Prepare for the top unexpected types of taxable income
When Americans think of the word "income," most relate it strictly to earnings from a job or other type of employment position. But when it comes to filing taxes, the IRS has a broader definition of the term, and individuals who are have received funds from certain activities or for non-employment related reasons may be surprised to find that this money is taxable. So to avoid being taken aback during filing season, it's important to be aware of which other types of funds may taxed by Uncle Sam.
With millions of Americans unemployed, some may be dismayed to find that their jobless benefits are 100 percent taxable, as they are still considered income. However, there are a few steps unemployed individuals can take to lower their tax burden. First, they can request that federal income taxes be withheld from their unemployment compensation, according to Bankrate.com. When individuals apply for unemployment compensation, they can have 10 percent of their benefits withheld by filling out the W-4V form, or Voluntary Withholding Request. In addition, adults who are cash-strapped may also consider paying estimated taxes to lower their tax burden when filing season rolls around, the news source suggests.
Divorcees receiving alimony payments may also be surprised to find the funds taxed. However, child support payments are not considered taxable income, so if an ex-spouse is paying both child support and alimony, individuals should know how much money is devoted to each to prepare adequately for tax time.
Many Americans who were hit by tough times may have petitioned to have some of their debt forgiven. And while this solution may have allowed them to escape a dangerous debt situation, the amount of money that a lender forgave will likely reappear during filing season as taxable income. For example, if an individual owed $10,000 on his or her credit card bill and had $4,000 of it forgiven, they will be taxed on that amount during filing season. In some cases, homeowners who have some of their housing debt forgiven may not be forced to pay on it when they file, but there are stipulations that go along with this rule. Individuals who have forgiven mortgage debt should contact their tax preparer to determine whether they will be held accountable at tax time for the discharged amount.
Liberty Tax Service provides computerized income tax preparation and electronic filing. Each tax office offers customers audit assistance, a money back guarantee, and free tax return checking.
About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.
Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.