3. Income Subject to Taxation
Income can also come from other sources than what we earn on our pay checks or what we are paid for mowing lawns or some other job we do on our own. Income also includes interest the bank pays us on our savings and money we make when we sell something for more than we paid for it.
If we sell certain things and make money, we may have to count that money we made or gain as income. It almost doesn’t matter what we sell. It could be stocks, mutual funds, baseball cards or cattle. If we make money because we sold the item for a higher price than we purchased it, we are taxed upon the gain in the value. If we lose money because we sold the item for a lower price than we purchased it, we may be able to deduct that loss in value from our income. Income from sources other than employers is often reported back to the IRS and us on a form called, 1099.
When it comes to income taxes the government isn’t picky about how we earn it. They simply have us add it all together for purposes of figuring out our gross income. Our employer gives us a W-2 which contains the income information we need to file our tax return. We then are required to report all of our income to the government by April 15th of the year following the calendar year in which we made the money. How much money we make is the first step in figuring out how much we owe in taxes.