Coming into extra cash unexpectedly is a great feeling, and a lot of individuals use bonus money, lottery winnings or inheritances to pay off debt, give their savings accounts a boost or pay for a vacation or other small luxuries. Many people get a cash windfall each year in the form of a tax refund from Uncle Sam, but in other cases, they might fall into extra income from relatives, settlements or other policies. Although additional funds can help individuals further their financial goals, it's important to note that some forms of income may be considered taxable by the Internal Revenue Service. Knowing the difference between which monetary sums are taxable and which are not can help adults plan ahead.
For example, individuals may receive an inheritance from a relative or loved one when they pass. Typically, any cash or property funds beneficiaries receive as part of an estate is not taxed by the IRS. Although the estate itself may be required to pay taxes, beneficiaries are generally not required to pay on what they receive. However, those who receive an IRA or other retirement account as part of an estate may be required to follow certainÂ rules to avoid being taxed. Because these rules can be complex, absolute and time-sensitive, it's crucial that those who inherit retirement accounts work with a tax preparer to ensure they follow the right processes before taking distributions or making other changes.Â
The same is true for gifts received from friends or family. For the 2013 tax year, the IRS allows individuals to give up to $14,000, or $28,000 for joint filers, in gifts. If this threshold is crossed, it's the person who is gifting items or cash that must pay taxes, not the recipient. This means that if a person receives $30,000 in cash from his or her parents, they will not have to pay anything on that amount. Instead, the gifters will have to pay taxes on the additional $2,000 that surpassed the limit.Â
Gambling and lottery proceeds fall under different tax rules
There are certain types of cash windfalls that are considerable taxable income, such as gambling, lottery, Bingo, prizes and awards. Individuals who win money from slot machines, raffles and casino games will be required to claim this income when they file their income taxes. However, they may also deduct gambling losses on their taxes to lower their liability. For this reason, individuals who gamble frequently should accustom themselves to keeping records of winnings and losses for tax purposes.Â
Liberty Tax Service (NASDAQ: TAX) has prepared over 2 million tax returns in 2012 alone and has over 4,100 offices in the United States and Canada. As the fastest growing tax franchise ever, Liberty Tax's total revenues grew to $109.1 million last tax season. Liberty Tax stands behinds community enrichment efforts by sponsoring various non-profit organizations and urging their employees and franchisees to give back to their communities.
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