Income: Taxable or Not?
What exactly is taxable income? The general rule is all income is taxable unless the law specifically excludes it. Wages paid and dividends earned are taxable, but so are noncash items from bartering.
Then there are income types that are usually not taxable such as:
• Child support payments
• Gifts, bequests, and inheritances
• Damage awards for physical injury or sickness
• Cash rebates from a dealer or manufacturer
• Reimbursements for qualified adoption expenses
Of course there’s a gray area. Life insurance proceeds paid on the death of another are generally not taxable. However, if you redeem the cash value of your own policy, it is a taxable event if the proceeds exceed the cost of the policy.
Income from qualified scholarships is not taxable if it is used for tuition, course books, or other strictly-defined expenses. However, grants used for room and board expenses are usually considered taxable income.
If you’re still confused, check out IRS Publication 525, Taxable and Nontaxable Income.