Most taxpayers know that taxes are charged on income received in the form of money, property, or services. The usual sources of income are wages, salaries, royalties, commissions, rent, fees, and tips, all of which are taxable to the recipient. However, there are certain unusual sources of income that are taxable too, which taxpayers need to be aware of. 

What’s Taxable?  

If taxpayers receive income from a source that they usually do not receive income from such as alimony, child support, found money, royalty, virtual currency, sick pay, etc. they may check if the income is taxable or not before filing their tax return. 

Income from Illegal Activities 

Not only casual gambling, but income received from any illegal source is also taxable. Though criminals would not like to report their income from illegal activities to the IRS, if taxes are not paid on the illegal income, the law considers it a punishable offense. According to the IRS, “Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Schedule 1 (Form 1040), line 8z, or on Schedule C (Form 1040) if from your self-employment activity.” 

Whether criminals like it or not, they are required to pay taxes on income received from illegal activities even if it is self-incriminating. The U.S. courts have reasserted the same (United States v. Sullivan, and Al Capone tax evasion case).  



Even though there is no exchange of currency in bartering, it is taxable. When bartering for commercial purposes such as exchange of plumbing services in exchange of gardening services, taxpayers need to include the fair market value of the service/property bartered and include it in their income. For non-commercial purposes such as babysitting services exchanged by neighbors, it need not be reported to the IRS or paid taxes on. 


Alimony is taxable to the recipient. The receiver of the alimony needs to include it in their income on Schedule 1 (Form 1040), line 2a. Though alimony is taxed, child support is not taxable since it is not considered income to you. 


Found Money/Property 

If you find money or property that was lost or abandoned, often referred to as ‘treasure trove’, it is taxable to you. You need to find its fair market value in the first year of your undisputed possession of it, and pay taxes on it. 


Gambling & Lottery Winnings 

Gambling winnings are taxed, and must be included in income on Schedule 1 (Form 1040), line 8b. Also, taxpayers can deduct gambling losses up to the amount of their winnings if they itemize for tax years 2018 through 2025. Gambling businesses are also required to pay taxes using Schedule C (Form 1040). Lottery winnings are similarly treated, and isare taxed just like gambling winnings. 



If a party is hosted by you in which sales are made, or gifts/gratuity is received by you for holding the party, that money/gift is considered income for tax and needs to be reported at its fair market value. 


What Isn’t Taxed? 

Though items that are taxed are a lot many, there are certain things that are not taxable. Additionally, certain income/items are specifically excluded by law and are not taxed. 


Inherited Property/Gifts 

In most cases, if a property has been received by you as a gift, bequest, or inheritance, then it is not considered income and, therefore, not taxed. However, if you begin to use the property for income generation such as from rent, interest or dividends, that income is taxable to you. Even if a property is given to a trust, and you receive income from that property in the form of gifts, money, etc., that income is taxable as well. 


Child Support 

Child support payments you receive are not taxed. Child support neither attracts taxes nor can be deducted from income. They are completely tax-neutral. 


Employer-Provided Group-Term Life Insurance 

In most cases, if your employer or former employer provided you group-term life insurance coverage of up to $50,000, it is not to be included in your income. If the cost of the insurance is over $50,000, then it needs to be included in your income as part of your wages. 

There are many exemptions, exceptions that are allowed under the tax code based on a variety of factors, which taxpayers may consider when filing their tax return. Some types of income, which are not taxable, need to be reported to the IRS. Depending upon the particulars of the income and its source, tax obligations may vary. Taxpayers may use IRS Publication 525, which contains a comprehensive list of what’s taxable and what’s not, to know their tax obligations. 



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