The Truth About DNA Testing

Ryan Ermey: Home DNA tests are great for people curious about their heritage or genetic makeup, but they can also come with costs, risks, and big surprises. Kiplinger's vice president for content Sarah Stevens encountered all three and chats with us about her experience in our main segment. On today's show, we dish on debit card horror stories, and Sandy quizzes me on what's taxable and what's not. That's all ahead on this episode of Your Money's Worth. Stick around.

• Episode Length: 00:33:08
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Ryan Ermey: Welcome to Your Money's Worth. I'm Kiplinger's associate editor Ryan Ermey, joined as always by senior editor Sandy Block. Sandy, this is our last episode before Halloween and we kind of wanted to do something spooky.

Sandy Block: ... madness.

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Ryan Ermey: Although we don't get into too many scary things here at Kiplinger's, we did want to take the opportunity to talk about so-called horror stories.

Sandy Block: Right.

Ryan Ermey: In this case, paying for things electronically has made things so convenient, but it also can lead to these sort of horror stories. So earlier this year, there was an incident in July when Uber was adding two decimal places to customers' rides, so a $7 ride became a $700 ride.

Sandy Block: You thought you were going home and you went to Ohio.

Ryan Ermey: And people who were part of the loyalty program for Hawaiian Airlines were charged. One guy was charged $674,000 for his flight-

Sandy Block: I hope he had a good time.

Ryan Ermey: ... because of a screw up. I believe the deal was that they were charging him for his number of loyalty points.

Sandy Block: Right.

Ryan Ermey: There was a mix up in the system.

Sandy Block: Right.

Ryan Ermey: But the point is that these kind of glitches can happen. And the big piece of advice here is you probably shouldn't have these kind of services hooked up with your debit card.

Sandy Block: That's right, because in both cases you can dispute the charge and probably have it removed. There you have a lot of federal rights. But the difference is if you get a $400,000 charge on your credit card, you can simply refuse to pay it and go through the dispute process. If that's on your debit card, that's going to clean out your bank account. You actually have to go get the money.

Ryan Ermey: Right.

Sandy Block: And in the meantime, you could be bouncing checks all over town. It could be a real disaster for you. So I think for major purchases, we've also recommended this for something you want to return. If you buy something-

Ryan Ermey: Right.

Sandy Block: ... you don't ... a big electronics item or something, if it's defective, you can refuse to pay for it. You just have more rights with a credit card than with a debit card.

Ryan Ermey: Right. And when you're in one of these situations, really the sooner that you can find out about a sort of major problematic purchase on one of your cards, the better. Consumer advocates, well, advocate for you to set up alerts on your spending accounts so that you can see every time that you, hopefully you, make a purchase on one of your cards. Although, that can get pretty cumbersome.

Sandy Block: Right. And there are ways you can adjust that. I know some people including people I'm married to who get an alert on every ... I think every time they-

Ryan Ermey: The multiple people you're married to?

Sandy Block: Every time ... My husband gets an alert, I think, every time he makes a charge. And that's fine, but if you don't want to get an alert every time you buy a cup of coffee, I think you can set it up for a purchase over a certain amount.

Ryan Ermey: Right. Although, if that is the case, you still do want to check your history, your purchase history, I would say, at a pretty regular rate, maybe once every couple weeks.

Sandy Block: I think once a ... I've talked to identity theft experts who look at their online accounts every day.

Ryan Ermey: Yeah.

Sandy Block: Once a week might be enough. But the reason that's important is at the other end of the spectrum, because what's scarier than having somebody steal your credit card and use it for identity theft, right?

Ryan Ermey: Right.

Sandy Block: And one of the things that ID thieves do is make very small purchases when they've acquired a card or a number to see if it works.

Ryan Ermey: Yes.

Sandy Block: So you're not going to get an alert because somebody bought a Slurpee at 7-Eleven, unless you're my husband I guess, but you're not going to get an alert on that. But if you were monitoring your account, you would see that you were not anywhere near a 7-Eleven in Camden or something like that.

Ryan Ermey: Yes.

Sandy Block: And that would be a sign that somebody had stolen your card.

