properly calculated. Remember, the tax rate on property can vary if you own the cryptocurrency more than a year, so record all dates. Tip: For those considering replacing cash with things like Bitcoin, you need to understand the gain or loss complications. For this reason, many people using cryptocurrency do so for speculative investment purposes.

When in doubt, it's a good idea to keep accurate records so your tax liability can be correctly calculated and you don't get stuck paying more than what's required. Please call if you have any questions regarding your unique situation.

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.

Ideas to Improve Your Financial Health

No one likes to be blindsided by financial hardship. Listed here are 10 ideas to help ensure your financial situation stays healthy.

• Create a safety net. Plan to have a minimum savings balance to cover at least three months' of expenses (ideally, this should be six to 12 months). If your reserves are light, start saving now. Even if it is a little amount, it can get you on the right track.
• Develop a budget. At least once a year develop a basic budget. Set goals and try to hit them. If this seems overwhelming, start simple. What is coming in and what goes out each month? Becoming aware is the first step to improving your financial health.
• Make your spouse a financial partner. If you die, does your significant other know where everything is? Can he/she pay the bills? Does he know where account numbers are? Does your spouse know who you use to help with things? If not, it is time to start talking.
• Review your beneficiaries. Once a year review beneficiaries on all accounts. This includes retirement accounts as well as names on wills and estate plans. The legal hassle created without this review can be devastating to your surviving family. This is especially important if you had a recent life event (marriage, divorce, birth or death).
• Maximize your benefits. Make sure you review your retirement plans to maximize any employer match in your account. Also review your plan's administrative expenses. If they are too high they can cost you thousands of dollars over your lifetime.
• Create a disaster plan. If your home burned down or was flooded, are your important records easily accessible and protected? If not, consider creating a disaster plan. This may include placing important documents in a safe deposit box in another location than your home.
• Review your credit report. With the recent increase in identity fraud, plan to check your credit with the major credit agencies once a year. The agencies are legally required to make their report available to you annually without charge.
• Review your insurance plans. Periodically look at your health, life, home and liability insurance. With the legal nature of our society, you might consider the need for an umbrella policy to cover against potential litigation. But also consider flood insurance and a replacement value homeowner's policy.
• Manage your debt. Review your use of credit cards, loans, etc. Understand your net worth (assets minus liabilities). Make progress in reducing your debt load starting with the highest interest obligations first. Is your debt lower than it was last year?
• Plan for fun. Just because you are taking steps to improve your financial situation doesn't mean that you can't have fun. Be smart about your entertainment spending. If you are planning a vacation, research money-conscience options and have a budget that fits in with your other financial goals.

This list is by no means complete, but if you focus on the areas mentioned, your financial life will become more planned and less likely to be struck by an unforeseen surprise.

If you have questions, call us at (219) 769-3616 or email them to gward@swartz-retson.com.

IRS Email Scam

IRS Warns of New Impersonation Scam

The Internal Revenue Service (IRS) and its Security Summit have recently issued warnings about a new email impersonation scam that is spreading rapidly across the country.  Taxpayers began notifying the IRS earlier this week about unsolicited emails from imposters, including emails claiming to be sending tax filing reminders. 

The scam emails will contain links to websites that are similar in appearance to the IRS.gov website and that require the taxpayers to login to an account, using a password created by the scammers.  The account claims to have details about the taxpayer’s refund, tax return, and tax account history.  However, the account is actually a link that will infect the user’s computer with malware.  The imposters will use the malware to attempt to gain control of the taxpayer’s computer or secretly download software to track keystrokes.  This tracking can provide the scammer with sensitive information, such as passwords to websites that the taxpayer frequents. 

It is important to remember that the IRS will never contact taxpayers via email, especially regarding tax sensitive information such as refund statuses.  Likewise, the IRS will never initiate contact through text messages or social media channels.  If taxpayers receive a message from the IRS via any of these channels, they should forward the message immediately to the IRS at phishing@irs.gov.  Also, if taxpayers feel they are the recipient of a potential scam, they can call the IRS during business hours to confirm the information they received.    

These scams are similar to others in which imposters will contact taxpayers over the phone and demand immediate payment of taxes using methods such as prepaid debit cards, gift cards, or wire transfers.  Never submit payment via these methods – the IRS will first send taxpayers a bill through the mail before using other methods to collect tax due.    

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.