Understanding Different Sources of Taxable Income
Taxable income refers to the portion of an individual’s income that is subject to taxation by the government. It encompasses various sources, each with its own specific tax implications. Here are some key points to consider:
1. Rental Property Income: If you earn rental income from properties you own, it is generally considered taxable. You must report this income on your tax return and may also be eligible for deductions related to expenses incurred in managing the property.
2. Investments and Dividends: Income generated from investments such as stocks, bonds, or mutual funds is typically subject to taxation. Dividends received from stocks are generally taxable unless they qualify for special tax rates.
3. Self-Employment Income: Individuals who work for themselves must report their self-employment income on their tax returns. They are also responsible for paying self-employment taxes that cover Social Security and Medicare contributions.
4. Freelance Work or Side Gigs: Similar to self-employment income, money earned through freelance work or side gigs should be reported as taxable income.
5. Gig Economy Workers: Those working in the gig economy need to understand their tax obligations since they often operate as independent contractors rather than traditional employees.
6. Capital Gains: When you sell an asset such as stocks or real estate at a profit, the gain is considered taxable income and must be reported on your tax return.
7. Retirement Account Distributions: Distributions from retirement accounts like 401(k)s or IRAs are generally subject to taxation unless they meet certain criteria (e.g., qualified Roth IRA distributions).
8. Social Security Benefits: Depending on your total income level, a portion of your Social Security benefits may be deemed taxable.
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