“The only difference between death and taxes is that death doesn’t get worse every time Congress meets.” – Will Rogers
We get a number of calls throughout the year from individuals asking if certain types of income is taxable. The fact is that all income is taxable unless the law specifically excludes it.
Taxable income includes money you receive, such as wages, tips, interest, dividends, and retirement. It can also include noncash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return. (From a business standpoint, I usually don’t recommend barters because it seems one party ultimately feels that they got cheated.)
Some types of income are not taxable except under certain conditions, including:
- Life insurance proceeds paid to you are usually not taxable. But if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable. Be careful with your life insurance strategies so you don’t get an unpleasant surprise at the end of the year.
- Income from a qualified scholarship is normally not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts you use for room and board are taxable. This is a little tricky. It has changed somewhat from the days when my wife was in graduate school since the 1980’s.
- If you got a state or local income tax refund, the amount may be taxable. You should have received a 2013 Form 1099-G from the agency that made the payment to you. If you didn’t get it by mail, the agency may have provided the form electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G. One of the important facts as to its tax-ability is whether you itemized the previous year, and did the state tax deduction provide a tax benefit to you.
Here are some types of income that are usually not taxable:
- Gifts and inheritances
- Child support payments
- Welfare benefits
- Damage awards for physical injury or sickness
- Cash rebates from a dealer or manufacturer for an item you buy
- Reimbursements for qualified adoption expenses
IRS Sources:
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