Have you received income from a side job, part time job, internet business or consulting gig this year? Are you wondering whether or not the income you’ve earned outside of your job needs to be reported on your 2010 income taxes? Don’t assume that just because you do not get a 1099 in the mail you do not have to report the income – the IRS requires that individuals report all income received, regardless of the amount.
Income Less Than $400
It’s a common misconception that income does not need to be reported on an income tax return if it is under $400 for the year. The $400 amount is actually whether or not you are required to pay self-employment tax. If you earn more than $400 in a year, you will pay self-employment tax. If you earn less than $400 in a year with your side job, part time job, internet business or consulting gig – you have to report the income but are not required to pay self-employment tax on it.
Contest and Gambling Winnings
If you gamble and win or receive prizes through contests or game shows, your winnings are supposed to be reported on your income tax return. If you win a prize (other than cash) you are supposed to calculate the fair market value and include it as income.
Did you settle a credit card or other liability for less than the total amount owed? The difference in what you owed and what the company accepted is considered taxable as income and must be reported on your income tax return. Companies that allow you to settle, or forgive a portion of liability owed will send you a 1099-C (Cancelation of Liability) form.
Income Received Through Paypal
Many home based business owners and freelancers use Paypal to process credit cards and receive payments from their customers. In the past, Paypal did not have to report the amount of money each account holder received from their Paypal account. Starting in the tax year 2011, however, Paypal will be required to submit a 1099-K to the IRS which shows how much money each account holder received in their Paypal account.
If you receive a cash gift from a friend or family member, you typically do not have to pay the tax, the donor is responsible for paying the tax. If a special arrangement is made the recipient may agree to the pay the tax instead. The IRS defines a gift as any transfer to an individual, either directly or indirectly, where full consideration is not received in return.
Alimony or Maintenance Payments
If a portion of your income is automatically sent to your ex-spouse in the form of Alimony or Maintenance payments, you must report the amount sent to them as part of your taxable income in the year your ex-spouse receives it.
Childcare Provider and Babysitters
If you take care of other people’s children, whether you do so in your own home or in their home in exchange for money, you must report the money you receive as income. If you are not employed, then the money is considered self-employment income and should be included on a Schedule C for Form 1040 filers, or Schedule C-EZ for Form 1040 filers.