It’s that time of year we all love so dear – tax season.  We dutifully go about collecting our W-2s and 1099s while swearing under our breath about The Taxman and vowing this year we won’t wait until April 14th to get started on our returns.  It’s an annual event on par with New Year’s resolutions to lose weight, quit smoking, etc.

Have you ever stopped to ask just what exactly income is?  Silly question, right?  Sure, some things are obvious like salary but did you know if your bank rebates ATM fees that’s income?  We’re not kidding!

The IRS has a pretty clear standard for income.  To paraphrase gross income means ‘all income from whatever source derived’ or to put it another way ‘anything and everything unless specifically excepted.’  The catchall definition seeks to avoid situations where a taxpayer may argue about the form of receipt.  For example it could be argued (and has been but usually unsuccessfully) that money received from an employer was a gift and not taxable income like a salary or bonus.

Here are some less than common items that are taxable and must be included on a tax return:

  • alimony received
  • awards, prizes, contest winnings and gambling proceeds
  • back pay
  • notary public fees
  • patents, royalties, license receipts and any infringement compensation
  • profit on sales between family members
  • punitive damages
  • residence sale profit above the exclusion limits
  • severance pay
  • unemployment compensation

Here are some less than common items that are not taxable:

  • black lung disease benefits
  • dependent care assistance paid by the military to military personnel
  • disaster relief grants
  • casualty insurance reimbursements
  • child support
  • compensatory damages awarded for physical injury/sickness
  • damages for emotional distress due to a physical injury/sickness
  • disability payments (if the taxpayer paid policy premiums with post-tax dollars
  • foster care receipts
  • interest on certain state or local government obligations
  • supplemental security income (“SSI”)
  • veterans’ benefits
  • welfare benefits
  • workers’ compensation

Finally before mass panic erupts over those rebated ATM fees let’s tell the whole story.  Yes, technically they should be reflected on a return as taxable income.  Realistically they are a non-issue as they are usually de minimis and usually not reported to the IRS by banks.  We’re not suggesting anyone consciously engage in tax evasion but it sure is easy to ‘forget’ about rebated ATM fees!