Additional Income: Is It Taxable?

By Sally Acquire, on October 15, 2009

We’ve briefly touched on the topic of paying income taxes on eBay sales in the past, but a lot of people are unsure as to whether additional income in general needs to be reported to the IRS. By additional income, I’m referring to anything that’s not part of your usual pay packet, which can include money making activities such as eBay and Amazon sales, completing online surveys, mystery shopping and babysitting. Contrary to popular opinion, the IRS will expect to be informed of all additional income — even if it falls under the taxable threshold or is not subject to tax.

Photo by sercasey via Flickr

What Kinds of Additional Income Are Taxable?

Here are a few examples of additional income sources that you may encounter:

• If you baby-sit — even on an occasional basis — you are deemed to be a childcare provider and are subject to the same tax rules. Assuming that you are not employed as a full-time or live-in nanny or other childcare provider, the IRS is likely to deem you as babysitting on a self-employed basis.
• Gambling profits are subject to tax, and should be included on line 21 of Form 1040. Profit declarations should include the value of both cash and non-cash prizes that you may win.
• Even prizes are taxable and the cash value should be included on line 21 of Form 1040.
• Selling personal belongings on auction sites or selling a car should be declared on Schedule D (Form 1040) as capital gains tax if you made a profit on them. However, as the majority of people eventually sell these items for less than what they were originally bought for, you probably won’t need to report this form of additional income. It’s good practice to declare it anyway, especially if you want to doubly cover your tracks or aren’t sure whether the IRS would class your auction sites sales as a hobby or a business. The legal stance on this is different if you are actively buying items to sell them on for a profit, as this is classed as a business and any gains from it should be reported as such.

How To Declare Additional Income

Generally speaking, how you should go about declaring additional income depends on the activity in question but in most cases, it should be declared on specific forms. For example, childcare providers who are deemed to be self-employed should fill in one of the following forms to declare additional income from baby-sitting services: Schedule C Profit or Loss From Business (Form 1040) or Schedule C-EZ Net Profit From Business (Form 1040).

What Happens If You Don’t Declare It

If your additional income should be subject to tax but isn’t declared, expect the IRS to pursue you for the debt if it comes to their attention. This tax debt will probably be due straight away, although you may be able to negotiate on this if you can prove that you are experiencing financial difficulties.

Read more about

Get free updates

    via Twitter
    via Facebook
    via RSS or Email

Share this article

• 
• 
• 
• 
• Share

Sally Acquire is a freelance writer on topics relating to personal finance. She wrote this article for Tax Matters Solutions, a Fort Wayne financial services company that helps people with IRS problems, such as those due to unfiled tax returns.

All posts by Sally Acquire

Please share your comment:

Comment Rules: Constructive criticism is welcomed. Please use your PERSONAL name or initials and not your business name or URL, as the latter comes off like spam and I'll most likely delete your comment. Have fun and thanks for adding to the conversation! Here's our comment policy and guidelines.

1 blogs that link to this article:

If your trackback does not show in 24 hours, please resend to this trackback URI.

1. The Dough Roller Weekly Roundup (Balloon Boy Saga Edition) – The Dough Roller