Showing posts with label non-taxable income. Show all posts
Showing posts with label non-taxable income. Show all posts

Monday, February 20, 2017

Differences in Taxable and Non-Taxable Income

When it comes to income, there are basically two different types that you should be aware of: taxable income and non-taxable income. It is important for you to understand which type of income you should declare as taxable and which type you should declare as non-taxable. Making smart decisions in this regard can help you to reduce your tax liability.    


A good general rule of thumb to follow is that any income that increases your wealth is considered to be taxable income. Also, understand that most income does not fall under the non-taxable category. That doesn’t necessarily mean, however, that you have no non-taxable income, and assuming that and just declaring everything as taxable can end up hurting you in the long run.

What is Non-Taxable Income?

As mentioned, there honestly isn’t a ton that is non-taxable. However, some things that are typically going to be non-taxable include:

l  Inheritances
l  Healthcare benefits (in most cases)
l  Gifts
l  Cash rebates
l  Bequests
l  Welfare payments
l  Adoption reimbursements
l  Money from a life insurance policy in the case of a death (in some cases)
l  Money from a qualified scholarship that is not used for room and board

What is Taxable Income?

As mentioned, anything that increases your wealth or overall “value,” monetarily speaking, is considered to be taxable income.

This can include things such as:

l  Salaries
l  Childcare fees
l  Commissions
l  Stock options, as well as their interests and dividends
l  Unemployment compensation
l  Royalty payments
l  Strike pay
l  Income from rental properties
l  Alimony
l  Income from fringe benefits

Of course, as with all things, there are some “gray areas” when it come to what is taxable and what is not.


For this reason, it is wise to have a tax/financial professional who can assist you with fully understanding the difference between the two types of income and helping you to make the best possible financial decisions for yourself. While you can figure all of this out on your own, why not make it easier and get professional assistance?