Generally, most income you receive is considered taxable. However, the tax code is riddled with various exceptions where certain types of income are partially taxed or not taxed at all.
For instance, here is a non-exclusive list of common examples of types of income usually excluded from taxable income:
- Adoption Expense Reimbursements for qualifying expenses
- Child support payments
- Gifts, bequests and inheritances
- Workers’ compensation benefits
- Meals and Lodging for the convenience of your employer
- Compensatory Damages awarded for physical injury or physical sickness
- Welfare Benefits
- Cash Rebates from a dealer or manufacturer
The most complicated situations arise where may or may not be included in your taxable income are, depending on your situation. Life insurance is a good example. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. On the other hand, life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
Scholarships and Fellowship Grants also possess this dual nature. If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship; but, the money used for room and board do not qualify.
Remember, even a non-cash income usually should be included in the taxable income. The most common example of this is bartering. Bartering is basically an exchange of property or services between the parties. The fair market value of goods and services exchanged is fully taxable and must be included as income of both parties.
Usually, the rest of the common types of income – such as wages, salaries, tips and unemployment compensation – are fully taxable and must be included in your income unless it is specifically excluded by law.
Determining what types of income should be included in or excluded from your taxable income can be a complicated, highly fact-dependent process. Sherayzen Law Office can help you determine whether your income is taxable. Contact us NOW to discuss your case with an experienced Minneapolis tax attorney.