Professional Tax Service Defines Taxable and Nontaxable Income
by Holly Petherbridge
We can help taxpayers understand the difference between taxable and nontaxable income. In general, most types of income are included in the taxable category. When filing your taxes with or without the help of a professional tax service, you will want to make sure you report exactly what the IRS defines as taxable income.
The following is a list of items which the IRS states are NOT taxable.
*Child support payments – If you receive child support payments, you are not required to report it as income. The person sending the support has already paid taxes on it.
*Gifts, bequests and inheritances are not earned income.
*No need to report welfare benefits.
*Moneys awarded due to damage from a physical injury or sickness.
*If your purchase from a dealer or manufacturer qualifies you for a cash rebate, it is not considered income.
*Some adoption expenses qualify for reimbursements. Once again, this money is not considered income.
In some cases, or certain conditions, there is money which must be reported. Take your questions to your tax service office and find out if any of any of these situations apply to you.
*If you received part or all of a life insurance policy because of the insured person’s death are usually not taxable income. However, if you redeem part of a life insurance policy as cash, any amount which is more than the cost of the actual policy will be considered as taxable income.
*Income received from a qualified scholarship is not taxable when used to pay for tuition and the required books. When this money is used to pay for room and board, it becomes taxable.
Taxable income comes from wages and tips. Any non-cash income must be included as the fair market value for the goods or services received. This value is also used to report any goods or service received as part of a bartering deal.
The IRS also wants a person to report any refund, credit or offset to state or local income tax during the tax year. The agency doing the refund will fill out Form 1099-G. If you did not receive a copy of this form along with you refund, check to see if it was recorded electronically. You may need to get instructions from the agency to obtain a copy of an electronically filed Form 1099-G. Even if you were not able to obtain a copy, the IRS will expect you to report this money as taxable income.
If you are preparing your taxes personally, you could refer to the IRS website for Publication 525 Taxable and Nontaxable Income for more information. If you are having a professional tax service or Certified Public Accountant work on your taxes for you, make sure the information is included in the file of all other taxable income.
About the Author
CDRCPA Inc. Certified Public Accountants is conveniently located in Murrieta, California, but our entire staff of accountants, CPA’s and personal or business tax service professionals frequently visit our client’s at their location. So, if you can’t come to us, we’ll certainly come to you.