Taxable and Non-Taxable Income - Keeping it Straight at Tax Time
Think You Know What's Taxable Income, and What's Not?
Last Updated: May 4, 2016
If you're not earning it in the traditional sense, income is tax-exempt, right? Wrong. As a general rule, consider all income taxable unless a specific exemption exists instructing you otherwise. The most common of these exemptions are listed below under non-taxable income. You'll also find a long list of what is taxable, including several examples that may surprise you.
- Wages, salary, tips, and fees
- Commissions and bonuses
- Cashed out vacation or sick time
- Disability benefits (employer-funded)
- Severance pay
- Pension and annuity income
- Retirement plan income (except Roth IRA or Designated Roth Account)
- Rental income (with exception of renting your personal home for fewer than 15 days)
- Social security benefits (but usually only if you have another substantial form of income)
- Unemployment benefits
- IRA distributions
Ones that may surprise you:
- Barter income
- Babysitting income
- Hobby income
- Winnings (i.e., lottery, casinos, Super Bowl pools, etc.)
- Virtual currency income (i.e., Bitcoin, Litecoin, Auroracoin, etc.)
- Jury duty pay
- Scholarship money used for room and board
- Crowdfunding income (unless treated as a gift, in which case you cannot give donors anything in return for their donations)
- Alimony income
- Cancellation of debt (entire amount forgiven is treated as taxable income)
- State income tax refunds (if you itemize)
- Child support income
- Foster care payments
- Welfare income
- Damage awards
- Cash rebates
- Reimbursement for qualifying adoption expenses
- Life insurance proceeds (with some exceptions)
- Scholarship money used for tuition and books
Tips For Keeping Your Taxes Straight
- Keep records and a running list of all taxable and non-taxable income. Even if you don't have to pay taxes on it, some non-taxable income still needs to be reported on your tax returns. Keeping an updated list and organized files throughout the year will save you a ton of work and unnecessary stress come tax time.
- Set aside a percentage of your income for your taxes as the money comes in. If it's not earmarked accordingly, you'll inevitably spend it on something else. Think you'll make up for it with other income later in the year? It's certainly possible, but what will you be forced to sacrifice as a result?
- Consult with a tax professional. The information in this article is for general purposes only. Consult with a tax professional who can advise you on your unique tax situation for recommendations specific to you.