Gambling Winnings and Other Profits You Need To Pay Taxes On -- and What Happens If You Don't
The average person probably isn't paying taxes on at least one type of income they're making — the reason is not tax fraud, but ignorance.
According to Heather Berger, a U.S. economist with Morgan Stanley, income tax refunds are expected to increase by 15% to 20% on average in 2026. With the IRS reporting that the average 2025 refund in mid-April was $2,942, taxpayers can expect to receive between $3,200 and $3,500 in 2026, although as of March 6, the average return stands at $3,676.
Also See: These 9 Types of Income Are Not Taxable
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While it's exciting to think about what you could do with your tax refund, you want to ensure that you file your income taxes correctly so you don't get hit with any penalties.
That's why we consulted with accountants to learn about things the average person should be paying taxes on and the possible consequences of not paying taxes up front.
Gambling Winnings or Found Money
Annette Nellen, a tax professor at San Jose State University, noted that any income a person generates comes with taxes.
Even if there is no Form 1099, you will be responsible for reporting income, she said. Example: Gambling winnings below the reporting threshold for the casino. While you may not get a form for income generated, you're still expected to claim it.
"If you made money, saved money, won money, found money or borrowed money, there is probably a tax form somewhere with your name on it and a tax code section to back it up," said Nicole Green, EA, MST, CAA and president of NGG Tax Group, a tax advisory firm focused on complex and often misunderstood income. "In the eyes of the IRS, all income is taxable unless the Internal Revenue Code tells you it is not."
Nellen also mentioned that if you have a tenant staying in your basement or spare room, you're expected to claim it. A lack of a form doesn't absolve you of your tax responsibility, even if you don't think it will get noticed.
Babysitting, Tutoring and Other Cash-Paying Gigs
Green noted that side hustles are booming and taxpayers are earning money in more creative ways than ever before.
"However, many taxpayers do not realize that every dollar counts for the IRS, whether it comes from a carefully structured consulting business or a quick Saturday babysitting job," she said.
She said clients are sometimes shocked to learn that they owe taxes on income that they had forgotten about.
"We help individuals understand that gig income is taxable even when it is paid through Venmo, Cash App or PayPal," she said. "From tutoring and rideshare driving to selling handmade goods on Etsy or clearing out household items and selling them on Facebook Marketplace. Income is income."
You want to ensure that a side gig can help fuel your financial goals, not accidentally build a tax bill. This is why you want to set aside some of your earnings for taxes so that you're not scrambling around tax season.
Items You Flipped by Chance
If you found something at a yard sale for $10 and flipped it for $20 on Facebook Marketplace, you're expected to claim this income on your taxes. This applies even if you're not actively engaging in flipping as a side hustle.
Nellen said, "These gains on personal items are taxable, but any losses are not allowed."
Unemployment Compensation
"You might assume that if you've lost your job and are on unemployment, the government would give you a break and not tax you on your unemployment checks," said Logan Allec, a CPA and owner of CPA firm Clarita CPA Group. "Unfortunately, this isn't the case and your unemployment compensation will be taxed."
Allec stressed that your unemployment income will be taxed at the federal level at the same rates as your normal wages. While a handful of states, such as California and New Jersey, don't tax unemployment benefits, you can't forget about these taxes.
Cryptocurrency Transactions
Allec said many people get hit with surprise tax bills because they assume that as long as they don't sell their cryptocurrency for U.S. dollars and withdraw it from a cryptocurrency exchange, they won't be taxed. The reality is that every time you trade or swap your cryptocurrency for something else, that's a taxable transaction.
Allec provided the following example: "If you bought one bitcoin for $90,000, saw the price of bitcoin rise to $100,000 and then swapped that bitcoin for 25 ethereum at $4,000 each, you have a capital gain of $10,000, even if the cryptocurrency is still sitting on the exchange."
If you frequently engage in cryptocurrency transactions, you may have hundreds of taxable cryptocurrency-related events per year. This can be a nightmare to track manually, but there are many crypto tax software programs that can do a lot of the legwork for you if you link all your cryptocurrency wallets and exchange accounts to them.
How Not Paying Taxes Can Cost You
"If income taxes are not fully paid because income was missing, additional tax, interest and likely an understatement of tax penalty will be assessed if the IRS or state agency discovers the omission," Nellend said.
She also emphasized that if the income tax was missed intentionally, then fraud penalties can apply.
Allec warned that you can expect penalties if the taxes on these items are not paid by the original due date of the return (generally April 15 of the following year), specifically the failure-to-pay penalty, which is equal to 0.5% of the unpaid tax balance per month or part of a month the taxes are unpaid.
If you don't pay taxes on any of the things mentioned on this list, you could put yourself in a compromising financial situation, especially if you can't afford the bill.
"Ignoring taxable income can cost far more than the tax itself," Green said. "In addition to the unpaid tax, the IRS charges interest that accrues daily and late-filing and late-payment penalties can materially increase the balance. When income goes unreported for multiple years, the exposure compounds quickly. If the balance remains unresolved, it can escalate into collection action, including levies."
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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