A majority of people in the U.S. have various forms of income such as, wages through a job, investment returns, business income, Social Security benefits, and more. There is both taxable and non-taxable income, which can make it hard to determine how much taxable income you really earned. By determining how much taxable income you have, you can estimate how much tax you’ll owe, or be refunded for.
What is taxable income?
Taxable income is defined by the Internal Revenue Service (IRS) as all income that is not specifically exempted by law, which makes taxable income a pretty broad term. Some of the most common types of taxable income are:
- Wages or Salaries (including commissions, tips and bonuses)
- Income earned for freelancing or self-employment
- Income from a business
- Royalties and rental income
- Winnings from gambling
- Unemployment compensation
- Some interest and dividends
Non-taxable income that you will not owe federal income tax on includes:
- Child support payments
- Interest from municipal bonds
- Life insurance proceeds
- Disability benefits
- Gifts and inheritance
Be sure to consult a tax professional about what taxable and non-taxable income you have, as some types of income are subject to special rules.
Fringe benefits are benefits that you receive for work or services that you render. These benefits are typically considered taxable income, even if your spouse or someone else uses them. These may include:
- A gym-membership that is off-site and paid for by the company
- A company-provided vehicle that is used for personal use
- Gift certificates or cash gifts from your employer for holidays
- A portion of dependent care paid for by the employer
- Tuition fees over a certain amount that are paid for by the company
- Financial counseling fees paid for by the company
- Group life insurance over a certain amount paid by the employer
All of these benefits are considered taxable income and need to be considered when filing your taxes. If you’re usure if you receive any fringe benefits, consult a tax professional before filing your taxes.
Other Taxable Income
Some taxable income may not be as easy to identify, but should generally still be included on your tax return. Some of these incomes may be:
- Contributions made to an unqualified retirement plan by the employer
- The fair-market value of property received for services
- Disability retirement payments made to you from an employer-paid plan
- Sickness and injury payments from an employer-paid plan
- Bartered property and services
- Money and income from off-shore accounts
- Remaining amount of a debt or a loan that is canceled or forgiven
Credits and Deductions
According to the IRS, Credits can reduce the amount of tax that you owe or increase your refund amount. Some credits may even give you a refund despite that you don’t owe any tax. You may qualify for family and dependent credits, income and savings credits, homeowner credits, health care credits, or education credits. Deductions such as work-related deductions, itemized deductions, education deductions, health care deductions and investment related deductions can reduce the amount of your income before you calculate the tax you owe, according to the IRS.
Taxable income comes in many forms and some types have more rules than others. If you’re unsure that you’ve calculated your taxable income, credits and deductions correctly, it may be best to consult a tax professional. At Master Plan Tax Services, we help individuals, families and businesses file their federal and state taxes, saving our clients time and money.