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Yes, that’s correct, there are some forms of income you receive that may be tax-free. Here is a list of ten common sources of tax-free income.
- Gifts. Gifts you receive are not taxable income to you. In fact, they are not subject to gift tax to the person giving the gift as long as the gifts received in one year from one person do not exceed $14,000.
- Rental income. If you rent your home or vacation cottage for up to 14 days, that rental income does not need to be reported.
- Child’s income. Up to the standard deduction amount ($6,350 in 2017) in earned income (wages) and $1,050 in unearned income (interest) for children is not taxed. Excess earnings above these amounts could be taxed and $2,100 in unearned income is taxed at the parent’s tax rate.
- Inheritance. In most states, beneficiaries typically do not pay tax on the value of what they inherit. When inherited property is sold by the beneficiary, however, there may be a capital gains tax obligation.
- Roth IRA earnings. As long as you meet this retirement account type’s rules, earnings in a Roth IRA are not taxed.
- Life insurance received. The full value of life insurance received is not taxable income. However, the proceeds may be taxable within the estate of the deceased policyholder.
- Child support revenue. Income you receive as child support is not deemed to be taxable income. On the other hand, alimony received is taxable income.
- Home sales gains. Up to $250,000 ($500,000 for married filing jointly) in gains on the sale of a qualified principal residence is not taxable.
- Scholarships/fellowships. Money received to cover tuition, fees, and books for degree candidates is not generally taxable.
- Refunds. Federal refunds (technically you’ve already accounted for this income) and most state refunds for non-itemizers are also tax-free.
This is by no means a complete list of tax-free income, but it’s nice to know that some areas of tax law still benefit taxpayers.
Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and Twitter.