2018 Taxable vs Nontaxable Income
Everyone likes the feeling of making money. Almost no one likes the feeling of having to pay taxes on that money. As the year comes to a close, and with some significant changes to the tax laws on the horizon for 2019, it’s a good time to quickly review the differences between taxable and nontaxable income before the rules change next year.
While almost all income is taxable, from lemonade stands to international conglomerates, there are a handful of income sources that escape the clutches of Uncle Sam.
List Of 2018 Taxable Income Sources
The IRS defines income as anything that is received “in the form of money, property, or services”. That’s a pretty wide net to cast, and in 2018 it includes (but is not limited to) the following sources:
- Employee fringe benefits (see below)
- Employee bonuses and awards
- Employer’s contributions made to an unqualified retirement plan
- Disability retirement payments from an employer-paid plan
- Employer-paid sickness and injury payments from certain plans
- Commissions, including those paid in advance
- Severance pay
- Unemployment compensation
- Compensation for lost pay received via lawsuit
- Rental income
- Royalty payments from oil, gas, or mineral properties, as well as copyrights and patents
- Stock options and dividends
- Capital gains
- Interest, including income generate from offshore accounts
- Self-employment income
- Fair-market value of property received in exchange for services
- Property and services received through barter
- Canceled debts or loans
- Gambling winnings
Employee fringe benefits sound incredibly vague. It includes gifts valued at more than $25, a portion of employer-paid tuition, use of company vehicles, and a portion of employer-paid dependent care. It does not include employer-paid healthcare benefits, however.
Each of these forms of income are, usually, taxable in the year they are received. If an employee receives a paycheck on December 31st, but doesn’t cash it until after the new year, it still counts as income for 2018.
List Of 2018 Nontaxable Income Sources
For those who believe that the IRS would tax Santa Clause on the milk and cookies he gets on Christmas Eve each year, fear not. There are a few pies they still keep their fingers out of. Nontaxable income sources for 2018 include:
- Needs-based public assistance, including Supplemental Security Income and welfare
- Public welfare fund or no-fault auto insurance disability insurance payments, or disability benefits for which your employer paid the insurance premiums
- Workers compensation payments
- Employer-provided health insurance
- Life insurance death benefits, but not proceeds when a policy is cashed in
- Child support
- Alimony received under decrees or court orders made after Dec. 31, 2018
- Gifts (although they might be taxable to the giver)
- Lawsuit proceeds representing payment for pain and suffering
- Cash rebates on purchased items
- Most healthcare benefits
- Qualifying adoption reimbursements
- Municipal bond interest
There is a full list of all nontaxable income sources via IRS Publication 525. For those who may not be excited about diving into the government tax code, it does make for a quick way to fall asleep if you’re having trouble in that department.
Planning For Tax Season
The sooner you start planning for tax season, especially if you have many different sources of income, capital gains, and/or other investments, the better.
If you already work with a financial planner, they can help you coordinate your finances and sources of income with the person preparing your tax returns. If you aren’t working with a financial planner, and would like help getting some clarity on your financial situation before filing your tax returns, give us call.
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