If there is an income, there usually is a tax on it. Kevin and Melissa understand that very well and explains their meticulous planning for the year. This week we discuss what type of income must be reported on tax returns. Are you looking for a hard and fast rule about what income is taxable and what income is not taxable? The fact is that all income is taxable, unless the law specifically excludes it.
Taxable income includes money you receive, such as wages, and tips. It can also include noncash income from property or services. For example, both parties in a barter exchange must include the Fair Market Value (FMV) of goods or services received as income on their tax return. And sometimes your Social Security Benefits are subject to tax as well.
Some types of income are NOT TAXABLE except under certain conditions, including:
Here are some types of income that are usually NOT TAXABLE:
Social Security Benefits (Taxable or Not?)
For some taxpayers reaching Social Security age of 62 and older, allows them the opportunity to start receiving benefits. At age 62 you can start receiving benefits early, but there could be some reduction of benefits involved if you are still earning a wage between ages 62-66. Monthly benefits can be paid to a spouse, ex-spouse, children, widow or dependent parents of retired or deceased workers.
You must have 40 quarters (10 years) paying into Social Security in order to be qualified to receive Social Security benefits. These quarters are determined by how much you earned, and how long you worked each year. If you are earning income and receiving Social Security benefits, you may find yourself paying taxes on some of your Social Security benefits. Single taxpayers earning over $25,000 will pay income taxes on some of their social security benefits. Married Filing Joint taxpayers earning over $32,000 will pay income taxes on some of their social security benefits. As much as 85% of your social security benefits can be subject to taxation. This does not mean that you pay 85% tax; it means that 85% of your benefits could be taxed at whatever your tax bracket is. You have an option of having Federal Income Taxes withheld from your Social Security benefits to help reduce the amount of tax that may be owed at year end. You may have to pay estimated tax payments on a quarterly basis. Each year the earnings limit changes, so be sure to see your tax professional to see if your Social Security benefits are taxable.
Here are some Social Security points to remember:
For more on this topic see Publication 525, Taxable and Nontaxable Income. You can get it at IRS.gov or call to have it mailed at 800-TAX-FORM (800-829-3676).
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