In navigating income tax, it’s crucial to distinguish between taxable and non-taxable sources of money. Here’s a breakdown to help you understand:
Non-Taxable Income Sources
Certain types of income are generally not subject to income tax:
- Money received as a loan
- Gifts and inheritances
- Child support received
- Welfare benefits
- Worker’s compensation (generally)
- Damages received for physical injury or sickness
- Cash rebates from purchases
- Meals and lodging for the convenience of the employer on employer’s premises
Conditional Taxable Income Sources
Some sources of income may or may not be taxable based on specific circumstances:
- Life insurance proceeds
- Scholarship grants
Bartering: A Taxable Income Source
Bartering—exchanging goods or services with another person—generates taxable income. Both parties must report the fair market value of goods or services received on their tax returns.
Important Considerations
Forgiven debt is another area to watch: it can sometimes be taxable income
.One source of income that is often overlooked is generated by bartering. If you trade goods or services for other goods or services with another person, both of you need to report the fair market value of the goods or services as income on your tax return. Also, like we discussed in our previous blog post forgiven debt can be taxable.
This list provides a general overview and isn’t exhaustive. If you have questions about taxable income or need further assistance, please contact us. Peter Witts CPA PC are here to help navigate the complexities of income tax and ensure compliance with IRS regulations.