Ryan Ermey: That really did happen to me before and I think this person just kind of couldn't play it cool. I think I've talked about this on the show before. They charged like $3 at a convenience store on the highway in Pennsylvania and then went to the same convenience store the next exit over and bought like $600 worth of stuff. And Citi was like, "Yeah, no, that's not ..."

Sandy Block: "That's not Ryan."

Ryan Ermey: "Ryan doesn't have a car. He's not buying anything at the Tire Center. So keeping an eye out for small purchases if someone is a little bit more savvy than the person who stole my credit card number. And it was just the number. It wasn't ... my physical card-

Sandy Block: Right.

Ryan Ermey: ... was still in my wallet, but they were using my number. I'm not sure how they pull off that trick. But it should be noted that a big charge on your credit card doesn't impact your credit limit because merchants aren't allowed to collect any funds that are in dispute.

Sandy Block: Right.

Ryan Ermey: So like I said, yeah. You need to dispute these things quickly, first by contacting the merchant. That's your first step.

Sandy Block: Hawaiian Airlines.

Ryan Ermey: Right. And then escalate that to the credit company. Credit firms are required to contact you within 30 days of a disputed transaction. While that transaction is being disputed, it won't impact your credit limit, but one of these big purchases could temporarily lower your score due to an increase in your credit utilization ratio, which we've certainly talked about in the past.

Sandy Block: The amount of credit you have versus the amount of credit you're using.

Ryan Ermey: Although like I said, temporarily dinging your score is certainly better than money temporarily being out of your debit account-

Sandy Block: That's right.

Ryan Ermey: ... so that you can't pay your ... I'm really visualizing the scenario where something like this happens right before your rent is due. It really is a spooky-

Sandy Block: It's very spooky and very scary to have to fight for that money.

Ryan Ermey: Yeah. So the bottom line is for your Uber or Airbnb, or whatever that can charge you in an automated sort of way, use your credit card. It's easier to dispute. And for any and all of your spending accounts, monitor your purchases just in case someone goes and tries to-

Sandy Block: Buy tires.

Ryan Ermey: Buy tires on your behalf. Exactly right. Getting your DNA tested could come with more ramifications than you think. Our talk with Sarah Stevens is coming up next.

Ryan Ermey: Alright, we are back and we're here with Sarah Stevens who is the vice president of content -- generally, the editorial honcho here at Kiplinger's. Thank you for coming on, Sarah.

Sarah Stevens: Well thank you, Ryan. I'm big fans of you and Sandy.

Ryan Ermey: We appreciate it. So Sarah is part of the team that plans our shows, the topics that we discuss and we wanted to talk about this great story that is running on newsstands now in the November issue of Kiplinger's about researching your genetic heritage. And it just so happens that this pertains personally to you, Sarah. So why were you interested in researching your ancestry?

Sarah Stevens: So sure. I actually have always had an interest in genealogy, but then about two years ago, my mother kind of dropped the bomb on me -- a family secret she'd resisted telling me for about four or five decades, which was that the man that raised me was not actually my biological father.

Sandy Block: Wow.

Ryan Ermey: Wow.

Sarah Stevens: And she had a name, she had never told him about me and she didn't really have much information. She gave me a little bit of identifying information and his name, and I'm curious. So I said, "I'm going to hit the ground running and see if I can find this guy."

Ryan Ermey: So how did you go ... did you shop around for these different genetic tests?

Sandy Block: Did you Google? What did you do?

Ryan Ermey: Where did you start?

Sarah Stevens: Everything starts with Google, Sandy.

Sandy Block: That's right.

Sarah Stevens: Okay. Yes. So I started with Google, and I actually just through my own sleuthing, found a person that I thought was this man. I sent him a letter. I've since learned that probably wasn't the best way to do it.

Sandy Block: Right.

Sarah Stevens: Because nowadays you get a random letter from somebody that says, "I think I'm your daughter." And you think, "Yes, you're a princess-"

Ryan Ermey: I was going to say-

Sarah Stevens: "... from a third world country, who wants $1,000."

Sandy Block: In Nigeria. That's right.

Sarah Stevens: "Thank you." So I never heard back from him and actually he had taken that letter to an advisor, to his priest, who said, "It's a scam. Don't reply." But I didn't hear back and I wanted to see if I could learn more. And so I looked into these DNA tests, because even if I couldn't find him exactly, even if he was not in their database, usually there's a cousin.

