In general, most income that you receive will be taxable income. There are very few exceptions to this rule. If you work for it, trade for it, win it, accept a cash gift or get it in money, property, or services, the government wants their fair share. The IRS Tax Code describes this as “Income from whatever source derived”.
There aren’t too many situations where you are going to get money and not have to pay taxes on it. If it is earned income that is constructively received, you will need to include this on the tax return for the year that it is received. Even if for some reason you do not get the money until the next year, it will still go on the year it is earned.
More people are interested in what constitutes non-taxable income. Below is a quick list of items that may be exempt from income tax, however, the exemptions are conditional, so be sure to visit with our team before assuming that they are exempt across the board.
1. Disability Insurance Payments
2. Workman Comp payments
3. Employer-Provided Insurance
4. Gift Giving of Up-to $13,000; Gift Receipt of Any Amount
5. Life Insurance Payouts
6. Sale of Principal Residence
7. Up to $3,000 Capital Losses from income offset
9. Municipal Bond Interest
There are a few others that may be non-taxable. A partnership will generally not be a taxable entity. An S corporation will generally not pay tax on its income, provided it meets certain income criteria. But it is best to get the reliable opinion of a professional CPA in these cases to see if you are really in the clear from taxes. Remember, the IRS doesn’t accept the “I didn’t know” excuse if you don’t file correctly.
Any income you get from working a job will usually be taxable income. There are very few exceptions to this rule. Plus you will be required to pay taxes on unemployment, if you collect this benefit. So if you are working or not working you will need to pay taxes. There is no way around them. Even if you trade or barter for anything that is worth monetary value, you will need to pay taxes on this income. If you have question about what is and isn’t taxable income, you can go to:
Tax time isn’t the time to experiment with your tax strategy. Meet with the professional staff at www.kathyegancpa.com to make sure you are taking care of your tax obligations and not over paying.