All Income is Taxable Unless……..

Hello Everyone, it’s not long until tax time. I know…. I know… most of us choose to forget that for now.

Lately a few questions have come up about what sources of income are taxable and which are not. We have attached one of our newsletters to answer that very question. This newsletter and many others  can also be found on our web-site at www.caldwellaccountingonline.com. We hope this will help.

While it is true that most everything of value received by an individual must be reported as income for federal income tax purposes, there are more than two dozen specific exclusions. Here’s a list of income that is generally not taxable to you. (There are always exceptions — that’s why you might need us!)

(1) Life insurance proceeds and death benefits.

(2) Gifts and most amounts you might inherit.

(3) Interest you receive on state and local obligations, otherwise known as tax free
municipal bonds.

(4) Compensation for injuries or sickness.

(5) Reimbursements for medical expenses or medical insurance provided as a fringe
benefit by your employer.

(6) Some life insurance premiums paid by your employer under a plan to provide a similar
benefit to all employees.

(7) Disability benefits, so long you did not deduct the premiums.

(8) Any amount of debt that a creditor agrees not to collect (accountants call it
“income from forgiveness of indebtedness”) if your liabilities still exceed your assets after that forgiveness.

(9) Amounts paid or reimbursed by your landlord for leasehold improvements to your
business location.

(10) Scholarships and fellowships, as long as you are not required to perform
services in order to receive them.

(11) Meals and lodging provided by your employer, on the employer’s premises, for the
convenience of the employer, and required to be accepted by you as a condition of employment.

(12) Gain from the sale of your principal residence (a dwelling used by you as your principal residence for at least two out of five years preceding its sale) subject to a $250,000 cap. ($500,000 in a joint return)

(13) Insurance reimbursements for your increased living expenses if you are unable to
occupy your principal residence due to fire, storm, or other casualty.

(14) Up to $5,250 per year paid by your employer, pursuant to an educational assistance program, for your tuition and related costs of attending college.

(15) Up to $5,000 per year paid by your employer for the care of your dependent child or disabled spouse as part of a dependent care assistance program.

(16) Foster care payments you receive from the state or a qualified foster care placement
agency to assist you in caring for a foster child in your home.

(17) Ten minor but valuable benefits related to your employment:

(a) A service your employer regularly offers for sale to customers, for which no substantial additional cost is incurred when providing it to you, such as free flights for airline employees.

(b) An employee discount of up to 20% on services or the employer’s gross profit
on property (employee discounts for department store workers),

(c) The cost of any property or service provided to you by your employer if you could have paid and deducted the amount yourself (uniforms or training),

(d) Any property or service provided to you that would cost more to account for than the value of the thing itself (think donuts!),

(e) Employer-provided transportation with a van pool, mass transit pass, or parking near the work place or the mass transit terminal (in 2007 the untaxed monthly benefit is $110 for transportation and $215 for parking),

(f) Employer-provided transportation because of unsafe conditions (late night shuttles),

(g) Any amount of moving expenses paid by your employer that would have been
deductible if you paid them yourself,

(h) Retirement planning services offered to all employees of an employer that maintains a qualified retirement plan,

(i) The value of on-premises athletic facilities provided for your use by your employer, and

(j) Any allowance or benefit (other than personal use of a vehicle) that you receive as a member or former member of the uniformed services.

(18) Interest income on Series EE and I savings bonds when the proceeds are used for higher education (subject to several limitations).

(19) Up to $11,390 of adoption assistance payments received from your employer in 2007.

(20) Any expense reimbursement you receive from fellow employees for transporting them to and from work (carpool reimbursement).

(21) Any contribution to your household expenses by a child who is your dependent.

(22) Relocation payments under provisions of various federal acts (such as the Housing and Community Development Act of 1974).

(23) Receipt or use of frequent flier miles (although a basis adjustment may be required
when miles are awarded in connection with an asset acquisition).

(24) Payments you receive from federal or state programs to encourage capital spending on conservation and pollution control measures.

That’s quite a list . . . and as you might guess, each of the listed items has unique rules, conditions, and limitations that must be considered before you can take advantage of the income exclusion. If you have questions about any item on the list and how it might affect you, please call us. We will be glad to provide additional information to help you secure the full benefit of income that is not taxable.

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