For the most part, it’s safe to assume that all income is taxable. However this is only true until the tax law says it is. Income that is taxable is usually defined as any income you have received during the year, like wages and tips. It can also include income made in non-cash form like property or services. All parties who take part in a non-cash exchange must include the fair market value of any goods or services received on their tax return.
Below is a list of income types that are not taxable:
• Gifts and inheritances (under a certain amount)
• Child support payments
• Welfare benefits
• Damage aware for physical injury and sickness
• Cash rebates for an item bought either from dealer or manufacturer
• Reimbursements for qualified adoption expenses
There is also income that is not taxable except under certain conditions, like:
• Life insurance proceeds paid to the taxpayer are usually not taxable, but if an insurance policy is redeemed for cash at any amount over the cost of the policy, then it is taxable.
• Income from qualifying scholarships is usually not taxable. Any amount used for tuition and books are not taxable, but the amount used for room and board is.
• A state and local income tax refund, the amount received may be taxable. All taxpayers should’ve received a 2017 Form 1099-G from the agency that made the payment. If the form was not sent by mail, the form might have be delivered electronically. The agency may have to be contacted to find out where to get the form. It’s important to report any taxable refund you received, if you cannot get Form 1099-G.
Tips earned on the job from customers are subject to taxes. These are some important things to keep in mind when receiving these tips:
• Tips are taxable. Federal income taxes must be paid on tips you received. Non-cash tips are also taxable for their value, such as tickets or passes.
• All tips must be included on the income tax return. The sum total of all tips earned during the year must be included in the return. That includes tips that come directly from customers, tips added to credit cards and any tips received under a tip-splitting agreement with co-workers.
• Tips must be reported to employer. If more than $20 worth in tips is made in a month, from any job, it must be reported to the employer. The report should only include any cash, credit and debit card tips made. Employers are required to withhold federal income, social security and Medicare taxes on reported tips. Non-cash tips do not have to be reported to employers.
• Keep a record of tips. The IRS provides a form to keep track of daily tips called the Employee’s Daily Record of Tips and Report to Employer.
Bartered income is taxable. Trading of a product or service for another is something small businesses sometimes do to get a product or service they need. Typically, there is no cash exchange.
If bartering has taken, the value of products or services could be taxable. Here’s what to keep in mind:
• Barter exchange is a system of exchange. Some exchanges are made out of an office or over the Internet. Barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions.
• Barter and trade dollars are the same as real dollars for tax purposes and must be reported on the return. Both parties must report the fair market value of the product or service they get.
• Bartering is taxable for the year in which the exchange took place. Tax rules may vary based on the type of exchange. Barterers may have to pay income, self-employment, employment or excise taxes on the barter income earned.
• Barter tax return reporting varies, if you’re in a trade or business, you normally report it on Form 1040, Schedule C, Profit or Loss from Business.