Sometimes, the tax concepts that seem like they should be easy to understand are, in reality, among the most complicated. Such is the case for taxable and non-taxable income, which, at first glance, may appear simple enough. Dive in a little deeper, however, and the distinctions between these two types of income are less clear. Read on for valuable insight:
When Is Income Taxable?
As far as the IRS is concerned, most income is taxable. Common examples of taxable income include the following:
It’s no secret that employee compensation is taxed, but this includes more than just your regular paycheck. Tips, commissions, fees, fringe benefits, and stock options are all taxable. The IRS also specifies that childcare providers — including babysitters — must pay taxes on their earnings.
The IRS deems royalties on patents, copyrights, and oil, mineral, or gas properties taxable. Depending on the source of the income, these profits may be reported on Schedule C or via Part I of Schedule E.
The IRS refers to cryptocurrency as property. Whether it’s sold for other currencies, used to pay for goods or services, or held as investments, crypto can be taxed.
The IRS mandates that taxpayers report and pay on the fair market value of any property or services exchanged through bartering.
Types of Non-Taxable Income
Despite the seemingly exhaustive list above, select types of income are exempt from taxation. These include:
- Workers’ compensation
- Employer-provided insurance
- Health savings accounts
- Life insurance payouts
- Proceeds from the sales of principal residences that meet IRS ownership and use tests
- Inheritances within the bounds of the estate tax exemption
Whether your income qualifies as taxable or non-taxable, you can benefit from the expertise of the Highland Tax Group. Our tax experts can help you get a handle on your various sources of income and how they might impact your tax return. Reach out today at 720-398-6088 to learn more about our tax services.