Tax Free Income

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Yes, that’s correct, there are some forms of income you receive that may be tax-free. Here is a list of ten common sources of tax-free income.

1. Gifts

Gifts you receive are not taxable income to you. In fact, they are not subject to gift tax to the person giving the gift as long as the gifts received in one year from one person do not exceed $14,000.

2. Rental Income

If you rent your home or vacation cottage for up to 14 days, that rental income does not need to be reported.

3. Child Income

Up to the standard deduction amount ($6,350 in 2017) in earned income (wages) and $1,050 in unearned income (interest) for children is not taxed. Excess earnings above these amounts could be taxed and $2,100 in unearned income is taxed at the parent’s tax rate.

4. Inheritance

In most states, beneficiaries typically do not pay tax on the value of what they inherit. When inherited property is sold by the beneficiary, however, there may be a capital gains tax obligation.

5. Roth IRA Earnings

As long as you meet this retirement account type’s rules, earnings in a Roth IRA are not taxed.

6. Life Insurance Received

The full value of life insurance received is not taxable income. However, the proceeds may be taxable within the estate of the deceased policyholder.

7. Child Support Revenue

Income you receive as child support is not deemed to be taxable income. On the other hand, alimony received is taxable income.

8. Home Sales Gains

Up to $250,000 ($500,000 for married filing jointly) in gains on the sale of a qualified principal residence is not taxable.

9. Scholarships

Money received to cover tuition, fees, and books for degree candidates is not generally taxable.

9. Scholarships

Money received to cover tuition, fees, and books for degree candidates is not generally taxable.

10. Refunds

Federal refunds (technically you’ve already accounted for this income) and most state refunds for non-itemizers are also tax-free.

This is by no means a complete list of tax-free income, but it’s nice to know that some areas of tax law still benefit taxpayers.


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Disclaimer

The information in this article is written as accurately as possible and to best of the writer's knowledge. However, there may be omissions, errors, or mistakes. Because of this and changes in circumstances, the information in this article is subject to change. This article is for informational purposes only and should not serve as professional, financial, medical, emotional, and/or legal advice. Readers may rely on the information on this article at their own risk, but they should consult a CPA, financial expert, or other professional for advice. Givilancz & Martinez, PLLC reserves the right to change and handle this article series, and therefore, may remove or alter any part of this article or the comments section. Any comments inserted by readers are not the responsibility of G&M PLLC and do not represent the thoughts or ideas of G&M PLLC.