Recently I saw a discussion board for a group of local residents. The question was asked, someone paid me $500 in cash. Do I need to put it on my tax return? Lots of very knowledgeable sounding people jumped in, and the answers were all over the board. No, not if you didn’t get a 1099 form. No, you don’t have to report any income under $600. No, you never have to report cash payments. And then my head exploded.
What’s the right answer? You need to report all your income, even if it’s just cash, even if no one gave you a form. That $100 you won at the casino? Taxable. The $250 your neighbor paid you to mow his lawn while he was on vacation? Taxable. The $1000 you made selling home cleaning products? Even though you spent more than you earned, so you will show a loss? It still needs to go on your tax return.
Is there anything you can get that’s not taxable? Here’s a list of a few. Usually, gifts and inheritances are not taxable. Welfare payments and child support will never hit your tax return. Damage awards for physical injury or sickness (please note, mental injury no longer qualifies to be non-taxable. So a settlement for mental suffering will be taxable). Scholarship money that is used to pay for tuition is not taxable. Neither is your rebate from REI or any other manufacturer, even though they may call it a dividend.
What’s the lesson here? Don’t listen to well-meaning people telling you that something isn’t taxable. Check with your tax professional. We want to help you do the right thing, properly report all your income, and pay the lowest amount of tax that is legally allowed.