What $$ IS Taxable: IRS Publication 525 - John R. Dundon II, Enrolled Agent
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What $$ IS Taxable: IRS Publication 525

Business Entity Selection and the Tax Consequences of Converting

What $$ IS Taxable: IRS Publication 525

I’ve been engaged in a running dialog with extraordinary nuances as to whether a loosely organized group of people are or are not fully recognizing taxable revenue from engagement in barter transactions with each other. The nuances inside this topic ranged from record keeping (as in if neither party kept written record did a taxable transaction occur) to gift giving (as in is a fully depreciated tractor given to a relative for example a taxable event) to conspiracy to defraud (as in if we all agree that we are giving each other gifts inside the annual gift tax exclusion are there really any tax laws being violated).

In response I’ve drafted this post which is essentially a brief overview of IRS Publication 525, Taxable and Nontaxable Income.

The follow revenue sources are not considered taxable income:

  • Adoption expense reimbursements for qualifying expenses
  • Child support payments
  • Gifts, bequests and inheritances
  • Some, but not all, workers’ compensation benefits
  • Reimbursement for meals and lodging for the convenience of your employer
  • Compensatory damages awarded for physical injury or physical sickness
  • Welfare benefits
  • Cash rebates from a dealer or manufacturer

Examples of items that may or may not be included in your taxable income are:

  • Life insurance If you surrender a life insurance policy for cash, include in income all proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are generally not taxable unless the policy was turned over to you for a price.
  • Scholarship or fellowship grant If you are a candidate for a degree, you can exclude from income amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify for the exclusion.
  • Non-cash income Taxable income may be in a form other than cash referred to as bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

All other items—including income such as wages, salaries, tips and unemployment compensation AS WELL AS REVENUE FROM BARTERING — are fully taxable and must be included in your income unless it is specifically excluded by law.



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