Your yearly income is defined as any income that you have accrued during a given year. For most of us, we just think of that as the salary that we receive from work. Although this typically makes up the largest part of our income, it is not the full-story.
There are all kinds of ways that we get money such as gifts from family members to less obvious things such as perks from work. Our guide will help you figure out the difference between taxable income vs non-taxable income so you don’t face any unexpected tax penalties.
Unfortunately this can be much larger than you realize. Essentially income can be received by three different means: property, money received or services. Some of this is obvious and done for you, such as your salary or wages at your job. However, it can get a little trickier.
Most people are unaware of the fact that they generally must pay taxes on any benefits received from their investments. For example, you must declare income you derive off a rental property that you might own. In addition, things like stocks, interest on savings accounts and dividends all count as income.
Even more confusing is income that you can consider derived from perks. You can be taxed on these even if you are not the primary receipt of their benefit, but your spouse or children are. This might include things such as a company vehicle, a gym membership that is not at your workplace, holiday bonuses and gift certificates.
Lastly, there are all kinds of things defined as “miscellaneous income”. This is a huge category that covers everything from sickness and injury payments from an employer plan to money in offshore accounts. Casino and lottery winnings also are included and even debt that is forgiven. Be sure you determine everything under this category otherwise you may face an audit or fines.
Unfortunately, this category is much smaller than the other one. Up to a limit, inheritances and gifts are non-taxable. In addition to any cash rebate you might receive from purchasing an item. Furthermore, most healthcare benefits do not country along with child support and welfare. Scholarship money is generally nontaxable, but provided you use it only for your tuition, if you use it to pay your expenses, then it becomes taxable income.
It Doesn’t Have to Be Painful
Navigating between what is taxable and what is non-taxable can get a little bit confusing. That’s why it is a good idea to consult with some tax experts who can help you figure out the difference. Not only this, but they can help figure out what deductions you might be able to utilize along with some ways you can save money on taxes. Paying taxes is never going to be fun, but with the right help, you can make them as painless as possible.
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