Did you know that there are hundreds of little things that you should be declaring on your tax returns? Here are some of the most important items that must be declared on your federal and state tax return.
All Sources of Income
The tax code of the Internal Revenue Service (IRS) requires that all income earned or received must be reported on your income tax returns. The categories of income recognized by the IRS include the following:
• Wages, salaries and tips
• Interest on bank accounts, certificates of deposit, bonds and other investments
• Capital gains
• Business income
• Income from bartering
• Annuities, pensions and lump-sum distributions
• Rental revenues
• Gambling income
• Earnings from agriculture and fishing
• Unemployment benefits
Each of these types of income must be declared on your income tax return. In some cases, losses in a particular category can be used to offset income earned in that category.
Depending on the amount of the gift and the identity of the recipient, you may need to report gifts to others on your income tax return and may be required to pay taxes on these transactions. Unlike donations to charitable organizations, which are generally tax-exempt, gifts directly to someone else are subject to an annual gift limit. The limit is currently set at $13,000. Couples can make gifts of up to $26,000 without incurring tax liabilities for these gifts. Certain types of gifts are not subject to the gift limit; these include the following:
• Payments directly to universities for college tuition
• Direct payments to hospitals, clinics and other healthcare facilities for medical procedures
• Gifts to one’s spouse
• Political contributions
Individuals and couples can choose to exclude additional amounts from the gift tax requirements by taking advantage of the Unified Credit. Currently capped at $1,772,800, the Unified Credit allows a greater degree of flexibility when giving gifts to your network of friends and family.
If you are required to declare gifts on your federal tax return, you must typically itemize your deductions as well. Itemized deduction categories include the following:
• Mortgage points and interest
• Medical and dental fees
• Interest expenses
• Contributions to charities
• Business and education expenses
• Depreciation of cars, trucks and other vehicles used in the course of business
• Losses due to accidents, disasters, thefts and other critical events
The standard deduction amount may actually provide greater tax savings for your particular situation. Nonetheless, if you are declaring gifts on your tax return, you should usually itemize your deductions as well. This process can be challenging and typically requires the help of a skilled and knowledgeable tax preparer for optimal results. Some studies suggest that itemizing deductions can also increase the chances of an audit. Your tax preparer can assist in your defense if an audit does occur.
Declaring all sources of income and all sizable gifts is required by the tax code. Maintaining compliance with these legal requirements is your best defense against audits, penalties and other consequences that may arise from failure to incorporate these items into your tax return.
Tax Tips: I Do Declare by Steve Patterson