Taxable and Nontaxable Income:
Under Section 61(a) of the Internal Revenue Code, gross income means all income from whatever source derived,
It is important to note that certain sections of the Internal Revenue Code exempt certain types of income from taxation.
Certain types of income may be fully taxable, particlly taxable, or tax-exempt.
Taxpayers should look to the IRS Tax Code to see how the various tax rules apply to their specific tax situation.
IRS Publication #525 covers this topic in detail.
Below are common items that are taxable income followed by common items that are not taxable income: (Please note that this list may not include all possible items)
Earned Income From Working as an employee, business owner, or self-employed independent contractor: Advances, barter income, bonuses, commissions, referral fees, salaries, self-employment, severance pay, sick pay, stock options (special rules apply), tips, and wages.
Investment or Portfolio Income: net short-term and long-term capital gains, dividends, taxable interest, and royalties.
Retirement Income: Distribution from Annuities, IRA's (except Roth IRA's), pensions, and Social Security (Special thresholds apply to Social Security Income).
Rental Property: Rental Income from residential or commercial property.
Business Ownership: Income from an ownership interest in a Limited Liability Company, Partnership, S Corporation (reported on Schedule K-1)
Estate & Trust: Income from an estate or trust (reported on Schedule K-1)
Alimony: May be both either taxable or non-taxable depending on the date initiated and the revised tax law.
Cancellation of Debt: (may or may not be taxable as specific rules apply)
Gain on Sale of Personal Residence: (may or may not be taxable as specific rules apply)
Gain on Sale of personal use items and property.
Gambling Winnings (always reported at gross amount)
Court Awards for lost pay and punitive damages.
Jury Duty Pay
Subsequent income earned on bequests, gifts, and inheritances (as long as the income is not specifically tax exempt by law).
Alimony: (see above though)
Cancellation of Debt: (see above though)
Cash Awards from credit cards (unless a FORM 1099-Miscellaneous Income is received)
Distributions to partners and shareholders (may be situations where an excess distribution results in taxable capital gain)
Employee Death Benefits
Gain on Sale of Personal Residence: (see above though)
Injury or sickness payments (may or may not be taxable depending on the specific circumstances).
Life Insurance Proceeds due to death
Recover of a prior year's deduction that yielded no tax benefit (i.e. state income tax refunds)
Scholarships & Fellowships (generally are totally tax-free)
Tax-Exempt Interest Income
Various Employer Provided Fringe Benefits (the tax law specifically excludes from taxable income certain types of employee fringe benefits) (other types of employee fringe benefits may be subject to taxation)
Veteran Benefits (generally tax-exempt)
Welfare & Other Public Assistance (generally tax-exempt)
Worker's Compensation (generally tax-exempt)
Special Rules For Certain Situations
It is important to note that the tax code contains special rules for the following situations.
Members of the clergy
Members of the military
Foreign Earned Income
Self-Employed Persons & Independent Contractors: Form 1099-Miscellaneous Income
It is important to note that ALL income received and earned, whether by cash or check, IS TAXABLE whether or not you receive a Form 1099-Miscellaneous Income. The $600 threshold is only used to determine whether or not the payor is required to issue you a Form 1099-Miscellaneous Income.
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