Sandy Block: Right.

Ryan Ermey: Sure.

Sarah Stevens: We've reached this point now where so many people are in these databases that you can find a cousin, and you can get some confirmation. And I did know his last name. I knew his mother's maiden name. I knew where he was from and some other things I'd found through my Googling. And sure enough, I got a test kit, sent it in and found a number of cousins-

Ryan Ermey: Wow.

Sarah Stevens: ... who shared the same last name with him, his mother, his mother's mother, his father's father, etc. So I got some confirmation that I was on the right track.

Sandy Block: And then were you also interested ... because I think people do this for all kinds of reasons, like you said. In your case, you wanted to find out if someone was your father. But I think particularly if you were adopted, and this was the case we described in our story, or you discovered that one of your parents was not your parent, you want their medical history. Was that part of your search? Was that something that you were thinking about in doing this research?

Sarah Stevens: That is exactly one of the things I was thinking about. Now I'm a mother. I have a couple kids. And I had been to my physical at my internist and she said the question they always ask you, "Do you have any changes to your health history?"

Ryan Ermey: Guess what?

Sarah Stevens: And I said, "Yeah. Guess what about-"

Sandy Block: New dad...

Sarah Stevens: "Half of that, just cross it off." And I told her my mom had dropped the bomb on me that I ... all this stuff I told her about my father was not genetically accurate to me. And my internist said actually she's hearing that more and more, and I'm not surprised-

Ryan Ermey: Sure.

Sarah Stevens: ... with the proliferation of these tests now.

Sandy Block: Right.

Sarah Stevens: These family secrets are coming out. So that was one of my main reasons. And in fact, when I finally did get in touch with my biological father, because we now have found each other, he told me that one of the reasons he decided to go ahead and respond was because his daughter had adopted a child who ended up having some genetic issues, some health issues. And he said, "Gee, I think she should have this information." That there was, if not a right to it, it would be helpful to let me know about this health history. And so that is actually partly what drove him to go ahead and make the connection with me.

Sandy Block: Yeah, because I'm always struck when I go to the doctor, even for something routine, how many questions they ask now about not just your parents, but your grandparents. Everything that was wrong with them or every condition they had, seems to inform them about how to treat you. So it is kind of a black box if you don't know who your parents or one of your parents was.

Sarah Stevens: Absolutely. And that's one of the things I told my children also. I had said to him I didn't want anything from him except information, because this information is actually priceless.

Sandy Block: Right.

Ryan Ermey: Of course.

Sandy Block: Yeah. Well, I was telling Ryan earlier, now I haven't done a DNA test, but one of my cousins did an ancestry that just traced back where my people come from. And one of the things I discovered was that on my father's side were Ashkenazi Jews. And Ashkenazi Jewish women have a higher likelihood of having a breast cancer gene. And I had been tested for that already for other reasons, but that's the kind of thing that even just knowing where you came from sometimes can help inform your medical history.

Ryan Ermey: So when you went to start pursuing this, and this is something that people are interested in just like for fun, right? People just want to know, "Oh, I always thought I was Italian and Irish-"

Sandy Block: Yeah. "Where are my people?" Yeah.

Ryan Ermey: "But that's what it really is." People from Jersey, my God, it was like every kid I went to elementary school with was like, "Well, I'm 50% Italian and 25% Irish." They give you the whole rundown of their Catholic bona fides. So you were going into this for something kind of more serious, or at least the information was a little bit more vital. But did you sort of consider the, perhaps, privacy ramifications? Did you have to sign certain waivers or anything like that when it came to what kind of information that they were allowed to keep or disclose, or anything like that?

Sarah Stevens: Yes. The different vendors who have these kits do in fact have ... In fact now more than ever, because I think some people are getting surprised, or even now have emotional disclaimers on some of these that say, "You might be surprised what you learn, and it might upset you."

Sandy Block: Yeah.

Ryan Ermey: That's right.

Sarah Stevens: And now also with the criminal concerns.

Sandy Block: Right.

Ryan Ermey: Right.

Sarah Stevens: When I did my first test, there was no disclaimer or waiver about potentially letting law enforcement look at your data. There is now and-

Sandy Block: Yes and we know why.

