and income from bartering, partnerships, S
corporations, and royalties. The information on this page should not be
construed as all-inclusive. Other steps may be appropriate for your specific
type of business.
Generally, an amount included in your income is
taxable unless it is specifically exempted by law. Income that is taxable
must be reported on your return and is subject to tax. Income that is
nontaxable may have to be shown on your tax return but is not taxable.
You are generally
taxed on income that is available to you, regardless of whether it is
actually in your possession.
A valid check that you received or that was made
available to you before the end of the tax year is considered income
constructively received in that year, even if you do not cash the check or
deposit it to your account until the next year. For example, if the postal
service tries to deliver a check to you on the last day of the tax year but
you are not at home to receive it, you must include the amount in your
income for that tax year. If the check was mailed so that it could not
possibly reach you until after the end of the tax year, and you could not
otherwise get the funds before the end of the year, you include the amount
in your income for the next year.
Income received by an agent
for you is income you constructively received in the year the agent received
it. If you agree by contract that a third party is to receive income for
you, you must include the amount in your income when the party receives it.
For example, you and your employer agree
that part of your salary is to be paid directly to your former spouse. You
must include that amount in your income when your former spouse receives it.
Prepaid income, such as
compensation for future services, is generally included in your income in
the year you receive it. However, if you use an accrual method of
accounting, you can defer prepaid income you receive for services to be
performed before the end of the next tax year. In this case, you include the
payment in your income as you earn it by performing the services.
Generally, you must include in gross income
everything you receive in payment for personal services. In addition to
wages, salaries, commissions, fees, and tips, this includes other forms of
compensation such as fringe benefits and stock options. You should receive a
Form W-2, Wage and Tax Statement, from your employer showing the pay you
received for your services.
If you provide child care, either in the child's
home or in your home or other place of business, the pay you receive must be
included in your income. If you are not an employee, you are probably
self-employed and must include payments for your services on Schedule C
(Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net
Profit From Business. You generally are not an employee unless you are
subject to the will and control of the person who employs you as to what you
are to do and how you are to do it. If you babysit for relatives or
neighborhood children, whether on a regular basis or only periodically, the
rules for childcare providers apply to you.
