Understanding Turbotax's "Other Income And Loss" Section

When filing taxes, it is important to understand what constitutes other income or loss. This is because it can impact your tax obligations. For example, other income can include various payments from government agencies like state tax refunds, unemployment, and taxable grants. On the other hand, losses can include capital losses, such as the sale of assets resulting in short-term or long-term capital losses. These losses can be carried over to subsequent years to offset capital gains and other income. It is essential to accurately report these items to ensure compliance with tax regulations and avoid penalties.

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Capital gains and losses

As an investor, it's important to understand how capital gains and losses work, as they will impact your tax obligations. A capital gain is the profit you receive when you sell a capital asset, which can include stocks, bonds, mutual fund shares, and real estate. Conversely, a capital loss is incurred when you make a loss on the sale of a capital asset.

On the other hand, if you hold an asset for more than a year before selling it, any gain or loss is considered long-term. Long-term capital gains are usually taxed at lower rates than short-term gains. For 2024 and 2025, long-term gains are taxed at either 0%, 15%, or 20%, depending on your tax bracket.

When filing your taxes, you will typically use Schedule D to report capital gains and losses from selling or trading assets during the year. Schedule D is used to report sales and trades of investments, real estate, or other assets such as cars or collectibles. If you have detailed information about each capital asset transaction, you may also need to file Form 8949 along with your Schedule D.

It's important to note that special rules may apply to certain asset sales, such as your primary residence. Additionally, any excess net capital loss can be carried over to subsequent years to be deducted against capital gains and other types of income.

State tax refunds

If you received a state tax refund last year, your state may send you Form 1099-G. This form reports any income you received as a refund, credit, or offset of state or local income tax. This amount can be found in Box 2. It is important to note that receiving Form 1099-G does not necessarily mean you owe money. For instance, if you claimed the standard deduction on last year's tax return, you typically won't owe anything.

However, the amount reported on Form 1099-G may be partially or fully taxable under certain circumstances. If you itemized deductions on last year's federal income tax return and claimed a deduction for state income tax paid on Schedule A (Form 1040 line 5a), your state income tax refund may be taxable. This occurs when you receive a tax benefit from deducting too much state tax in the previous year. For example, if you deducted $5,000 in state income taxes but received a $1,000 state refund, the IRS considers that $1,000 taxable because you benefited from the deduction. In such cases, you must include the refund on the following year's federal income tax return.

TurboTax can assist in determining whether your state tax refund is taxable. The software will ask you a series of questions and automatically calculate the taxable amount, if any. Additionally, TurboTax provides the State and Local Tax Refund Worksheet to help you figure out the taxable portion of your state refund. This worksheet must be filed along with your tax return, and the calculated taxable amount is reported on Schedule 1 of the new 2019 form.

It is important to note that state tax refunds are not always taxable. If you did not itemize deductions on the prior year's return and deduct these taxes paid, they are likely non-taxable on your current return. Additionally, non-refundable tax credits, which can lower your income tax to $0, are also non-taxable. Only refundable tax credits, which can result in a refund even if you don't owe taxes, may be considered taxable income.

Unemployment

If you are unemployed and receiving unemployment benefits, this income is taxable and should be included in your income for the year. Some states in America also count unemployment benefits as taxable income. You will need to report your unemployment compensation on Schedule 1 of your federal tax return in the Additional Income section. The amount will then be carried over to the main Form 1040.

If you are self-employed, a side-gigger, or a freelancer, unemployment income will be added to your net income from self-employment and may be taxable. You will need to report your expenses on Schedule C (Profit or Loss from Business) or Schedule F (Farm Income). You will also need to attach Form SE (Self-Employment Tax) to your 1040 and pay Social Security and Medicare taxes on your self-employment income.

You can choose to have federal taxes taken out of your unemployment income by filling out a Form W-4V Voluntary Withholding Request. This way, you won't be surprised when it's time to file your taxes. If you don't choose voluntary withholding, or if the amount withheld is insufficient, you can make estimated tax payments.

TurboTax's Unemployment Benefits Center can help you learn more about unemployment benefits, insurance, and eligibility. It will also answer your tax and financial questions. TurboTax will ask you simple questions about your situation and guide you to the credits and deductions you are eligible for.

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Taxable grants

Grants are generally given to individuals for travel, study, or other similar purposes. They can also be awarded for charitable purposes or program-related investments. These grants are considered taxable expenditures unless certain conditions are met.

Firstly, if the grant is a scholarship or fellowship intended for study, it may be tax-free if the recipient is enrolled in an educational institution that maintains a regular faculty, curriculum, and student body. The funds from the grant must be used for expenses directly related to the scholarship or fellowship, such as tuition, fees, books, and equipment.

Additionally, a grant may be tax-free if it qualifies as a prize or award excludable from gross income under Internal Revenue Code section 74(b). In this case, the recipient can keep the full amount without transferring any portion to a governmental unit or charity.

However, grants that are awarded to achieve specific objectives, produce a report, or enhance a skill or talent, such as literary, artistic, musical, or scientific abilities, are typically considered taxable income.

It's important to note that the tax treatment of grants can vary depending on the specific circumstances and the nature of the grant. Therefore, it is always advisable to consult with a tax professional or refer to the Internal Revenue Service (IRS) guidelines for the most accurate and up-to-date information regarding taxable grants.

Taxable Social Security

Social Security benefits include monthly retirement, survivor, and disability benefits. They do not include supplemental security income (SSI) payments, which are not taxable. The net amount of Social Security benefits you receive is reported in Box 5 of Form SSA-1099, Social Security Benefit Statement. You then report that amount on line 6a of Form 1040, U.S. Individual Income Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors.

The portion of Social Security benefits that are taxable depends on the taxpayer's income, filing status, and total income and benefits for the taxable year. Taxpayers should take half of the Social Security money they collected during the year and add it to their other income, which includes pensions, wages, interest, dividends, and capital gains. If a taxpayer is single and that total comes to more than $25,000, then part of their Social Security benefits may be taxable. If they are married and filing jointly, they should take half of their Social Security, plus half of their spouse's Social Security, and add that to their combined income. If that total is more than $32,000, then part of their Social Security may be taxable.

If you are married and file a joint return, you and your spouse must combine your incomes and Social Security benefits when figuring out the taxable portion of your benefits. Even if your spouse did not receive any benefits, you must add their income to yours when figuring on a joint return if any of your benefits are taxable. You can figure out the taxable amount of the benefits using a worksheet in the Instructions for Form 1040 (and Form 1040-SR) or in Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

For children, if the total of half of their Social Security benefits and all of their other income is greater than the base amount that applies to their filing status, part of their Social Security benefits may be taxable. The base amount for a single child is $25,000. You can also figure out the taxable amount of the child's benefits using a worksheet in the Instructions for Form 1040 (and Form 1040-SR) or in Publication 915.

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