Income tax is a given fact of life, but there are many other things liable for taxation you may not consider. Life insurance beneficiaries, for example, may be subject to paying for any funds they received after a loved one’s passing. The movie characters you see inherit a vast fortune from a mysterious relative may not be as lucky as you think. It turns out that even criminals aren’t exempt from filing taxes. Taxation in the United States is filled with surprises and here are four you may not have known about.
Life Insurance Benefits and Settlement Payouts
While the money you receive as a beneficiary generally doesn’t factor into gross income, you will have to pay taxes on any incurred interest. So, if you receive funds after an interest period rather than immediately after someone’s passing, you are responsible for taxes on the growth.
Let’s say you are listed as a beneficiary for $100,000, but you defer payments for an interest period that accumulates 15% for one year. At the end of that period, you will be responsible for paying taxes on the interest, which would be $15,000 in this case. Life settlements are also taxable and that is because you are selling your insurance policy to make a profit, it counts as income. You can learn more details about life settlement taxation in an online guide that explains everything you need to know about life settlement taxation.
Monetary Gifts to Children
While most of us wouldn’t expect a $50,000 cash gift from our parents, it can happen. Any time a parent gives a child monetary gifts exceeding $15,000, the child must claim it as income. If you borrow money from your parents to take out a mortgage on a house, that amount is liable for taxation. Gift tax generally ranges between 18 to 40%, so make sure you think twice before accepting any major handouts.
Those who partake in illegal activity have to pony up to Uncle Sam, too. Income earned through illicit activities is still income under the IRS’ guidelines. While we hope this doesn’t apply to you, it is still one of the most surprising things you have to pay tax on, so this post wouldn’t be complete without.
Unlike child support, spousal support counts as income. For couples who divorce, sometimes alimony is necessary for a spouse who earns less or may not work at all. The money may teach them how to save money independently and help them reestablish themselves post-divorce until they are able to financially support themselves. Even if you could survive off the payments, you will need money put away to cover the annual taxes Generally, courts issue alimony at the end of long-term marriages that lasted 10 or more years. The spouse must also demonstrate a financial gap between their lifestyle with their partner and the one they will have on their own. Factors vary from each state, and the type of alimony payments you receive will also affect how much you owe.