Wouldn’t it be nice to have a source of nontaxable income? You may be more fortunate than you realize. Listed here are several income items that the IRS does not tax.
- Tax-Free Interest. Municipal bond interest is federal tax-free. This includes bonds issued by a state or municipality. The tax-free benefit increases the higher your income, but caution must be taken to ensure the underlying municipality is not in dire financial condition.
- Health Insurance Premiums. For now, health insurance premiums are tax-free. This is scheduled to change in the future to help pay for health care reform, but for now, this benefit can be paid in pre-tax dollars.
- Income from Roth IRA and Roth 401(k) Accounts. While the amounts contributed to these retirement savings accounts are taxed, any earnings made on these contributions are federal tax-free as long as holding period and distribution rules are followed.
- Health-Related Spending Accounts (HSA). Contributions and earnings in these health-related spending accounts are tax-free as long as the proceeds in the account are used to pay for qualified health care expenses.
- Child Support Received. Unlike alimony received, child support income is federal tax-free.
- Car Pool Revenue. While commuting expenses are not generally deductible, any reimbursement of your commuting expenses by fellow passengers is not reportable as income.
- Home Sale Gains. Up to $250,000 ($500,000 for married filing jointly) of capital gains on a sale of your principal residence can be tax-free.
- Certain Employer Compensation. In addition to health care premiums, some employee benefits are not taxable. All have limits, but every tax-free dollar is money in your pocket. These include:
- airline miles earned on business credit card expenses,
- certain employee provided tuition expenses,
- qualified adoption expense reimbursement,
- up to $50,000 in employer-paid term life insurance,
- flex spending accounts for dependent care and health care, and
- commuting expense benefits for parking and mass transit commuting.
Remember any time you can pay for something in pre-tax dollars is like giving yourself a raise. Are you taking advantage of all your federal tax-free income opportunities?
Should you have questions about any of the above information on nontaxable income, I encourage you to reach out to our team of experts here: https://bas-pc.com/appointment-center/.