With tax season in full swing, GoBankingRates warns of the five most common mistakes filers make on their tax returns that could have Uncle Sam on the watch.
The personal finance resource website released a report Friday of its investigation into the most taxing flubs Americans make when it comes to taxable income. GoBankingRates says the temptation to fib to the Internal Revenue Service (IRS) might be too mouth-watering, due to the 77 percent of American households that face a tax increase this year. Of course, there are also those filers who simply do not understand whats what when it comes to the long forms.
According to the report, five items that shouldnt go unnoticed are:
1. Contract Work
Contractors are self-employed, which means both a standard income tax and a self-employment tax -- a Social Security and Medicare tax. Contractors must claim income from work whether it is a primary job or on the side, provided that he or she has a net income of at least $400 or meets one of the other Form 1040 filing requirements.
2. Gambling Winnings
Been lucky at the Seminole Hard Rock in Hollywood? Or, did you get that winning Florida Lottery ticket? Well, you are still unlucky with the IRS -- gambling winnings are fully taxable income. One caveat: gambling losses may be deducted, but only enough to offset winnings.
Dont forget about noncash prizes. Prizes like a car or vacation must be reported at a fair market value.
3. Gifts
Gifts that you give may be taxable. Gifts up to $13,000 to an unlimited amount of recipients tax-free. Thats $13,000 per person.
Some gifts are considered nontaxable income altogether: tuition expenses, medical expenses, gifts to your spouse, to name a few.
4. Inheritance
The inheritance of an estate worth $5 million or more will be taxed. A 31-page Form 706 is needed to pay the inheritance tax.
5. Mutual Fund Gains
Mutual funds sales may be taxable if you incurred a gain. Taxable income for a mutual fund sale is based on how much was paid for the shares sold.
