Curious about what income is subject to taxation and what is not? In short, unless the law explicitly exempts it, all income is considered taxable. However, the matter is not as straightforward as it seems. Taxable income encompasses all earnings you receive, including wages, tips, and unemployment compensation, as well as non-cash income from services or property. For instance, the fair market value of goods or services obtained in a barter exchange is considered income and must be included in the tax return of both parties. Visit this page if you need help with tax services in Savannah.
Understanding Nontaxable Income:
When it comes to income, not all money received is taxable. Knowing what income is nontaxable can help individuals properly report their income and avoid overpaying taxes. 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, and reimbursements for qualified adoption expenses.
Exceptions for Nontaxable Income:
While the aforementioned types of income are typically not taxable, there are exceptions. Some types of income are not taxable except under certain conditions, including:
Life insurance proceeds paid to you are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable. Income from a qualified scholarship is normally not taxable, except for amounts used for room and board, which are taxable. If you received a state or local income tax refund, the amount might be taxable.
Reporting Nontaxable Income:
If you received a state or local income tax refund, you should have received a 2022 Form 1099-G from the agency that made the payment to you. If you didn’t get it by mail, the agency might have provided the form electronically. Contact them to find out how to get the form. Be sure to report any taxable refund you received even if you did not receive Form 1099-G. Understanding what income is nontaxable and how to properly report it can save individuals from unnecessary financial strain.
If you live in Savannah and need assistance with tax services, it’s essential to consult with a tax professional who can help you navigate the complex world of tax reporting. With the right guidance, you can be sure to report your income accurately and avoid any unwanted surprises come tax season. By staying informed and taking the necessary steps, you can ensure that you are on the right track toward achieving your financial goals.