Written by Tracy L. Stant September 20, 2022
The IRS defines gross income as “income from any source derived.” This means that we can usually assume that any income is taxable unless tax law specifies otherwise. Regardless, every tax season, Americans across the nation neglect to include income items on their tax return that are, in fact, taxable. Here are our top five examples of taxable income that is commonly overlooked.
Gains on Cryptocurrency Transactions
With the staggering increase in popularity of cryptocurrency trading, more and more Americans have joined in on the investing strategy–and the IRS has not turned a blind eye to the eye-popping gains that have been reported. Issued in 2014, IRS Tax Notice 2014-21 specifies that cryptocurrency, referred to as virtual currency by the IRS, is considered property and that the arising gains from transactions involving this property are taxable.
Babysitting Income
Yes, babysitting. Little Becky providing babysitting services to the neighbors should include her babysitting money on her tax return. The IRS will treat Becky like a childcare provider in this case, which means that her income from babysitting is taxable.
Cash Tips
If I had a dollar for every time a server or bartender told me they did not receive any cash tips during the year. . . Those cash tips that are received by our service industry workers are taxable and should be tracked and reported as taxable income on your tax return.
Services exchange (Bartering)
Imagine the following: you are a barber that is interested in getting a new tattoo. You meet Mike, a reputable tattoo artist. Mike is interested in getting his haircut in exchange for doing your tattoo. Initially, it looks like you and Mike have bypassed any taxable income by exchanging services. Unfortunately, the IRS has thought of this. Services received in exchange for other services are technically considered taxable income.
Renting a Room in Your Personal Home
One may assume that since they are renting a room in their personal home that the resulting income would not be taxed. However, income that is received in exchange for renting a space–even if this space is in your personal home–is considered rental income. Luckily, with this designation you may also be entitled to offset your income with the expenses related to renting out the space to decrease your tax liability. There may also be an exception if the space is rented for less than 15 days out of the year. Please see your tax specialist to learn more about possible exceptions and what related expenses can be used to offset your rental income.
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IRS 26 CFR § 1.61-2
IRS Notice 2014-21