The IRS Can't Tax These Different Income Types From You

If you're a smart taxpayer, you understand you shouldn't pay the government more or less than what you owe in taxes to avoid IRS issues. What numerous taxpayers don't realize is that there are various income types that the government cannot collect taxes on legally.

The IRS cannot tax particular income types since it is not allowed by tax law. Understanding what the IRS can't tax can let you keep your money, but you should do everything right to prevent tax problems.

One income is tax-free investment instruments. These are state-issued bonds more often called municipal bonds that are free from federal taxes. The tax benefit of these bonds rise when your tax rate goes up, meaning their value rises with a rise of your overall income.

Money earned from charging fees in a car pool is a source of income that cannot be taxed. If you happen to drive to work each day in a car pool and charge your passengers a small payment, that money can be excluded from your reported earnings without an IRS issue.

The selling of a house is a source of income that involves different people. When you sell your home, you can exclude revenue gained of up to $250,000. This amount can go as much as $500,000 for two people, if they file a joint return. You do not have to reinvest the money and you can claim this exclusion every 2 years. Also, if you happen to sell your house sooner than the 2 years, you'll still be able to claim a partial exclusion. For instance, if you sold your home after only 1 year and you earned $75,000 in profit, then you can only exclude up to half of the $250,000 limit. You don't have to pay sales tax on the transaction because $75,000 is less than half of $250,000. There are of course a few other restrictions, so you will have to ask a tax professional to make sure you're doing this correctly since a mistake could end up costing you $75,000 instead of earning $75,000.

Many people believe that a raise can only be had as more money in their paychecks. In truth, basing on your case, it may be a good choice to ask your employer to give you a more unique form of a raise. As an example, you can save money as it's impossible for the IRS to tax your raise if you get your employer to pick up the cost of a better insurance policy instead. Also, if you choose a higher healthcare plan, you would be making those payments with after-tax money, compared to getting your employer pick up the payment for you. When you pick an option like this, you gain in various ways without the headache of addressing any possible IRS problems.

Be Sociable, Share!

•