All income is taxable unless the law excludes it. Here are some basic rules you should know to help you file an accurate tax return:
- Taxed income. Taxable income includes money you earn, like wages and tips. It also includes bartering, an exchange of property or services. The fair market value of property or services received is taxable.
Some types of income are not taxable except under certain conditions, including:
- Life insurance. Proceeds paid to you because of the death of the insured person are usually not taxable. If you redeem a life insurance policy for cash, any amount that you get that is more than the cost of the policy is taxable. Sometimes the policy won’t pay out right away, and you receive interest on the payment. The interest is taxable.
- Qualified scholarship. In most cases, income from this type of scholarship is not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable. However, any amount of tuition that is more than the cost of tuition, fees and books, is taxable.
- State income tax refund. Did you file a return in another state last year? If you got a state income tax refund, the amount may be taxable. You will receive a Form 1099-G from the agency that made the payment to you. If you don’t get it by mail, the agency may have provided the form electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G.
Here are some types of income that are usually not taxable:
- Gifts and inheritances (unless you inherit a retirement account)
- Child support payments
- Welfare benefits
- Damage awards for physical injury or sickness
- Cash rebates from a dealer or manufacturer for an item you buy
- Reimbursements for qualified adoption expenses
Remember, if in doubt, you can call your tax professional and ask. We always want to make sure you’re reporting your income accurately, without paying more tax than you need to.