6 types of income that are surprisingly taxable

Income Tax Surprises 101

Filing your taxes and paying your tax bill are necessary chores. One thing you can't afford to do is mess up. If you fail to include all of your income on your tax return, that may be an invitation for the IRS to target you for an audit. While you're probably aware that you need to report the salary you earned from your job, that isn't the only income that's taxable. Here's a look at other kinds of income the IRS expects you to include on your return.

Check out our federal income tax calculator.

1. Bank Account Bonuses

Banks want your business and one of the ways they attract new customers is by offering cash bonuses to those who open a new checking or savings account. These bonuses, which may run anywhere from $25 to $500, may seem like a pretty sweet incentive.

But that's not free money. You'll have to claim these bonuses as income for tax purposes. That's something to keep in mind the next time you're shopping around for a bank account deal.

View 10 of the strangest ways states tax you:

10 Strangest Ways That States Tax You (or Don't)
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6 types of income that are surprisingly taxable
To preserve the uniqueness of their island paradise, Hawaii since 2004 has had an "Exceptional Tree" tax allowance. Landowners can deduct up to $3,000 from their income for expenses such as pruning and fertilization for any tree designated as rare, big, old or a combination thereof. That's per tree. Top-bracket earners taxed at the state's highest rate (11 percent) would save $330 via the deduction. The work must be done by a certified arborist, and the deduction can be claimed only every third year. Hawaii has had a list of "Exceptional Trees" since 1975, and there are now estimated to be more than a thousand thus designated.
Maine legislators tax anyone who deals in their official state fruit-blueberries, at the rate of 1.5 cents per pound. The resulting revenues-more than $1.6 million to state coffers in the fiscal year that ended in June 2013-are used to promote the crop and agricultural research. 
The state also taxes harvesters and processors of hard-shell clams (known in the state as mahogany quahogs) at $1.25 a bushel, but state revenues for that are much lower. 
Alabama is the last in the union to tax a deck of cards as if it were a "vice," like alcohol and tobacco. Taxing decks of cards, associated with gambling, was once fairly common, but most states have since set up separate control boards to regulate liquor and tobacco, and have let the cards slide.
But in Alabama, you'll still pay a 10 cent sales tax on any pack of cards you purchase. Retailers also have to pay $2 to the state each year for the privilege of selling playing cards.
Virginia levies a 50-cent excise tax on every lamb or sheep sold in the state. Both the Maine and Virginia taxes are examples of checkoff programs that collect taxes from an industry to fund promotional campaigns for the products. National commodity checkoff programs, authorized by the U.S. Department of Agriculture, have brought you campaigns such as "Beef: It's What's for Dinner" and "Got Milk?" But the Virginia program is extremely modest by comparison, having collected only $9,000 in fiscal year 2013. The funds go to the Virginia Sheep Industry Board, which spends them largely on predator control.
In 2013, in part to meet federal pollution-control mandates, Maryland legislators enacted fees on property owners in Baltimore and nine other Maryland counties, aimed at curbing storm water runoff. The fees were meant to fund programs to improve the water quality of the Chesapeake Bay, the largest marine estuary in the U.S. Sounds simple enough, but the way Maryland legislators wrote the law has led to an angry backlash in some corners against this so-called “rain tax.” One way localities calculate the tax is by measuring how much of a landowner’s tract is "impervious" to precipitation seeping into the ground. So the more you've developed it with buildings, driveways, tennis courts and the like, the less it will absorb and the more you pay. That's how the tax is being implemented (through aerial and satellite photos) in Montgomery County, a heavily developed suburb of Washington, and many landowners are up in arms. New Maryland Gov. Larry Hogan, a Republican, campaigned against this tax in his winning 2014 campaign and has introduced legislation to repeal it, though it’s not clear that will fly with Democratic state legislators. Money still needs to be raised to satisfy the federal pollution mandates, but the methods may change.
Kansas is among a bevy of jurisdictions that allows sale of lower-alcohol beer (the term of art is “cereal malt beverage”) in convenience and grocery stores. But Kansas also taxes “3.2” beer differently -- and there lies the rub. At a liquor store, all products, including, say, a conventional six-pack of Budweiser (with 5 percent alcohol by volume), are taxed at a special rate of 8 percent. At the convenience store down the street, however, ordinary sales tax is levied on the lower-alcohol, cereal malt beverage bottle of Bud. That often ends up being more than the 8 percent alcohol tax. In Pomona, Kansas, for example, the effective rate on the weaker beer would be 9.7 percent. Go figure.
When it comes to taxation, the rule is generally the stronger the booze, the higher the tax (that's why Kansas's beer tax scheme is an anomaly). California follows that curve, but at 100 proof, you better be ready to pay through the nose. Distilled spirits are taxed at $3.30 a gallon if below 100 proof, or 50 percent alcohol. Go over that, like with Bacardi 151, and the tax doubles to $6.60. Maryland also notes the 100 proof point, but it only adds 1.5 cents per proof, per gallon to the relatively modest liquor tax of $1.50 per gallon, taking the Bacardi 151 to $2.27 per gallon.
Entertainment venues pay a business tax to Nevada ranging from 5 percent to 10 percent on admissions fees (and food, drink and merchandise sales) whenever there’s live entertainment going on. There are exemptions, however, including this one, for businesses that provide "instrumental or vocal music, which may or may not be supplemented with commentary by the musicians, in a restaurant, lounge or similar area if such music does not routinely rise to the volume that interferes with casual conversation and if such music would not generally cause patrons to watch as well as listen." So your piano player can play “Feelings” softly and even crack a few jokes, tax-free, for your business. Just make sure they're not funny enough to attract attention.
Want to own a plush or fuel-thirsty ride? That’ll cost you extra in New Jersey. Cars that cost $45,000 or more or have a combined EPA fuel-mileage average of 19 or below pay an additional 0.4 percent on top of New Jersey’s 7 percent sales tax. 
In New Mexico, making it to 100 years has a payoff beyond the chance that Willard Scott will wish you a happy birthday: You don’t have to pay state income tax anymore. If you’ve been physically present in the state for at least six months and a resident of the state on the last day of the year, and you’re not someone’s dependent, you’re eligible. You’ll still need to file, and there are some complications if you’re married and your spouse doesn’t qualify.

