Reporting Income For Tax Return
Steve Duben, CPA (Partner, Duben & Natividad) gives expert video advice on: Do I need to pay taxes if I make a profit selling my car or other possessions?; Is my disability income taxable?; What sickness or injury benefits are taxable? and more...
What is an "independent contractor"?
An independent contractor is someone who is working, but they're not being paid wages. An independent contractor would be working as a consultant, they're working independent of the company. A misnomer is that, as an independent contractor, you're getting a pay check. You're getting paid for work you're doing, but they're not taking taxes and everything out. You're not an employee of the company. You are independent. I, as a CPA, come in and do your tax return, send you a bill, you pay me. I'm an independent contractor. If I work for you as a book-keeper and I get a pay check every Friday, I'm an employee, I'm not an independent contractor.
If I worked as an independent contractor, do I need do report that income?
It's not only related to an independent contractor, it's income is income. The tax law is real specific. There's a code section, and I don't need to bore you with numbers, but there's a code section that basically says, "All income from whatever source is taxable, unless it's specifically excluded." That's where the tax law starts getting complex. Income is income and yes it has to be reported. If you made 20 dollars mowing your neighbors lawn, that's income and you should report it as income on your tax return. Does it mean you have to pay any income taxes? Maybe not, if that's all you made. It's obviously much less than what is required to pay taxes on, but it's still income.
Do I need to pay taxes if I make a profit selling my car or other possessions?
You've sold something this last year, it may have been an automobile, it may have been - you had a garage sale and cleaned out the house, and sold the old furniture, and toys, and clothes, and you wondered do I have to report that as income? Basically when you're looking at reporting the sale of an asset, something that you own, the income tax to be paid on that would be if you showed a profit on that sale. If you sold your car, chances are unless it's an old car, an antique, you paid more for that car than you sold it for. Therefore, you had a loss on the sale. You don't get the benefit of the loss, but you also don't have to report the sale. You had a garage sale and sold all the stuff out of the house, most of that stuff if you look at it, you paid a lot more for it than you got at the garage sale. Do you have to report the sale of those assets at the garage sale? No, because you lost money on those sales. They're personal items and you don't have to deal with that.
What is "under the table" income, and do I need to report it?
You hear the term "under the table" bandied around when you're talking about taxes. It may be in the back room of a bar, but you'll hear people say, "Well, that's 'under the table', you don't need to report it." Bear in mind the code section of the IRS. And again, not to use numbers, but section 61, a very simple section, says all income from whatever source is taxable, unless it's specifically excluded. Court cases have defined that as income is income. It doesn't matter whether it's legal income or illegal income, it needs to be reported. The likelihood of someone reporting illegal income is another story. But there is no such thing as "under the table" income. You did a job for somebody and they gave you $100 in cash, and you said, "Well, I'm not going to report it to anybody, you don't have to report it, it's under the table." That income should be reported on your tax return. You worked, you got $100, it's income, it needs to be reported.
Is my disability income taxable?
We're looking at our tax returns stuff. We're trying to get it ready to do my tax return and, lo and behold, here's a piece of paper that says I received disability income during the year. Normally, generally, disability income is not taxable. If it's workman's compensation income from an injury, that's not taxable. If it's disability income from a private insurance company, as long as you didn't deduct the premiums, then you don't have to report the income. If you have a disability insurance policy and you're paying the premiums, you don't want to deduct them as an expense on your tax return because if, God forbid, you need to collect that disability income, and you deducted the premiums as a deductible expense, then when the income comes in you'll have to pay tax on the income. The idea being you've got a disability insurance policy in case of a disability, and you don't want to deduct those insurance premiums so that when that income comes in it's non-taxable.
Is my Social Security income taxable?
If you are collecting Social Security, you are going to get a form from Social Security. That's going to tell you how much Social Security income you have collected during the year. That has to be reported on your tax return. It is income, how much it is taxable, depends on the other sources of your income that you have. It may be not taxable at all, or you may have to pay tax on 50% of your Social Security income, or you might even have to pay tax on as high as 85% of your Social Security income. You wouldn't know that until you gather everything together, plug the numbers in on the tax return, and come up with the worksheet that the IRS provides. To determine how much your Social Security income may or may not be taxable.
What sickness or injury benefits are taxable?
If you're getting sick pay from your employer who had a program that says if you get sick, we'll pay you your paycheck, that sick pay is just regular wages and it doesn't make any difference. Sick pay is still income to you, it's just that it's your employer's policy to pay you for that week or two that you're out sick. If you happen to be getting income for an injury from an insurance company, where it's similar to disability income, that may not be taxable. If you're concerned about whether it is or isn't, you need to seek the assistance of either the person that's paying you that money, or go back to a tax professional who can analyze the situation.
Is a life insurance benefit taxable?
Life insurance benefits normally are not taxable. Bear in mind that if you receive the life insurance benefits, you're dead. It's your beneficiary who receives the life insurance benefits. To the beneficiary receiving the money from a life insurance policy, that life insurance policy is not taxable.
Do I have to pay taxes on my pension?
If you're receiving money from a pension, you're going to get a 1099 forms. Its going to be called a 1099-R, for retirement. Its going to report the amount of income you received from your retirement plan, your pension plan. Its going to tell you how much money was distributed to you in your pension. It may or may not tell you how much money is taxable. There's a little box on that form that tells you whether it is taxable or not taxable. It will tell you the type of retirement money that you're getting by a code, and on the back of the form it will explain the various codes. It is more than likely, though, that the majority of that money that comes to you from a pension or retirement plan will be taxable income to you.
Do I have to pay taxes on my child's income?
You have your son or daughter, they're working and they're earning wages for a part-time job, that income is taxable to them. They may have to file a tax return, depending on how much money they make. The number varies every year because it's indexed. If they had money taken out of their paycheck for Federal or State income taxes, they may very well just need to file a tax return in order to get a refund. However, if your child earned some interest or dividend income, that may be taxable to you as the parent, depending on the child's age. The United States Tax Code now says if you have a child under the age of eighteen who earned dividend and interest income, that has to be reported on the parents tax return and some tax is paid by the parent. There's some variations to that, there's some amounts that the first three hundred, four hundred, I'm not quite sure what the total dollar amount is and that also varies from year to year, it keeps going up with inflation, but be aware that if you have a child earning dividends or interest, they're under eighteen years of age, that information has to be reported on your parents tax return.