Five Things You Never Knew You Owed Taxes On – And What You Can Do To Conquer Them

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Just when you started to get the hang of taxes, each year filing the same way and logging your deductions like a good little taxpayer, the IRS comes out with a new law or changes to the existing one that any normal person would hardly be able to tell. There are a few areas that are not so small yet they fall under the radar of many law-abiding, tax-paying citizens.  Want to try and use these last few days before the inevitable and get ahead on these tax surprises? Here’s what they are and how you can soften the blow:

When You Win the Lottery, You’re Not The Only One Winning

Just when you see those flashing winning numbers you think of the myriad ways you’re going to spend your cash.  But there’s one thing.  Don’t forget that the government wants a cut of your prize too.  Since it falls under the category of income, like everything else on our list, you will have to pay taxes on it free and clear. Anything won during trips to the casino also comes under this category, including boats, houses and other stuff. When it comes to these non-cash winnings, the IRS will likely receive a 1099 from the prize issuer so be sure to accurately report the fair market value of your items or you could face an IRS review.

Sure, They’re Unemployment Checks But It Is Income

Even though those unemployment checks are not even close to what you were making before they are still considered income and you still have to pay your taxes due.  You can combat the problem of having a large bill at the end of the tax year by electing to make estimated tax payments. No matter how you look at it though, the IRS will take its cut on money “earned” through unemployment benefits.

Debt Settlements Come Back To Haunt You At Tax Time

Settling your debts with debtors seemed like a good idea at the time, didn’t it?  It turns out that by (tax) law, you are required to pay your dues on forgiven debt since it is counted as earned income.  Sounds like a double whammy with both the credit report ramifications and then having to pay taxes on the reduced debt amount.  But there is some good news for homeowners that receive mortgage debt relief between 2007 and 2012.  As long as the debt was for a primary residence, is under $1 million for those that are married but filing separately ($2 million for everyone else), in most cases that debt is not taxable.  Here are Ten Facts for Mortgage Debt Forgiveness posted on the official IRS website.


One More Reason To Get Angry At Your Ex

Just when you started to get over the anger at your ex, along comes one more surprise that will provide plenty of ammunition to get angry at them all over again.  If you were awarded alimony you have to report that as taxable income.  If you are the supporting spouse, however, one small consolation is that you can deduct the alimony payments.  The good news is that child support does not make it on the IRS’s list of taxable incomes, so you’re good to go in at least one way.

Not-So-Secure Social Security

Just when you thought you could kick back and enjoy the returns from years of paying your social security dues – you’re slapped with needing to pay income tax on your social security income.  That’s right.  Believe it or not, depending on whether or not you have other sources of income, the IRS may or may not require income tax payment on a large portion of your social security income.  Maybe getting a second job now, while you’re ahead, may be in order after all.
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With our economy as tough as it has been, nothing is more daunting than the need to pay a large chunk of money at the end of the tax year.  The best way to manage this is to put away a little at a time or arrange for special voluntary deductions using an estimated payment formula.  For more information, talk with your tax advisor before it’s too late.