When it comes time to fill out your federal tax return, you enter your income from your job or business and list all your deductions. But remember, income doesn't have to be money.
For example, if you won a new car at the county fair last summer, you must pay taxes on the market value of the car. The organization that gave away the car should have sent your a Form 1099, listing the taxable value of the car.
Also, when companies provide you with something of value as an incentive to do business with them, there are usually tax implications. Last year Citibank offered customers who opened a new checking account 30,000 frequent flier miles. Those miles have a value, and many customers who got them were surprised they carry a tax liability.
Kieth, of San Diego, opened one of the accounts last year and the miles were deposited to his account.
“I received a $750.00 tax liability 1099 notice for these miles from Citibank: labeled 'other income,' for opening the checking account,” Kieth told ConsumerAffairs.com. “No disclosure at all upon opening the account of this outcome was offered. Only now receiving the liability have I been informed. And they will not accept back the miles they gave me as payment to expunge this liability. Had I known I'd never have opened the account.”
Noella, of San Mateo, Calif., said she too was unhappy to receive the 1099 for the miles. However, she does admit that the offered carried the disclaimer “customer is responsible for any taxes, if any.”
Remember, if you receive anything of value in the course of doing business, the Internal Revenue Service will likely expect you to pay taxes on it.
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