Is this taxable?

Most of the questions I receive throughout the year are really asking this one question...Is this taxable?  In this article I will discuss some of the specifics for certain items that seem to come up more frequently than others...





Gambling:

• If you happen to win money while gambling (this includes raffles and lottery winnings) that income is taxable as "other income".  


• Video poker is also a type of gambling wherein your winnings by playing the game should be declared as "other income" and will also be taxable. Online gambling such as video poker and other online casino games are also taxable. It's not true that if you gamble online you don't have to pay its taxes. US Tax Code Section 61(a) states that gross income
  
  means "all income from whatever source derived" and that includes gambling.


• If you happen to lose money while gambling, you are allowed to deduct those losses up to the amount of your winnings, as a miscellaneous itemized deduction.


• If you can prove that your gambling activity was conducted as a "trade or business" your losses (and/or winnings) would be reported on Schedule C (instead of as an itemized deduction for losses), but be careful here....your gambling losses are still limited to the extent of your gambling gains.  Also, you should be very careful when completing your return as a professional gambler as the courts have a hard time envisioning gambling as not being pure recreation. 

Prizes:

• If you win cash (or a cash equivalent like a shopping card or gift certificate) from a drawing or contest it is considered taxable income and must be reported on your return as "other income".


• If you win something that is not cash, like a TV (or car, boat, a trip, etc.) then the fair market value of your winnings needs to be reported on your return as "other income".   You are allowed to report a value lower than the FMV reported on Form 1099 if you can substantiate the lower value.

Finder's Keepers:

• If you happen to find a briefcase full of money and the police was not able to find it's prior owner, the money is yours and it's taxable as other income.


• If you happen to find any non-cash item and the police are not able to find it's prior owner, the item is yours and the FMV is taxable as other income.

Gifts:

• When someone gives you a gift of cash it is NOT taxable to you.


• When someone gives you a non-cash gift, it is NOT taxable to you.


• The sale of a gift may produce a capital gain, which would be taxable.

Inheritances:

• Inheritances are usually not taxable to you.


• Inheritances that would have been taxable income to the decedent is taxable to you.


• Income earned from the inherited property is taxable to you after transfer to you.


• The sale of inherited property may produce a capital gain, which would be taxable to you.

Tax law can change daily, please talk to your tax adviser before making decisions that will affect your taxes.