Could Your Extra Money Be Nontaxable?
Death and taxes are the two guarantees you have in life, though no one really cares for either. Taxes are never enjoyable, and you might find yourself hard-pressed to find someone who loves paying tax when they shop, when they file their income tax, or when they receive a paycheck every pay period that’s so much lower than what they really earn. You don’t love taxes, but you should become familiar with them. One reason is simply you don’t know if your income is taxable or not. Some money might be nontaxable money, and many are unaware of this. If you’re paying taxes on nontaxable income, it’s time for you to learn how to save that money.
Gifts and Inheritances
It’s frustrating to learn the income you receive as gifts and inheritances might just be taxable. This money is yours, but you certainly don’t believe you need to pay taxes on it. The laws here are a little complicated. Monetary gifts are taxable, but only by the person who is giving the gift. These laws are in place to ensure the money is taxed and no one can give away their money to avoid paying taxes on it. There are limits to this kind of monetary gift, but typically nothing recipients need to worry about. As far as an inheritance tax, you’re responsible for paying taxes if it’s not already been paid. For example, if your mother passes and leaves you an inheritance, you might be responsible for paying taxes on the money if the executor of the estate did not already pay the taxes on it. The laws are complicated, but you might not be required to pay any tax on these items.
Continue reading to learn how worker's compensation may not be taxed.
Worker's Compensation
If you’re collecting worker's compensation, you’re not required to pay taxes on it. There are federally regulated laws preventing the government from collecting taxes on this money, and it’s for everyone who collects it, though there is one caveat. You are subject to tax if you also collect disability funds from social security disability insurance or supplemental security income. If you collect either or both of these, call your tax accountant to discuss how you will pay your income taxes on your worker's compensation. The amount you’re taxed on is not the entire amount, however. For example, say you’re collecting disability from the Social Security Administration. If your new worker's compensation benefits affect the amount you normally receive, you’ll only be taxed on the difference, which means if your benefits drop by two hundred dollars because of your worker's compensation, you will only pay taxes on two hundred dollars of your compensation rather than the entire amount. It’s a complicated process, and it’s not one most individuals can easily handle without a little tax help.
Continue reading to reveal how child's support payments work during tax season.
Child Support
If you have children with someone who pays you support every month, note this income is not taxable, primarily because child support is money meant to go toward the support of your child rather than your income. While you might be able to use support as income when you file certain forms stating the income you receive every month or year, you are not required to pay taxes on this money. In fact, you often won’t even add it to the amount you’re earning when you file your taxes. The person paying child support does not benefit from this payment, either, and reports their income as it appears on their tax forms. It is illegal to subtract the amount of money paid to the parent of your child to reduce your own adjusted gross income. In short, if you receive support, it’s not income, and if you pay it, it’s not a deduction.
Continue reading to learn how to handle scholarships when it comes to taxes.
Scholarships
If you receive scholarships for school, it may or may not be taxable. Most individuals who receive scholarship money to pay for their tuition for a degree are not going to pay taxes on the money. The caveat is you must use the money to pay for your tuition, and if you are not a degree candidate you receive a scholarship for another reason, you might pay taxes. If this money is designed to pay for your housing, for example, it’s not being used for tuition, and as such is taxable, though it can often be used as a deduction. However, there are also tax benefits allowing you to earn credit if you aren’t earning scholarship money and you are paying your own tuition and fees.
Continue reading to learn how to use carpooling costs to your advantage during tax season.
Carpooling
If you are involved in carpooling, you might wonder if it’s a tax deduction. It’s not. It’s also not taxable income if you are involved in a carpool situation in which you receive money, as it's not considered income. Let’s say you carpool every week so your coworkers aren’t spending their own time and money on their commute. You all benefit from being able to use the carpool lane, but you also receive payments from everyone each week for driving. They might all chip in to pay for your gas and excess mileage, for your parking and tolls, or even for your tires and other wear and tear. Although this might be a significant income, it’s not taxable, and you get to keep it free and clear since the federal government considers it a reimbursement.