Income in the United States and scrutinized by the IRS is to be included on your tax return and subject to income tax, both federal and state. The big question… What is considered income and when do I have to include it on my taxes?
Gross income literary means “all income from whatever source” and includes income in any form. It can be money, property, or services and is valued at fair market value. For a cash basis taxpayer, this income is recognized when received and taxable in that year. The following is a list of some items considered income:
- Interest and dividends
- Gains on disposition of property
- Lottery winnings
- Cash prizes (does not have to be in the form of cash)
- Unemployment compensation
There are certain types of income that are not included in the gross income test. Each state may have different rules for what is considered income and what may be excluded. So, it’s important to know your state tax laws as well as the federal. Some of the most common exclusions are the following:
- Gifts and inheritances
- Life insurance proceeds
- Compensation received for personal injuries and sickness
- Money received as damages in a law suit or settlement from an injury or physical sickness
- Gain on sale of personal residence up to $250,000 ($500,000 for married filing joint)
- Tax-exempt interest
Ultimately, the IRS will determine what is considered income and if you are liable for the taxes. It certainly is important to know if the items you receive in lieu of cash will be considered gifts or prizes!
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