Sarah Stevens: Right. We know why, but it's interesting because they have a box. You can check this box if you don't want law enforcement to have access to your data. But one of the vendors that I'm using actually also has videos. And they have videos from victims and survivors saying, "Please do allow law enforcement to have this information."

Sandy Block: Wow.

Sarah Stevens: Right. "That says things about how-"

Sandy Block: Oh, my gosh.

Sarah Stevens: "... we were able to identify my family member," or "We were able to identify the person who had hurt my family member." So they're actually kind of giving the other side of it as well to kind of encourage people to do this.

Sandy Block: What did they tell you, or what did you look into as far as having as privacy? Because I think one concern a lot of people have is this information could be used by their employers, or insurance companies, or to discriminate if it does reveal some health issues. How comfortable were you with that aspect of it?

Sarah Stevens: So I'm a lawyer by education, and so I am obviously ... and I work at Kiplinger, so hey, I know about privacy, right?

Sandy Block: You read all the fine print, I'm sure.

Sarah Stevens: You know it. And I was concerned about that. But for me, it's a balance, right? Because it's a balance between how much do I really want this knowledge and this information, including the health history, between what I'm risking in privacy? I do know the ... obviously, which we mention in our ... There is some federal protection there for genetic information. I don't know how strong that is. I think this is a kind of we're boldly-

Sandy Block: Me too.

Sarah Stevens: ... going into a whole new world with this now.

Ryan Ermey: I was going to say-

Sandy Block: Right. Yeah.

Ryan Ermey: It seems like a little bit of regulatory wild West when it comes to some of this stuff.

Sarah Stevens: I agree. But one of the things I tell my cousin, I want a cousin to do this for a number of reasons, but one of the things I say is, "As I walk around, I'm shedding DNA." I really am, and it's in my trash can and everything else. So to some extent, how-

Sandy Block: It's out there, right?

Sarah Stevens: It's out there. And nowadays they can test on so little of a data that I'm just, okay, sure. I'm shedding it all the time just walking through the environment.

Ryan Ermey: Right. Well, and to me it's almost sort of like, there was probably huge hesitation the first time that it became common for people to have credit card information online. It's like now I have my credit card number out at, what, 40 sites probably that I've used over the years. So it's probably going to be something that's going to become more commonplace. It's just going to be a question of weighing the information you're going to receive, versus the information that you're going to divulge, and what people could potentially do with it.

Sarah Stevens: I agree.

Sandy Block: That's right. And I guess, Sarah, going into this as an attorney and as a personal finance expert, based on your experience, a lot of people are interested in doing this. Do you have any advice for somebody who's considering it?

Sarah Stevens: That's a great question and I think that it is a matter of thinking about what your goals are. I think there is something valid to considering what might happen -- that you might get some bad news.

Sandy Block: Right.

Ryan Ermey: Oh, yeah.

Sarah Stevens: Or news you'd be surprised about. My stepfather refuses to do this test also, because they know themselves and they know that they don't want to learn some things.

Ryan Ermey: Right.

Sarah Stevens: I think that that's valuable. I also will say this. View it as an actual consumer purchase. There are a number of companies out there. They are trying to differentiate themselves by offering different things. Some specialize in the health information. There are different types of testing that you can do. Some of the basic testing now, if you just want to find cousins and some basic ancestry information, it should be less than $100. But some of them go ... They're a couple of hundred dollars.

Ryan Ermey: Sure.

Sarah Stevens: Some of the more advanced tests. The third test that I'd ordered, literally two days after I ordered the test, it went on sale, and ... I know and I'm like-

Sandy Block: ... sales.

Sarah Stevens: Like $20 cheaper.

Sandy Block: Let's put this in the calendar, Ryan.

Sarah Stevens: Exactly. But I contacted customer service and I said, "I purchased this, and I guess I could send it back to you and then reorder under the sale. I don't want to do that." And they said, "Sure, we'll just credit your account-"

Sandy Block: Wow.

Sarah Stevens: " ... for the sale." And that was great, and good customer service. And again, this was a consumer purchase, so I viewed it as such.

Sandy Block: Yeah.

