When it comes to recording your income it can get pretty tricky. It’s hard to know what the government considers as taxable income. Actually, did you know that some income is not taxable – or tax-free? This month we would like to tell you about ten types of income that are not considered taxable by the government, which means you don’t have to report it on your taxes.
- Gifts. You can receive up to $13,000 per year as a gift from one person, and you can receive gifts from multiple people in a year. This means that if you received $13,000 from your grandmother and $13,000 from your uncle that would be $26,000 of income that would not be taxable to you. However, there is a down side. The gift is not tax deductible to the giver.
- Rental Income. You can rent out your home for up to 14 days without having to report your income. So if you rent out your home as a vacation rental or if your rent it out for a special occasion like a film festival or community event, the income is not taxable as long as it is under the 14 day limit.
- Children’s Income. Children under the age of 18 can earn up to $5,800 dollars in wages before it is taxed. If the child earns more than this, the income could be taxed on the parent’s tax form. Also if you have a business, you can pay your child from the business too. This can create a great tax deduction.
- Inheritance. When you inherit money, that money is not taxable. However, if you inherit property and then sell it, the income from the sale may be subject to capital gain tax.
- Roth IRA Earnings. Income from this type of retirement is not taxable. But you have to make sure you are following the rules of a Roth IRA or they might be subject to tax.
- Life Insurance Received. If life insurance is paid to an individual, the full value of life insurance is not considered taxable income. However, there may be some tax involved if the insurance is paid to a trust.
- Child Support. Money you receive for child support is not considered taxable income and should not be reported. But be aware that money received from alimony is taxable income.
- Home Sales Gains. Money received from selling a qualified principle residence is not taxable. There is a limit to the amount that is not taxable. The limit is up to $250,000 for singles and $500,000 for married couples filing a joint return.
- Scholarships and Fellowships. Money awarded to students to pay for tuition, fees, and books is not considered taxable income.
- Tax Refunds. Federal refunds are not taxable because you have already accounted for this income on the previous year’s tax return. Most state refunds are also tax-free for non-itemizers.
So there you have it, the top ten tax-free sources of income. If you have any questions feel free to contact us. Also, you can check out our website avoidbeingaudited.com for some great advice and free information about business finances.
Article submitted by Matthew Anderson of Soulence Tax and Accounting.