Common Overlooked Taxable Events

Some issues fly under the radar until they trigger an unexpected tax return notice, penalty, or tax bill. What may seem like routine financial activity can quickly turn into a costly mistake if it’s reported incorrectly.

Below are seven commonly misunderstood tax situations that deserve careful attention before filing.

Gambling Winnings

If you receive a tax form at a casino for your winnings, that information is sent to the tax authorities. Since the form typically only contains the amount you won, save copies and records of any gambling losses.

Maturing CDs

Be careful with maturing CD’s in a retirement account that are rolled over into new CDs. Normally it is straight forward and the interest is reported on a 1099-INT. However, with increasing interest rates, many are once again using CD's in retirement accounts. So pay attention as your financial institution may provide you with tax forms showing the maturing CD as a distribution, but not report it as a rollover. You will need to account for this on your tax return. In this case, there is not a taxable event, but the IRS may think there is!

Retirement Distributions

Make note of any distributions from your retirement accounts and note the type of account. You should receive Form 1099s for the distributions. Depending on your age and the type of retirement account, a number of tax surprises could occur if not properly recorded. This includes early withdrawal penalties, potential required minimum distribution penalties, and income tax on the withdrawals.

Gifts over $18,000

If you provide gifts in excess of $18,000 ($36,000 for a couple) to any one person during the year, you must fill out a gift tax return.

Contemporaneous Documentation

The time to put together proper documentation to support your deductions is when the activity takes place. For example, if you misplace a receipt for a charitable donation, you can go back to the organization and ask for a copy of the old receipt, but a new receipt to replace the one you lost is not valid documentation. Common areas where this is important are with charitable contributions, mileage logs, and other itemized deductions.

Unemployment Income

Unless specifically excluded by the federal government, unemployment income is taxable. Many taxpayers become surprised by an unwanted tax bill if federal withholdings are not taken out of these payments.

Digital Assets

If you have any transactions during the year using digital assets (cryptocurrency), you have a taxable event. This is because digital assets are seen as property in the eyes of the IRS. This means long and short term capital gains come into play. And if you use digital assets to purchase other capital goods, then you have two potential taxable transactions!