Ryan Ermey: Well look, so that basically comes down to what we always say on this show.

Sandy Block: Shop around.

Ryan Ermey: Shop around. But also like you said, know what you're getting into. Know the risks. We have, like I said, a really excellent story on this in the November of Kiplinger's Personal Finance on newsstands now, also up on Kiplinger.com, so go check that out. And check out all of the wonderful Kiplinger content that we're putting out and that Sarah is nice enough to oversee. So thank you again for coming on. We really appreciate it.

Sarah Stevens: Thank you so much. It's been a pleasure.

Ryan Ermey: Would you owe taxes if you found buried treasure? What about if you robbed a bank? Our new pop quiz segment debuts after the break.

Ryan Ermey: We're back. And before we go, we'd like to debut a new segment. And maybe you might say, "Oh, this is like similar to fact or fiction." It is. Okay? It's similar, but it relies-

Sandy Block: With a twist.

Ryan Ermey: It relies on the fact that Kiplinger.com is a veritable treasure trove of fun online quizzes to see if you can test your personal finance knowledge. And so Sandy and I figured that this was under-utilized on our show, and so we're introducing the new pop quiz segment. So we usually, to give you guys a little bit of inside baseball, Sandy and I usually have an outline and go through what we're going to talk about on the show. There aren't very many surprises, but in this case I really genuinely have not looked at the answers for this quiz. So I could very well go down in flames. But Sandy, you are the quiz master for this segment, so over to you.

Sandy Block: Okay. So the quiz is, "Is it taxable?" And a little hint here is-

Ryan Ermey: Yes.

Sandy Block: Yeah, the sort of giveaway is that if there's any question, it probably is.

Ryan Ermey: The IRS really likes to tax you.

Sandy Block: That's right. There's not a lot that's not taxable.

Ryan Ermey: It's like their favorite thing.

Sandy Block: But even in that context, I think you might be surprised at some things that are taxable and a few things that aren't.

Ryan Ermey: Alright, let's hear it.

Sandy Block: So let's start. What about, let's say you discover buried treasure in your backyard. Taxable or not?

Ryan Ermey: Well, if I'm keeping the money, that's got to be income, right? So yeah, that's got to be taxable.

Sandy Block: Yeah. It's taxable. People have ... and almost all of these are backed up by a court case that the IRS won. And the IRS wins a lot of these, but the precedent for the treasure trove rule dates back to 1964 when a couple discovered about $4,000 in a used piano that they purchased for $15.

Ryan Ermey: Amazing.

Sandy Block: And they were very happy until the IRS said the couple owed income taxes on the money.

Ryan Ermey: There you go.

Sandy Block: And the U.S. District Court agreed. Okay. Now this is one of my favorite ones. How about stolen property? You robbed a bank. Is it taxable?

Ryan Ermey: It's one of the ... Well, if you robbed a bank, I don't think that you're a tax payer, but I know because I've written about it, that illegal gambling winnings are taxable. So bank robbery must be taxable.

Sandy Block: It is taxable. And of course, most robbers don't report their income.

Ryan Ermey: The IRS doesn't care where you get your money.

Sandy Block: They don't. Even though robbers don't report their income, so this might seem like a moot point, what very often happens, and this is sort of often referred to as the Al Capone rule, is that after someone does get caught and put in jail, then the IRS sends them a bill for taxes. And they don't care if you spent it all or whatever. You owe taxes on it. And a lot of times in these cases, the tax bill can be a whole lot worse than the prison term.

Ryan Ermey: Right.

Sandy Block: So stolen property, if you're so inclined to do that, is taxable. Okay. This one is a little bit of a ... What about college scholarships?

Ryan Ermey: Alright, I'm going to hedge my bets and say it depends. Actually, no. I wonder if it's a private or public thing. I'm going to say not taxable, the college scholarship.

Sandy Block: Most people would say no, it's not taxable. But in fact, if the scholarship covers more than tuition and books, it is taxable. If you get money for room and board, the IRS considers that taxable. And similarly, if you work, if part of your financial aid includes work-

Ryan Ermey: Like a work study?

Sandy Block: That can be taxable too.

Ryan Ermey: Oh.

