What Income is Taxable Income and Nontaxable Income?

Are you looking for a hard and fast rule about what income is taxable and not taxable? The fact is that all income is taxable unless the law specifically excludes it.

Taxable income includes money you receive, such as wages and tips. It can also include non-cash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.

Some types of income are not taxable except under certain conditions, including:
•    Life insurance proceeds paid to you are usually not taxable. But if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
•    Income from a qualified scholarship is normally not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts you use for room and board are taxable.
•    If you received a state or local income tax refund, that amount may be taxable. You should have received a 2013 Form 1099-G from the agency that made the payment to you.  If you didn’t get it by mail, the agency may have provided the form electronically. Contact them to find out how to get the form.  Report any taxable refund you got even if you did not receive Form 1099-G.

Here are some types of income that are usually not taxable:
•    Gifts and inheritances
•    Child support payments
•    Welfare benefits
•    Damage awards for physical injury or sickness
•    Cash rebates from a dealer or manufacturer for an item you buy
•    Reimbursements for qualified adoption expenses

For more on this topic see Publication 525, Taxable and Nontaxable Income, and if you have any questions Bressler & Company a call at 559.924.1225.  We’d love to chat!

Taken from IRS Tax Tips 2014-12 email dated 2/12/14