The Facts: Taxable vs. Nontaxable Income in Winston Salem , NC, and Raleigh, NC

Understanding the difference between taxable and nontaxable income is essential for individuals and businesses alike. Knowing what income is subject to taxation can help you avoid potential tax problems and ensure that you’re in compliance with the IRS. Here’s what you need to know about taxable and nontaxable income:

Taxable Income:

1. Wages and Salaries: Income you earn from working, including wages, salaries, bonuses, and tips, is generally taxable.
2. Interest and Dividends: Any interest you earn from savings accounts, certificates of deposit (CDs), or bonds, as well as dividends from stocks and mutual funds, is considered taxable income.
3. Business Income: If you’re self-employed or own a business, any income you earn from your business activities is taxable.
4. Capital Gains: Profits from the sale of assets such as stocks, bonds, or real estate are considered taxable income.
5. Retirement Income: Income from retirement accounts such as 401(k)s, traditional IRAs, and pensions is generally taxable when withdrawn.
6. Rental Income: Income from renting out property, including both residential and commercial real estate, is taxable.

Nontaxable Income:

1. Gifts and Inheritances: Money or property you receive as a gift or inheritance is generally not considered taxable income.
2. Child Support and Alimony: Child support payments and alimony payments are not considered taxable income for the recipient.
3. Insurance Proceeds: Money you receive from insurance policies, such as life insurance or health insurance, is generally not taxable.
4. Certain Social Security Benefits: While some Social Security benefits are taxable, others are not. Generally, if Social Security is your only income, it is not taxable.
5. Scholarships and Grants: Money you receive as a scholarship or grant to pay for tuition, fees, and books is generally not considered taxable income.
6. Workers’ Compensation: Payments you receive as workers’ compensation for a work-related injury or illness are not taxable.

It’s essential to understand the difference between taxable and nontaxable income to ensure that you’re reporting your income correctly on your tax return. If you have questions about what income is taxable or nontaxable, don’t hesitate to contact NC CPA PLLC. We’re here to help individuals and businesses in Winston Salem, NC, Raleigh, NC, and the surrounding areas navigate the complexities of the tax code and ensure that they’re in compliance with IRS regulations.