The IRS is getting pretty good at comparing your income reports against what you claim on your tax return. The result is a notice by mail, called a correspondence audit. If you receive one, it unfortunately takes a long time to resolve. To help you avoid this hassle, here are several easy-to-miss income sources and some ideas to help capture this IRS-reported income when filing your tax return.

Easy-to-miss income sources

• Side gigs and freelance work. Extra projects and informal work sometimes feel more like favors than income. The IRS, though, still generally views any paid work as taxable. The upside is that these activities often have deductible expenses, which can help offset income when tracked from the start.
• Selling items online. Online selling often begins as a hobby or as a way to declutter your living space. But pay attention when your sales turn profitable or more regular. Knowing where this line is can help you determine when to step up your recordkeeping.
• Small amounts from accounts and apps. Taking a moment to note interest, bonuses, or app payments helps ensure these amounts are accounted for before tax time, when they are more likely to be flagged by automated reporting from the IRS and other tax authorities.
• Refunds and reimbursements. Money coming back to you often feels like a non-event. Keeping brief notes about refunds and reimbursements makes it easier to confirm whether they’re taxable and ensures they’re treated correctly if questions arise later.
• Insurance payouts and settlements. Insurance payments usually need a review. Understanding what the payment covers helps determine whether and how to report it. This includes:
  • Replacement costs
  • Lost income
  • Another purpose
• Unemployment compensation. Keep all records. This one is often confusing because during COVID, the federal government temporarily made this income tax-free. It is no longer the case.

What you can do to avoid tax issues

To reduce the chances of missing these types of income, the following simple habits can make a meaningful difference:

1. Keep a running list of income sources. When money comes from outside a regular paycheck, make a quick note of it. A short entry on your phone or a simple spreadsheet creates a reliable reference later and reduces the chance of last-minute guesswork.
2. Save documents as you receive them. Tax forms, payout summaries, and transaction statements often arrive at different times. Placing them in a single digital or physical folder keeps everything in one place, so nothing is missing when you are ready to file.
3. Look at spam and junk email folders. Many vendors are now sending 1099s digitally via email. If they are tagged as spam, you may never see them. So keep a list, and if you are missing a form, check these folders.
4. Review accounts before preparing. Before the preparation of your tax return, scan your bank accounts, payment apps, and online platforms for deposits that may not feel like income. A quick review can catch items that didn’t generate an official tax form but still need to be reported.

If you have any questions or are ready to file your taxes, contact our RRBB advisors.