If you do your taxes yourself, or if you bring them to your accountant, you have probably heard the terms taxable and non-taxable income. In general, taxable income is money that you earn that you will have to pay taxes on. Un-taxable income is the opposite. For example, when you receive a paycheck, the money that is provided to you is the net amount of the total amount that you have earned. That is because your employer will remove taxes that need to be taken out of that income. Conversely, non taxable income would pertain to any monetary gifts you have received, or inheritance that you were given. This also applies to child support payments and many other forms of income that are not legally taxable by the United States government. There are often tax issues related to both forms of income that we will now discuss.
Are These Tax Issues Very Common Today?
Before discussing the many problems that can surround taxable and non-taxable income, it should be known that these are common problems that many people face. If you feel that you are just one of a select group of people dealing with these problems, you should know that this is happening all over the world. If you happen to be in the United States, or a country like England or Australia, you have probably dealt with tax related issues. To understand how to resolve any problems that you may be having, let’s first look at what taxable income is.
What Is Taxable Income?
There are two different types of income that is referred to as taxable. There is a earned income, and income that is not directly earned. Earned income will pertain to the wages that you earn from your job, or the salary that your company is providing for you. If you are in a profession where you are receiving tips, most people do not know that this is taxable. If you have done well for your company, and they are providing you with bonuses, you must also pay taxes on this money that you have been given.
What Is Non Taxable Income?
This income is not taxable. This could be welfare benefits, cash rebates, and child support that you receive regularly. Any type of monetary gift, inheritance, or a bequest fall under the category of income that you received but will not be taxed on. One of the best examples of nontaxable income is money that you receive because you are sick, or because you have experienced a physical injury. If you have received any type of reimbursement as a result of going through an adoption, the government cannot tax you at all.
Tax Issues Related To Taxable Income
One of the most well-known issues related to taxable income pertains to those who are not paying their taxes. For example, you could work for a company where you are an independent contractor. If you do not take at least 1/4 of that income and set it aside, specifically to pay your taxes, you could run into problems with the IRS. As a simple rule, if you have a job and receive money from this company as part of your agreement to work with them, you need to pay your taxes on the gross amount that you are paid. For most people, this is something they never have to worry about because their employer will take care of all of this for them.
Tax Issues Related To Non Taxable Income
A common issue that is related to income that cannot be taxed has to do with revenue earned as part of a corporation. This would pertain to capital gains, or even dividends that you have received. If there are any corporate profits, there will always be some question as to whether or not you need to pay your taxes. If some of this money is dispersed as some type of bonus, it needs to fall under a specific category to avoid taxation. In most cases, you will not have to pay taxes on dividends and bonuses, but you will certainly have to pay taxes if this money is designated as some type of personal earnings.
How To Resolve Any Tax Issues On These Types Of Income
Some of the most complicated tax issues can be handled by accountants or a tax attorney such as Dean Hines that is well aware of tax laws. It is common for tax laws to change on an annual basis. These professionals will understand what income is taxable, and what income is not. If you do have a problem with the IRS, these accountants will know exactly what to do. If not, you can always hire an attorney that specializes in tax laws. They will be able to help you resolve any problems that may be occurring.
What If You Are Behind On Your Taxes?
If you are like many people, you have likely experienced problems with the IRS in the past. If you have a regular job where taxes are taken out, it is unlikely that there will be any issues. As long as your employer is competent enough to take out the correct amount of taxes every paycheck, you won’t have to worry about not having paid the Internal Revenue Service. However, for those that are independent contractors, receiving the full amount of money that you earned prior to taxes, it is your responsibility to pay taxes on this money. If there is an issue, you may have to contact a lawyer that can represent you and resolve this type of problem. At the very least, you could contact the IRS directly. They can tell you how much they would like you to pay, and you may be able to work out a payment plan where you can get this issue behind you.
If you have earned any money at all this year, it is going to be taxed. Conversely, if you have received a bonus, or if you have inherited a sizable amount of money, you will likely not have to pay taxes on this cash. Just to make sure, it is recommended that you consult with an accountant. If you are receiving requests from the IRS to pay off the full amount, getting a lawyer might be the best course of action. There are always ways to deal with issues that can arise with both taxable and nontaxable income.