This includes money someone gives you for one-time assistance, such as if a friend pays you to help them move or a neighbor pays you to mow their lawn. If you work regularly as a babysitter, mowing lawns, or helping people around the house, these cash payments are all taxable income.
Credit card tips are included with your regular income, which means your employer withholds taxes. However, if your employer doesn’t require you to report cash tips to them, that could mean you end up owing. [4] X Research source Get ahead of the game by putting aside $3 for every $10 you make in tips. That way, you won’t face an unpleasant surprise in April.
If you have a side-gig like this, you’re considered self-employed—even if you work a full-time job. This means you can deduct any expenses you incurred for your side gig and reduce the amount of tax liability you have on that income. However, you still have to report all of the income. If you have multiple streams of income going, make sure you keep them separate, because they’ll need to be reported separately. For example, if you drive for Uber and also deliver food for GrubHub, you would need to keep those incomes separate. Similarly, if you drive for both Uber and Lyft, you still need to keep those incomes separate.
For example, if you mow your dentist’s yard in exchange for free dental work, the fair market value of that dental work would be considered taxable income. If your employer offers employees a free gym membership as a fringe benefit or perk, the fair market value of that gym membership is also typically considered income. However, there are exceptions to this. Talk to a tax attorney or accountant.
This also applies to debt settlements. Generally, if you settle a debt with a credit card company or collections agency, you can expect to pay taxes on the difference between the amount you paid and the total amount you originally owed. If you’ve recently settled a debt, it’s a good idea to talk to an accountant or tax attorney about this. [8] X Trustworthy Source Federal Trade Commission Website with up-to-date information for consumers from the Federal Trade Commisson Go to source
To figure this out, you need to know the fair market value of the property on the date the person you inherited it from died. The executor of that person’s estate has this information because they needed it to total the value of the estate. That’s the value of the property that you inherited (called your “basis” for tax purposes). If you sell the property for more than your basis, that amount is taxable income. For example, if you inherit real estate valued at $250,000, then sell it for $500,000, you would have $250,000 in taxable income.
For example, if the receipt doesn’t specifically list your purchases, you might need to keep an invoice or order form that does include the specific items. If you claim a deduction that you don’t have receipts for, the best-case scenario if you’re audited is that the IRS will disallow the deduction and require you to pay more in taxes. Too many of those, though, and it starts to look like you were evading taxes.
If you do your taxes using tax preparation software, the program will ask you questions to determine whether you qualify for various credits or deductions. This can help you ensure that you meet the requirements.
You had significant uninsured medical and dental expenses, such as an extended hospital stay You paid interest or taxes on your home that exceed the amount of your standard deduction You had substantial uninsured losses as the result of a federally declared disaster (usually a severe weather event) You made extraordinary charitable contributions, such as donating real estate
For example, suppose you have your office set up in the guest bedroom of your house. You use the room exclusively for business purposes, except for twice a year when your sister comes to visit and stays in that room. You would need to subtract those 2 periods since the room isn’t being used exclusively for business purposes during that time. Even if you only have the space to set up a small corner for your home office, it’s still crucial if you want to take advantage of this deduction. Working from your dining room table is only deductible if your dining room table is only ever used for that purpose, and never for family dining, game night, or arts and crafts.
If you work for a ride-share company and want to deduct costs associated with your car, keep mileage logs for your ride-share gig. Compare the miles you drove ride-share to your total mileage for the year. That percentage is the percentage of vehicle costs you can deduct. For example, if you drove a total of 80,000 miles over the year, and 35,000 of those miles were ride-share, you could safely deduct up to 44% of your vehicle costs. If you use the same resources for different side-gigs, you also need to allocate between those. For example, if you drive for both Uber and Lyft, you would need to calculate the number of miles you drove for Uber and the number of miles you drove for Lyft.
For example, if you donate a bag of clothes, it’s typically valued by weight—not by the value of specific items of clothing, even if they all happen to be high-end designer pieces. If your non-cash donation is legitimately worth more than $500, there’s an additional form for you to fill out and submit with your tax return. If it’s worth more than $5,000, you have to back up your valuation with a qualified appraisal. A large amount of charitable donations, especially if you don’t typically claim significant deductions for charitable contributions, can be a huge red flag to IRS auditors. [16] X Research source
For example, if you don’t have any self-employment income and don’t claim any deductions, you may not have anything in your file but your W-2 and your tax return. These can be easily kept in a single manila envelope. If you claim numerous deductions in different categories, you’ll typically need a more elaborate filing system to keep everything organized. If you’re keeping digital files, organize them in much the same way you would if you have a paper filing cabinet. Create one folder for tax records, then add a folder within it for each year. Use folders within each year’s folder to further organize your files.
Thermal receipts can fade with time, so make a photocopy of it as soon as possible after the purchase. Staple the original receipt to the photocopy.
Personal expenses Medical and dental expenses Utility bills Mortgage payments and home improvements (if you own your home) Bank statements Investment statements Pay stubs and other income records Business expenses (by category)
If you’re paper-free, make a copy of your tax documentation on a thumb drive and store it in a different location, so if anything happens, you’ve still got the records you need.
If the records are related to real estate or physical property, keep them for as long as you own the property. If you are self-employed, you may have more administrative and tax burden than employees. [22] X Expert Source John Gillingham, CPA, MACertified Public Accountant & Founder of Accounting Play Expert Interview. 3 March 2020. You can use accounting software such as Quickbooks to maintain records. [23] X Expert Source John Gillingham, CPA, MACertified Public Accountant & Founder of Accounting Play Expert Interview. 3 March 2020. Set up a separate business bank account so someone else can help you out with the accounting. [24] X Expert Source John Gillingham, CPA, MACertified Public Accountant & Founder of Accounting Play Expert Interview. 3 March 2020.