2. Gambling Income

If you hit it big at the casino or walk away a few thousand dollars richer after buying some lottery tickets, be prepared to hand the IRS their share. Gambling winnings are considered taxable income.

But there's good news. If you itemize your deductions, you can deduct your losses to offset your winnings. The rule, however, is that the deduction can't exceed your winnings. That means if you win $12,000 over the course of the year but lose $10,000, you can deduct up to $10,000 and pay taxes on the remaining $2,000.

3. Canceled Debt

When you get in over your head with debt, settling with your creditor for less than what's owed may be the only way to escape what you owe. The problem is that Uncle Sam usually considers forgiven debt to be taxable income. Unless you meet the conditions for an exception, such as a debt that was forgiven as part of a bequest or through the Public Service Loan Forgiveness Program, you'll have to report the amount that was canceled on your taxes.

Related Article: 5 Ways New Filers Can Screw up Their Tax Returns

4. Hobby Income

If you've got a hobby that brings in a little spare change on the side, you won't be able to pocket all that money tax-free. Hobby income is taxable but you can deduct any expenses that go along with maintaining the hobby activity. Just remember that your deductions can't exceed the amount of income the hobby generates.

5. Jury Duty Pay

No one likes getting stuck with jury duty, but the fact that you get paid can take some of the sting out of being selected. The downside is that any money you receive for serving as a juror is taxable as miscellaneous income. If you decide to give the money to your employer in exchange for receiving your regular salary, you can deduct the amount of the jury duty pay on your taxes.

READ MORE: The No. 1 tax expense you're forgetting to claim

6. Strike and Lockout Benefits

There are lots of perks that go along with belonging to a union, but there's also the risk of having to join in a lockout situation or a strike. In such a case, the union might pay you cash benefits until you can work again. But the IRS will take a bite at tax time.

The only way to get around paying taxes on strike and lockout benefits is to prove that the union intended the money to be a gift.

Related Article: How to File Taxes

Final Word

Any time an official tax form is issued to you, such as a W-9 or a 1099, the IRS also receives a copy. Leaving income off your tax return can come back to haunt you later on and you could end up having to pay additional taxes and penalties if you're audited. If you're not sure whether something qualifies as income, spending a few bucks to consult a tax professional may save you money in the long run.

RELATED: Ways to avoid a tax audit

How to avoid a tax audit
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6 types of income that are surprisingly taxable

Double check your figures to assure there are no mistakes

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Be sure to be 100% honest, and report your numbers realistically

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Those in the highest and lowest income brackets are most often targets of fraud, and thus, audits

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Don't draw too much attention with unusual or unrealistic deductions

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Filing returns electronically drastically reduces errors

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The post 6 Types of Income That Are Surprisingly Taxable appeared first on SmartAsset Blog.

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