Taxable vs. Non-Taxable Income Cheat Sheet

Overview

Income is generally taxable unless specifically exempted by law. Understanding which sources are taxable and non-taxable helps with tax planning and compliance.

Taxable Income Sources

• *ages & Salaries:*ncludes bonuses, commissions, and tips.
• *elf-Employment Income:*rofits from freelancing or business activities.
• *nvestment Income:*nterest, dividends, and capital gains.
• *ental Income:*arnings from leasing property.
• *nemployment Benefits:*axable under federal law.
• *ambling Winnings:*ncludes lottery, casino, and sports betting earnings.
• *limony (Pre-2019 Agreements):*axable for the recipient.
• *ryptocurrency Transactions:*ains from crypto sales and exchanges.

Non-Taxable Income Sources

• *hild Support Payments:*ot taxable for the recipient.
• *ifts & Inheritances:*xempt from federal income tax.
• *ife Insurance Payouts:*enerally tax-free unless interest is earned.
• *isaster Relief Assistance:*overnment aid for recovery.
• *mployer-Provided Benefits:*ome tuition assistance and adoption aid.
• *unicipal Bond Interest:*ax-free at the federal level.
• *ocial Security (Below Thresholds):*ay be non-taxable depending on total income.
• *ccelerated Death Benefits:*arly life insurance payouts for terminal illness.

Tax Planning Strategies

1. *everage Non-Taxable Income Sources:*rioritize tax-free earnings where possible.
2. *onitor Investment Gains:*se tax-efficient strategies for capital gains.
3. *nderstand IRS Exemptions:*tay updated on changes to taxable income rules.
4. *se Tax-Advantaged Accounts:*RAs and HSAs can reduce taxable income.

Common Pitfalls & How to Avoid Them

• *isclassifying Income:*nsure correct reporting to avoid penalties.
• *gnoring Taxable Benefits:*ome employer perks may be taxable.
• *ailing to Report Gambling Winnings:*RS requires full disclosure.

Tools & Resources

• IRS guidelines on axable vs. non-taxable income
• Tax calculators for estimating liabilities.
• Financial advisors for personalized tax strategies.