We all know that we must pay both income and social security taxes on employment income as well as any contract labor. In general, most income you receive is going to be taxable. However, there are some situations where it is only partially taxable and some that are not taxable at all. Some income that is not taxable includes: child support payments, gifts, bequests and inheritances; workers’ compensation benefits; welfare benefits; and cash rebates from a dealer. In this article I will discuss some of the specifics for certain items that seem to come up more frequently than others.

You win cash from a drawing or contest it is considered taxable income and must be reported on your return as other income. Similarly if you win something that is not cash, like a TV or car, boat, a trip, etc. Then the fair market value of your winnings needs to be reported on your return as other income.

If you happen to hit the jackpot in Vegas or win the lottery, you will owe the IRS a nice chunk of change as win money while gambling that income is taxable as other income. This includes raffles and lottery. You are allowed to deduct those losses up to the amount of your winnings, as a miscellaneous itemized deduction. Similarly you can prove that your gambling activity was conducted as a trade or business your losses would be reported, but be careful here your gambling losses are still limited to the extent of your gambling gains. You should be very careful when completing your return as a professional gambler as the courts have a hard time envisioning gambling as not being pure recreation.

This is one of the main reasons people might choose to take annual payments, when they’re an option, rather than a lump-sum payout. Along with lottery and other gambling winnings, you will have to pay taxes on any prizes you received, regardless of whether they were given in the form of cash. If your church or child’s school sold raffle tickets, and you win a car, you have to pay taxes on the cash value of that car.

If you received a gift from a friend, relative or perfect stranger, you do not have to pay taxes on it. When someone gives you a gift of cash it is not taxable. Similarly when someone gives you a non-cash gift, it is not taxable to you. The sale of a gift may produce a capital gain, which would be taxable. However, be aware that any money exchanged between an employer and employee is considered compensation and therefore taxable income.