All are aware of the traditional income sources like employee wages and business profits that must be reported to the IRS as taxable income. However, there are several other activities and transactions that the IRS classifies as potentially taxable. It is important to consider all of these “taxable events” when you prepare your returns.
Some of the most commonly overlooked taxable events include:
1) Investment income, including receiving stock dividends or cashing in bonds
2) Converting a traditional IRA to a Roth IRA
3) Forgiveness (discharge) of a loan or other debt, including student loans
4) Sale of assets such as vehicles, musical instruments, or a home at a gain (that is, for more than you paid to purchase the assets)
5) Sale or exchange of cryptocurrency (like Bitcoin), or making purchases with cryptocurrency
6) Withdrawing funds from a retirement plan (or from the cash value of a life insurance policy if you withdraw more than you have paid in premiums)
7) Gifts and inheritances
An experienced tax professional can advise you about which events in your life may have tax implications, and how to properly report those events. For example, in some cases, you may only need to declare the event to the IRS if the amount of money involved exceeds a minimum threshold, known as an “exclusion.”
Feel free to contact me for any help needed.