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Tax regulations can be complex, and you may not realize that some items and expenses are subject to taxation. Investopedia highlights several unexpected taxable items that may surprise you.
For instance, if you pay off your debt, you might need to pay taxes on any amount forgiven if it exceeds $600.
It’s not limited to student loan debts. Investopedia further clarifies:
Debt Forgiveness
. In general, the forgiven amount must be reported as income, whether the debt is forgiven by a private institution (like a bank) or by the federal government. However, there are exceptions, such as when the debt is forgiven by a family member, as these are considered gifts. Additionally, forgiven debt may be exempt from taxes in cases of bankruptcy, insolvency, or primary mortgage debt.
Here are some more common items that might catch you off guard:
Scholarships and work-study
. If you receive a scholarship that covers anything beyond tuition, fees, and books, it will be taxable. Work-study earnings are also taxable, although this may not always apply at the state level.
Unemployment benefits.
Will your unemployment compensation be taxed?
It varies depending on your state
. While some states, such as Montana, Virginia, New Jersey, California, Pennsylvania, and Oregon, exempt these benefits entirely, others will require you to pay taxes. To lessen the burden during tax season, you can choose to have taxes deducted from your unemployment payments, or settle it all at once when you file your taxes.
Alimony
. Alimony must be reported as income on your tax return. This often surprises people who mistakenly think it’s treated the same as child support, which is not taxed.
There are additional items to consider, so make sure to check out the link below for the complete list.
Image courtesy of Alan Cleaver.
