What is Taxable and What is Nontaxable? | Tax Tip of the Week | No. 81

Did you receive a gift in 2010?  Win a prize? Receive an award?  Receive an inheritance?  This week we will take a look to see if Uncle Sam is going to join in your celebration.Gifts: Monetary gifts you receive from a family member, for example, are not taxable to the recipient.  The person making the gift can give up to $13,000/year without needing to file a gift tax return.  Any amounts given over $13,000 would then reduce their lifetime gift exclusion.  For 2010, the lifetime exclusion was $1 million.  For 2011, the exclusion is $5 million.Nontaxable Gifts: If, for example, your employer gave you a fruit basket, hams, turkeys, wine, flowers, etc. these are considered de minimis fringe benefits and are not taxable.Taxable Gifts: If, however, your employer gave you a gift certificate this is considered “cash in hand” and would be treated as wages subject to FIT, FITW, FICA and FUTA.  In other words, a ham is tax-free.  A gift certificate for a ham is taxable.Parties and Lunches: The cost of occasional parties is fully deductible to the business (and not subject to the 50% limit on business meals) and nontaxable to the employees and their families.  These are considered de minimis fringe benefits if given infrequently for the purpose of promoting employee goodwill, contentment or efficiency.Prizes: If you win a cash prize or a new car from the church’s raffle, it will be considered taxable income.  The church, in this example, should issue you a 1099-MISC and you should show it as “Other Income” on your tax return not subject to Self-Employment taxes.Lottery: Lottery winnings are considered to be taxable gambling winnings and should be listed as such on your tax return.   You can then deduct substantiated gambling losses as an itemized deduction to the extent of the gambling income.Note:  More and more Ohio cities have passed laws making lottery and/or gambling winnings taxable income at the city level.  There is no way to deduct gambling losses on a city return.Inheritance: A thorough discussion of inheritances and estates goes beyond the scope of this tax tip.  However, here are a few general guidelines:  life insurance settlements when you are the beneficiary are nontaxable.  Property received from the estate is generally not taxable.  Any liquidations of cash from the decedents’ savings accounts, CDs, etc. you receive are not taxable.Any inheritance you receive that would have been taxable to the decedent will generally be taxable to you.  This would include interest income, dividend income and distributions from IRAs.As always, give us a call if you have any questions.You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.Rick Prewitt - the guy behind TTW...until next week.