To make your income-tax planning more effective, you should have a clear picture of your current tax situation. This means knowing what your taxable income was last year and what it is estimated to be in the following year.
Generally, you are required to report and pay taxes on all income that derives from your labor or capital. This applies to income received in any form (e.g., cash, services, meals, stock, property, etc.). However, certain types of income are tax exempt. The following lists include the most common items in both the taxable and nontaxable categories.
Forms of Taxable Income
- Wages, salary, fees, tips, commissions, or business profits
- Gains received from dealings in real estate, securities, and other property
- Alimony and separate maintenance payments that the payer can deduct
- Income from your share of an estate or trust, aside from gifts or bequests
- Annuities and pensions
- Certain fringe benefits
- Prizes and awards
- Some legal settlements proceeds
- Up to 85% of your Social Security benefits, depending on the amount of your other income.
- Accrued interest earned but not actually received (for example, accrued interest earned on a zero-coupon bond held in a taxable account or accrued interest earned on U.S. Treasury inflation-protected securities (tips))
Forms of Nontaxable Income
- Interest earned from state, tribal, and municipal bonds and mutual funds that own such bond
- Gifts and inheritances
- Expense reimbursements received from your employer
- Returns of capital such as loan principal repayments and the portion of annuity and pension payments that represent a return of your original investment upon which you have already paid taxes
- Home sale gains up to $250,000 for single homeowners and $500,000 for married homeowners filing jointly
- Scholarships, as long as you satisfy some conditions
These lists are not all-inclusive. You can find more information on the IRS website.
Contact us today with any questions.