Sudden Strike: Suddenly finding yourself in IRS Debt and you don't know why? When I was a Revenue Officer, many of the people I spoke with had no idea why they owed. It was all due to the IRS's "Surprise Attacks," sneaky ways the IRS can make you pay.
1. Prize Winnings
The IRS expects a cut of your prize winnings! If you win cash from Vegas, bingo, raffles, or the lottery, the IRS considers that income. All income is taxable. Thousands of people owe thousands for not paying their taxes on prize winnings.
No, not even the money from your dearly departed Aunt or Uncle is safe. If you receive a cash inheritance, this is also considered income, and you have to pay up. Think you're safe if you inherit an estate or property? Think again! If you sell the property or estate, the money you earn will be considered income, and taxes will be owed. This is as sneaky as it gets, but it's all true.
Your marriage has ended, but your ordeal with the IRS has not. The checks you get from your Ex spouse are completely taxable by the IRS. Child Support recipients, don't despair. Child Support is not taxable by the IRS.
4. Forgiven Debt
Too bad the IRS isn't as generous as your creditors. When credit card debt is too much to handle, you can negotiate with the credit card company and pay your debt off with a low settlement amount. However, the IRS wants you to include the amount you saved by settling your debt as income!
For example, if your debt was originally $10,000 but you settled it for $5,000, you have to report the $5,000 you saved as miscellaneous income.
5. Unemployment Benefits
You need that unemployment guppy check to pay bills and put food on the table ("Ramen noodles again?!"). But the IRS still wants some of that pie. You need to report your unemployment benefits to the IRS as income.
Prevent It: These are the Top 5 Sneaky Tricks the IRS uses to trap people into debt. Prevention is simple. Obtain and fill out IRS Form 1099. There are different forms for each situation. For example, Form 1099-MISC covers a large umbrella of miscellaneous income, while Form 1099C is for Cancellation of Debt. Of course, if this whole thing is still too overwhelming for you, you can always contact a Tax Professional for guidance.