• Latoya J. Jessamy

Income: what’s taxable and what’s not

All income received or earned is taxable unless it is specifically excluded by law. Income can be received in the form of money, services or property. Such income includes employee compensation, non-employee compensation, self-employment income [amounts of $400 or more], bartering income [the fair market value of property or services received], gains from the sale of securities and real property, gambling winnings, alimony, canceled debts [in excess of the total balance owed], etc.

Income that is excluded from tax includes:

  • Child support payments

  • Welfare benefits

  • Damage awards for physical injury or sickness

  • Worker’s compensation payments

  • Retirement contributions & Rollovers

  • Debts discharged in bankruptcy

  • Federal tax refund

However, there are other forms of income that’s usually non-taxable but maybe taxable based on certain circumstances. These include:

  • Social Security benefits – depending on your income and filing status, these benefits maybe taxable.

  • Inheritances/Gifts – when transferred, the property usually is not taxable, but taxes must be paid on capital gains when sold and distributions in excess of the transferred basis.

  • Disability benefits – these benefits are taxable if your employer paid for the policy on your behalf.

  • Municipal Bonds – these bonds are exempt from federal taxes, but may be subject to state taxes, depending on the laws of each state.

  • Gain on the sale of your primary residence – gain in excess of $250,000 [$500,000 if married filing jointly] are taxable to the seller.

  • Proceeds from life insurance policies – These proceeds are nontaxable to the beneficiary. However, if the policy was redeemed for cash, any amount received that is more than the cost of the policy is taxable.

  • Scholarships, fellowships & grants – Generally, these are tax-free except for amounts used to pay for room & board, travel or amounts received as compensation for teaching or research.

  • State refunds – If you receive a state or local income tax refund, the amounts maybe taxable if you took an itemized deduction during the tax year that you received the refund.

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