Take Advantage Of This Non-Taxable Income
One frustrating aspect of working hard to earn money is knowing that the IRS will tax some of your earnings. Federal taxable income generally includes wages, tips, royalties, commissions, and, for some, up to 85% of Social Security benefits, among other things.
However, according to the IRS, certain types of income are not taxable. Whether income is taxable depends on various rules, requirements, and regulations and also varies between federal and state taxes.
To help clarify, here is a list of some common forms of non-taxable income:
Financial gifts
Financial gifts are a well-known category of non-taxable income, partly due to the generous annual federal gift tax limit. For instance, in the 2023 tax year, you could give up to $17,000 to friends, family, or anyone else without being taxed.
Inheritances
The IRS does not consider inheritances, whether in cash, property, or other forms, to be taxable income. However, if the inherited money generates income, such as interest from a savings account, that income may be taxable.
Life insurance proceeds
Proceeds from a life insurance policy received by a beneficiary after the policyholder's death are generally tax-free. However, interest earned on these proceeds may be taxable, and tax rules can become complex if the policyholder surrenders the policy for cash. Additionally, life insurance policy loans are typically not taxable if the policy is in force and the loan amount does not exceed the total premiums paid.
Some capital gains and losses
If your capital losses exceed your capital gains, you can claim up to $3,000 in excess loss as a deduction from your income. The deductible amount is less than $3,000 ($1,500 if married filing separately) or the total net loss on Schedule D of Form 1040. The IRS allows you to carry the loss to future years under certain conditions.
Roth account income
Qualified distributions from a Roth account (i.e., from an account at least five years old since your first contribution and when you are 59½ years or older) are tax-exempt. The IRS now permits regular contributions to your Roth IRA at any age, and you can leave any amount in your Roth IRA for as long as you live.
