Report your income…
Normally any money you receive during the year has to be reported on your income tax filings. This includes paychecks, interest on accounts, and any kind of withdrawal from accounts such as 401k or pension. However there is a fairly significant list of income sources that do not have to be reported as income on your tax return, and therefore are considered non taxable.
Why is this money not taxed? In general they’re not taxed because they don’t actually increase your personal income, nor can the money be used for personal use in order for the money to remain non taxable. And of course the IRS has restrictions.
The following sources of income are considered non-taxable:
- Life Insurance Proceeds: If you are receiving payments on the contract for the life of a terminally or chronically ill individual, you are not required to pay taxes.
- Inheritance: This has the stipulation that if you inherit property and sell that property then you do have to report the property sale as income. However, if you sell the property for more than your basis, you will have a taxable gain.
- Child Support Payments do not have to be reported as income by the recipient, but they don’t count as deductions for the payer.
- Scholarships, grants, and any other kind of financial aid for education; but it must be used for school or school related expenses.
- Worker’s Compensation payments, these also can not be levied if you owe a tax debt. In fact any kind of health or accident benefits is exempt from taxes.
- Benefits received from the Department of Veteran’s Affairs.
- Death benefits received by a service member’s family.
The tip of the iceberg…
Of course this is only a sampling on non taxable sources of income, there are many more available at www.irs.gov
Now you have the smoking gun…Use it!