Do you know what income is taxable and what income is not taxable? Generally, all income earned anywhere in the world is taxable unless the law specifically excludes it. That includes cash and non-cash receipts from sources such as bartering, discharge of debts, and illegal activities.
There’s no reference to amount in determining what’s taxable and what isn’t. So, although you might not get an information form for amounts under specified limits – the familiar $600 figure for Form 1099-MISC, for example – that income is reportable on your tax return.
Despite the broad nature of the term, not everything you receive is considered income. For instance, rebates, refunds, and purchase price adjustments are specifically excluded. Child support payments, welfare benefits, damage awards for physical injury or sickness, and reimbursements for qualified adoption expenses are also excluded from income. Gifts, inheritances, and proceeds from life insurance policies are other familiar exclusions.
However, in contrast to the definition of income, exclusions tend to be narrowly defined. For example, while proceeds from life insurance policies are generally not taxable to you as a beneficiary, interest earned on the proceeds typically is. Also, though income from a scholarship is normally not taxable, amounts used for room and board, rather than tuition and books, are taxable. Estate proceeds may not be taxed to the beneficiaries, while income in respect of the decedent (Inherited IRA’s, interest income, …) is.
California has been particularly covetous of tax revenue. The state has been chasing tax on income that, while earned in another state, has “nexus” within California. This connection to CA commerce enables the state to collect tax on the unwary.
Give us a call if you have questions about the tax effect of various kinds of income received during 2014.
Reach us at 209.599.5051