Sandy Block: So I think college students ... a lot of times if you're in college, you probably don't make enough money to really worry about taxes, but some people do get large scholarships, and it is worth taking into account that not 100% of that money is tax free.

Ryan Ermey: Yeah, you got me there.

Sandy Block: Okay. How about this one? And this again is a little bit of a curve ball, alimony.

Ryan Ermey: Alimony. Wait, so if I'm receiving alimony from a spouse?

Sandy Block: Yes, if you're receiving alimony, do you owe taxes on it?

Ryan Ermey: Yeah. You got to.

Sandy Block: No, you don't. But give you, that this is a fairly new change. This is since the tax overhaul. It used to be that alimony was taxable, but the person who paid it could deduct it.

Ryan Ermey: That makes sense.

Sandy Block: The tax overhaul change that. It said alimony is tax free, but it's not deductible either. And when I first started covering this, I thought, well, if you're receiving alimony, this is good news, right? Because you don't have to pay taxes on the money. But in fact, a lot of attorneys who represent mostly women, or the lower paid ex-spouse, didn't like it at all, because if the payer couldn't deduct it, then they negotiated to pay a lower amount.

Ryan Ermey: Right.

Sandy Block: So this is something that is fairly recent. It doesn't affect people who were divorced before 2017, but it affects people who are getting divorced now. And it's just something to take into account when you're settling up and figuring out how much to pay and how much to get. So ...

Ryan Ermey: But generally, having a tax free income stream is nice.

Sandy Block: It's nice, but as I said, it's smaller.

Ryan Ermey: It's going to be a little bit lower.

Sandy Block: Yeah, it's going to be a little bit smaller than it used to be. Alright. Now this wouldn't apply to you and not me either because of my age, but how about donated eggs? And I'm not talking about the kind-

Ryan Ermey: I was like, "What doesn't apply to me?"

Sandy Block: And I'm not talking about the kind that...

Ryan Ermey: Donated eggs. Well, generally let's say charitable donations are a write off. Do your eggs have a similar value? Can you write off an egg donation?

Sandy Block: Most people are not donating their eggs for free. They're getting several thousand dollars for it. And actually, some women who donated eggs did try and argue that it wasn't taxable, because they claimed that they were giving something away. But ...

Ryan Ermey: Well, what if I'm not paid for them. Well, then it's moot.

Sandy Block: Well, that's the problem. You are paid for them.

Ryan Ermey: Right. You are paid for them.

Sandy Block: Paid a lot, $15,000 or more. And the IRS is-

Ryan Ermey: Yeah, so that's taxable.

Sandy Block: It's totally taxable. But ...

Ryan Ermey: I was thinking donation, like you'd donate to Goodwill.

Sandy Block: I don't think Goodwill-

Ryan Ermey: Goodwill doesn't pay ...

Sandy Block: No.

Ryan Ermey: Goodwill won't pay you $15,000 for your-

Sandy Block: No.

Ryan Ermey: ... old flannel.

Sandy Block: No, you've got to take your eggs somewhere else.

Ryan Ermey: Okay.

Sandy Block: Okay. Just a couple more. How about on the off chance, Ryan, that your work is so prestigious that you win a Pulitzer or maybe even a Nobel Prize, is that taxable?

Ryan Ermey: Yeah. Got to be.

Sandy Block: It is. It is. And the only way to avoid ... this year's ... the Nobel Prize is paid in Swedish krona. So every year I have to update this slide show to say how much that is in the U.S., and right now it's about $934,000.

Ryan Ermey: That's pretty nice.

Sandy Block: And I'm not sure what the Pulitzer is, but any of these prizes are taxable. The only way to avoid paying taxes is to do what President Obama did when he received the Nobel Prize, which is he gave the whole thing to charity.

Ryan Ermey: You donate it. Yeah, of course.

Sandy Block: You donate to charity. Otherwise, yes, the IRS-

Ryan Ermey: Otherwise, it's just like my Jeopardy winnings.

Sandy Block: Yeah, that's right. Totally taxable.

Ryan Ermey: Very much taxable.

Sandy Block: Fortunately not a lot, but taxable still. Right?

Ryan Ermey: Absolutely.

Sandy Block: Okay. One more. A gift from your employer?

