A common tax question that we hear is whether certain income is taxable. Generally, most income that you receive will be considered taxable; however, there are a few types of income that are only partially taxable or not taxed at all.
To ensure that taxpayers understand the difference between taxable and non-taxable income, the IRS released a list (read the full release here) of the most common examples of items that are not included in your income. You’ll find a few listed below:
- Child support payments (which are also not deductible for the payer)
- Gifts, bequests and inheritances
- Workers’ compensation benefits
- Compensatory Damages awarded for physical injury or physical sickness
- Welfare Benefits
There are also other items that are taxable in certain situations, but not others. Some of these items include:
- Life Insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
- Scholarship or Fellowship Grant If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
- Non-cash Income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
Of course there are more items that fit into these two categories. For more information on taxable and nontaxable income, please see IRS Publication 525.
For more information on taxes click here.
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