Advertisement
taxes

What's Taxable, What's Not

Not everything you got is fair game for the tax man.

Although most of the income you receive during the year is taxable, there are some exceptions. As you tackle your 2010 tax return, here’s a quick rundown of what’s taxable and what’s not.

Generally, tax-free income can be divided into several categories, including canceled debt; certain employer payments; prizes and awards giving for an achievement; gifts and inheritances; insurance claims and life insurance proceeds.

Advertisement - Article continues below

Some examples of tax-free employer benefits include expense account reimbursements; deductible employer-paid moving expenses; qualified adoption assistance and dependent care; fringe benefits for commuting expenses; and up to $5,250 of qualified education assistance.

Other income that is tax-free includes: child support payments, workers’ compensation benefits and welfare payments. Gifts, bequests and inheritances are not taxable. Neither are compensatory damages awarded for physical injury or illness, nor cash rebates from dealers or manufacturers.

Some income is taxable under certain circumstances, but not others. For example:

Life insurance. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable (unless the policy was turned over to you for a price as in a life settlement agreement).

Advertisement
Advertisement - Article continues below

Scholarships and awards. If you are a degree candidate, you can exclude amounts you receive as a qualified scholarship or fellowship; amounts used for room and board do not qualify. Prizes or awards given for outstanding educational, literary or civic achievement are not taxed. Prizes and awards won in contests are taxable, as are scholarships given as contest prizes if the recipient is not required to use the prize for education.

Advertisement - Article continues below

Bartering. When you exchange property or services in lieu of cash, the fair market value of the goods and services are fully taxable and must be included as income on Form 1040 of both parties. But an informal exchange of similar services on a noncommercial basis, such as carpooling, is not taxable.

Legal settlements that replace taxable income are taxable, as are damages paid on account of personal injuries that are not physical, such as discrimination, invasion of privacy, libel, slander or defamation. Damages received on account of physical injury or illness, including emotional distress, are not.

Gambling winnings are taxable, but they can be offset by gambling losses if you itemize your deductions.All other items—including income such as wages, salaries, tips and unemployment compensation –are fully taxable and must be included in your income unless specifically excluded by law. For example, some or all of your Social Security benefits may be tax-free, depending on your income.

For a full list of what’s taxable and what’s not, see Publication 525, Taxable and Nontaxable Income or by calling the IRS at 800-TAX-FORM (800-829-3676).

Advertisement

Most Popular

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)
tax deadline

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)

Between due dates for paying estimated taxes, IRA or HSA contributions, and other deadlines, there's more to do by July 15 than just filing your feder…
July 14, 2020
65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
91 Top Dividend Stocks From Around the World
stocks

91 Top Dividend Stocks From Around the World

These 91 Dividend Aristocrats, from the U.S., Canada and Europe, are among the world's top dividend stocks for payout longevity and safety.
July 13, 2020

Recommended

Pros and Cons of Getting a Tax Extension
tax deadline

Pros and Cons of Getting a Tax Extension

You can easily extend your tax return due date from July 15 to October 15…but should you?
July 14, 2020
Still Need to File Your Taxes? The Deadline Is July 15
tax filing

Still Need to File Your Taxes? The Deadline Is July 15

H&R Block's chief tax officer Kathy Pickering joins our Your Money's Worth podcast to offer advice for last-minute tax filers. Also, our hosts Ryan Er…
July 14, 2020
12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)
tax deadline

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)

Between due dates for paying estimated taxes, IRA or HSA contributions, and other deadlines, there's more to do by July 15 than just filing your feder…
July 14, 2020
7 Reasons to File a Tax Return Even If You Don't Have To (Hint: They're Due July 15!)
tax filing

7 Reasons to File a Tax Return Even If You Don't Have To (Hint: They're Due July 15!)

Although you might not be required to file a tax return, it might be wise to file one anyway. Here's a few reasons why.
July 14, 2020