Generally, all income received in the form of money, property or services are to be reported as taxable income. This naturally includes wages, salaries, interest, dividends, tips and commissions, as well as income from the sale of product or merchandise. However, other forms of income can include but are not limited to: cash or credit earned from a side business or businesses; barter exchanges of goods or services; and royalties, awards, prizes, contest winnings and gambling proceeds.
All income earned through business as an independent contractor or from informal side jobs is self-employment income. No amount of income may be excluded from your gross income, even if you do not receive a 1099-MISC or a W-2. You must report the income and may deduct expenses from each business on a separate Schedule C. It should not be reported as Other Income on your tax return. You will need to prepare a Schedule SE for self-employment taxes if the net profit from these businesses exceeds $400 during your tax year.
The fair market value of property or services exchanged, or bartered, is fully taxable and must be reported as income by both parties at the time received. Generally, the cash value of prizes or awards won in a drawing or other event must be reported as taxable income. This includes the fair market value of merchandise or products won, such as cars and trips.
Likewise, if you receive fringe benefits in connection with the performance of your services, they are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. You are considered to be the recipient even if the benefit or gift is given to another person, such as your spouse or child or other family member.
Gambling winnings (such as from raffles and horse races) are also fully taxable, even if a W-2G is not issued. Royalties from copyrights, patents, and oil, gas and mineral properties are taxable as ordinary income, and are generally reported on Schedule E (Supplemental Income and Loss), but may also sometimes be reported on the Schedule C of your business.
A partnership shareholder may receive a distributive share of the partnership’s income, gains, losses, deductions, and credits. Your share of these items must be reported on your income tax return whether or not is actually distributed to you. However your losses for the year are limited to your interest in the partnership for that applicable year. A partnership generally pays no tax but must file an informational return on Form 1065 (U.S. Return of Partnership Income) showing the partnership’s annual operations and the items passed through to its partners.
Additional information can be found at www.irs.gov in Publication 525 (Taxable and Nontaxable Income).