Taxes: Sources of income you might not have thought of

With piles and piles of fine-print, the IRS is here to make understanding tax code easy: just spend a few hours flipping through the booklets, and you're sure to find a reference to the topic you're wondering about.

If you're unsure about what exactly constitutes income, Publication 17 (2009) is your source of information. Here's some sources of income that a lot of people often overlook:

Gambling winnings. You must include your gambling winnings in income on Form 1040, line 21. If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. See chapter 28 for information on recordkeeping.


What this means? If you buy lottery tickets regularly, first of all STOP! But failing that, be sure to keep a record of your losses so that, in the incredibly unlikely event that you do win a bunch of money, you'll be able to deduct your losses and save some money on taxes.

Bribes.
If you receive a bribe, include it in your income.


Here's a double-standard: According to the IRS, "Under section 162(c) illegal payments made to U.S. Government officials and employees are not allowable. Also, if the payment is to an official or employee of a foreign government, and is unlawful under the Foreign Corrupt Practices Act, no deduction shall be allowed." Well that's not fair! If receiving money illegally is taxable, shouldn't paying money illegally be deductible?

Pulitzer, Nobel, and similar prizes. If you were awarded a prize in recognition of accomplishments in religious, charitable, scientific, artistic, educational, literary, or civic fields, you generally must include the value of the prize in your income.

That's right: The IRS actually has guidelines on what to do if you win a Nobel Prize. Wouldn't it be easier to just tell the small handful of people who win the award directly, and spare the rest of us from having to read about it?

Illegal activities. Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.

But if you hold the illegal drugs for more than a year prior to sale, can you book the profit as a capital gain and pay less tax on it? Also, be sure to deduct the cost of sandwich baggies to hold crack rocks and twisty ties -- and you can also depreciate your scale over its useful life. And if you decide to rob a bank, have the guy who drives the getaway car fill out a W-2.

Sending Kids to College

TurboTax can help you take advantage of tax breaks to ease the financial burden of sending kids to college, including tax credits, tuition deductions, tax-free savings and more.

Read More

Brought to you by TurboTax.com

Summer Tax Tips

Smart tax planning happens all year round. Here are four things you can do this summer to improve your standing when tax time rolls around again.

Read More

Brought to you by TurboTax.com

Federal Tax Credit for Solar Energy

To encourage Americans to use solar power, the EPA and the Department of Energy offer tax credits for solar-powered systems.

Read More

Brought to you by TurboTax.com

Bigger, Better College Tax Credit

The American Opportunity tax credit, which replaced the Hope Scholarship credit in 2009, covers more years of college and offers bigger, better benefits to more taxpaying students or their families. Here's how the American Opportunity tax credit and Lifetime Learning credit, another helpful education tax credit, can help offset the rising cost of attending college.

Read More

Brought to you by TurboTax.com
Read Full Story
Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.