Taxable vs Nontaxable Income
Courtesy of our partners at Tax Rite
Are you wondering if there's a hard and fast rule about what income is taxable and what income is not? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there's more to it than that.
Taxable income includes any money you receive, such as wages, tips, and unemployment compensation. It can also include non-cash 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.
Here are some types of income that are usually not taxable:
In addition, some types of income are not taxable except under certain conditions, including:
Important Reminders About Tip Income
If you get tips from customers, you must pay federal income tax on any tips you receive. The value of non-cash tips, such as tickets, passes, or other items of value, are also subject to income tax. You must include the total of all tips you received during the year on your income tax return, such as tips received directly from customers, tips added to credit cards, and your share of tips received under a tip-splitting agreement with other employees.
Bartering Income is Taxable
Bartering is trading one product or service for another. Small businesses sometimes barter to get products or services they need. For example, a plumber might trade plumbing work with a dentist for dental services. Typically, there is no cash exchange; however, if you barter, the value of products or services from bartering is considered taxable income by the IRS.
Barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return. Both parties must report as income the fair market value of the product or service they get. The tax rules may vary based on the type of bartering. Barterers may owe income taxes, self-employment taxes, employment taxes, or excise taxes on their bartering income. How you report bartering on a tax return also varies. For example, if you are in a trade or business, you normally report it on Form 1040, Schedule C, Profit or Loss from Business.
- - - - - - - - - - - - - - -
Any accounting or tax advice contained in this communication is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
All Family Protection Plan products from Legal Club contain a Free Tax Preparation and Advice benefit. To learn more about the plans offered by Legal Club, browse this website or call us at 800-305-6816.
A Word on Financial Wellness
Taxable vs Nontaxable Income
Important Tax Information for 2023
New Year's Resolutions for 2023
3 Steps and The Basics of Estate Planning
Supporting Breast Cancer Awareness Month
5 Tips to Help You Avoid Student Loan Forgiveness Scams
7 Ways to Organize Your Finances
7 Ways to Avoid Getting "Skimmed" at the Gas Pump
The Value of having Attorney Representation When Buying a Home
Inflation Affecting American's Summer Vacation Plans
How to Reach Your Financial Goals
Meaningful Benefits for Everyday Life
7771 W. Oakland Park Blvd., Suite 217
Sunrise, Florida 33351-6796
Toll Free Main 800-316-5387
Local Main 954-377-0222
Legal Club provides group legal, tax, ID theft solutions and other benefits to more than 2,000,000 working Americans and their families. Legal Club's suite of products can be tailored to meet the needs of evolving employee populations and are designed to provide maximum value and flexibility. Partnering with agents, brokers, consultants and other distributors, Legal Club has provided meaningful benefits for everyday life to organizations around the country for more than two decades.
Legal Club is a proud sponsor of BCRF, donating 2% of revenue from new group cases each year. Learn more >