Taxable income is a crucial aspect of personal finance that individuals need to understand in order to effectively manage their finances and meet their tax obligations. It encompasses various sources of income that are subject to taxation. In this article, we will explore 25 different subtopics related to taxable income.
1. Capital gains and losses: When you sell an investment such as stocks, bonds, or real estate for a profit, it results in capital gains which are generally taxable. However, if you sell at a loss, it can offset your capital gains and reduce your overall tax liability.
2. Rental income and expenses: If you own property and receive rental income from tenants, that income is considered taxable. Conversely, you can also deduct allowable expenses related to the property such as repairs, maintenance costs, property taxes, and mortgage interest.
3. Self-employment income: Individuals who work for themselves or run their own businesses must report self-employment income on their tax returns. Additionally, they may be responsible for paying self-employment taxes which include Social Security and Medicare contributions.
4. Alimony and child support: Alimony received is taxable while child support payments are not considered taxable income for the recipient.
5. Social Security benefits: Depending on your total annual income (including other sources), part of your Social Security benefits may be subject to federal taxation.
6. Retirement account distributions: Withdrawals from retirement accounts like traditional IRAs or 401(k)s are generally taxed as ordinary income unless they come from qualified Roth accounts or meet certain exceptions.
7. Inheritance and estate taxes: In most cases, inherited assets aren’t subject to federal taxes; however certain states have inheritance taxes or estate taxes that could apply depending on the value of the assets being inherited.
8. Gambling winnings and losses: Winnings from gambling activities such as casinos or lotteries must be reported as taxable income but losses can be deducted up to the extent of your winnings.
9. Foreign earned income: U.S. citizens or resident aliens who earn income abroad may still be subject to taxation on that income, although there are certain exclusions and deductions available.
10. Scholarships and grants: While scholarships used for tuition and course-related expenses are generally tax-free, any portion used for room, board, or other non-qualified expenses may be taxable.
11. Bartering income: If you receive goods or services in exchange for your work instead of money, the fair market value of what you received is considered taxable income.
12. Royalties and copyrights: Income generated from licensing intellectual property such as royalties from books, music rights, or copyrights is typically taxable.
13. Dividends and interest: Earnings from investments like stocks or bonds in the form of dividends and interest are usually subject to taxes unless they are held within a tax-advantaged account like an IRA.
14. Health savings accounts (HSAs): Contributions made by individuals to HSAs are generally tax-deductible while withdrawals used for qualified medical expenses remain tax-free.
15. Cryptocurrency taxation: The IRS treats cryptocurrencies as property rather than currency; hence gains made through buying, selling, or trading cryptocurrencies can be subject to capital gains taxes.
16. Farming and agricultural income: Income generated from farming activities is generally taxable; however certain deductions exist based on specific provisions applicable to farmers.
17. Unemployment compensation: Benefits received due to unemployment must be included as part of your taxable income unless exempted by specific federal laws during emergency situations like the COVID-19 pandemic relief measures in 2020/2021.
18. Disability benefits: Depending on whether you pay premiums with pre-tax dollars or not when receiving disability insurance payments will determine if they’re taxed at all or partially taxed upon receipt
19. Jury duty pay: Any compensation received for serving jury duty is considered taxable income which should be reported on your tax return.
20. Severance pay: Lump sum payments received upon termination of employment, such as severance pay, are generally taxable income subject to federal and state taxes.
21. Tips and gratuities: Cash tips or non-cash gratuities received by workers in the service industry should be included as taxable income.
22. Non-cash fringe benefits: Benefits provided by employers to employees that aren’t in the form of cash, such as company cars or housing allowances, may still be considered taxable income.
23. Moving expenses reimbursement: While most moving expenses are not deductible anymore for individuals starting from 2018 onwards (due to changes in tax laws), any reimbursements received from an employer for these expenses are typically considered taxable income.
24. Life insurance proceeds: Generally speaking, life insurance death benefit proceeds paid out upon the passing of the insured person are not taxed at the federal level; however, interest earned on those proceeds may be subject to taxation.
25. Foster care payments: Payments made to foster parents for caring for children can be considered taxable income depending on certain factors and circumstances, so it’s important to consult a tax professional if you’re receiving foster care payments.
Understanding these various sources of taxable income is essential for accurately reporting your earnings and fulfilling your tax obligations. It is advisable to consult with a qualified tax professional who can provide personalized guidance based on your specific financial situation and help ensure compliance with applicable laws and regulations