Ryan Ermey: Gift from my employer. Well, if it's a gift, I'm going to say taxable.

Sandy Block: That's right, depending on the value of the gift. At this office and at many offices at Christmas time, we might get-

Ryan Ermey: A bottle of wine or something. You're not going to ... no.

Sandy Block: Yeah, yeah. You don't have to report that to the IRS. And in journalism, that's about as good as it gets. But if you work for an

Ryan Ermey: How dare you.

Sandy Block: ... one of these big shot employers that maybe gives you a new set of golf clubs to recognize a job well done-

Ryan Ermey: A new Rolex.

Sandy Block: ... or a trip or something like that, in that case it is taxable. And this is something that goes back to a Supreme Court ruling that a gift from an employer can be excluded from the employer's income if it was made out of detached and disinterested generosity. Most of the time gifts that reward an employee don't meet that standard. They're saying good job.

Ryan Ermey: I love a detached generosity.

Sandy Block: I know, that's right.

Ryan Ermey: Wouldn't you love to know someone rich enough to have detached generosity?

Sandy Block: They say, "We don't really care if you did a good job."

Ryan Ermey: Just drop some money on the ground. If you want to pick it up, you can. It's just detached.

Sandy Block: But I think the general rule is if your employer gives you something bigger than a mug, probably then you need to think about whether you're going to have to pay taxes on it. Okay. One more.

Ryan Ermey: Oh, one more. Okay.

Sandy Block: This one is kind of a moving target, and that is Bitcoins.

Ryan Ermey: Oh, taxable.

Sandy Block: Yes. And what messes people up about this and other kinds of virtual currency is that a lot of people use these to buy things. And they're thinking, "Well, if I'm just using my Bitcoins to buy something, why do I have to pay taxes on it?" Well, what you have to pay taxes on is capital gains.

Ryan Ermey: Is capital gains. Of course.

Sandy Block: Because you purchased that Bitcoin.

Ryan Ermey: Right. So you won't have to pay taxes if you bought Bitcoin at the top and it went to the bottom.

Sandy Block: Right. But if you bought it and made some money on it, and then you ... The fact that you spent it basically is like selling a stock.

Ryan Ermey: You're realizing capital appreciation, of course.

Sandy Block: And this has been in the news recently because the IRS has made it clear that it is cracking down on these transactions. It's paying more attention to it. It's worried about a lot of virtual currency not being taxed. So if you have Bitcoin ... and I think most people realize that Bitcoin is an investment and that they probably do have to pay taxes on it. But I think what confuses people a little bit is that it also acts as a currency.

Ryan Ermey: Yes.

Sandy Block: And you don't pay taxes when you pay for something in dollars, but Bitcoin-

Ryan Ermey: Now I have a friend who uses Bitcoin as a currency for his illegal gambling. What should he do about that?

Sandy Block: Oh, my goodness.

Ryan Ermey: Well, look-

Sandy Block: Move out of the country.

Ryan Ermey: Well, no. What he should do is acknowledge the fact that he's a perpetual loser when it comes to gambling as well as the Bitcoin. So he has absolutely nothing to worry about. Well, I think the bottom line here is when it comes to questions of whether it's taxable or not, the IRS is not going to be indifferently generous.

Sandy Block: No, it's not.

Ryan Ermey: You are going to generally have to pay up.

Sandy Block: And in many of these cases, and this is true of gambling, which we've talked about before, if you get a 1099 or another form, remember that that means the IRS got that too.

Ryan Ermey: Right.

Sandy Block: And you are going to have to pay taxes on that money.

Ryan Ermey: Alrighty folks. So as we said with the new segment, the old pop quiz, head on over to Kiplinger.com. There is a huge cache of quizzes for you to take there. See how you stack up against me in future episodes or Sandy or anyone here at Kiplinger or your fellow readers. It's good, clean fun. That's it for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit Kiplinger.com/links/podcasts. You can stay connected with us on Twitter, Facebook or by emailing us at podcast@kiplinger.com. And if you liked the show, please remember to rate, review, and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.

Links and resources mentioned in this episode

• Credit, Debit or Cash?
• Better Protections for Prepaid Debit Cards
• Discover Your Roots With DNA Testing
• Browse Kiplinger's Online Quizzes