April 15th has come and gone. And as it has every year, the world keeps turning. Regardless of whether you have already filed your taxes or were granted an extension, you may be worrying that you missed some detail or will do so in the future.
A recent article in Forbes provides some odd examples of what the IRS considers “taxable income.” If you didn’t report these sources of “income,” you may be at risk for an audit.
Did you receive a Christmas or end-of-year bonus from your employer last December? If so, you may have asked your employer to hold off giving you the bonus until the start of the New Year because you didn’t want it on your 2014 tax return.
Unfortunately, the IRS may still consider this taxable income under the principle of “constructive receipt.” The rationale is that you had the right and the opportunity to receive the bonus in 2014, so that’s when it becomes taxable. This is especially likely if the company reports the bonus on its own taxes as being paid in December.
Another taxable-income problem can arise if you are the owner or co-owner of a partnership, S corporation or limited liability corporation. As you probably already know, these types of business are not taxed directly, because owners include business profits in their personal tax returns.
The problem arises with K-1 forms, which list each owner’s share of business income or loss. If you put that income back into the business, you may have thought it didn’t need to be reported. Unfortunately, that’s not the case.
Finally, you may have had some debt forgiven or cancelled last year. Except for debt relief obtained in bankruptcy or due to insolvency, any debt that is forgiven or discharged needs to be reported as income. In fact, it is referred to as cancellation of debt income, or COD.
Americans have some pretty choice words to say about the IRS and its policies. But you won’t hear anyone say that our tax system is simple or straightforward. If you are having trouble or expect trouble with the IRS due to tax complications, please seek the help of an experienced tax law attorney.
Source: Forbes, “Three Surprising Non-Cash Items IRS Says You Must Report On Your Taxes,” Robert W. Wood, April 13, 2015