Types of Taxable and Non-Taxable Incomes And the Requirement of Tax Return Calculator

Types of Taxable and Non-Taxable Incomes And the Requirement of Tax Return Calculator

BUSINESS Finance

In the United States of America, the tax returns are filed and managed by the Internal Revenue Service or the infamous IRS. It has a complete directory of taxpayers and keeps an entire record of them in this aspect. The tax collection is also accomplished by the local tax collecting agencies, which are generally maintained by the respective state. The tax returns are prepared by filling of forms which are prescribed by the IRS and are uniform for all US citizens.

There are many tools available throughout the internet which does this job for you and enable you to plan your budget accordingly as well. Calculating the total tax has the same importance as calculating income tax returns. If you pay your taxes in advance, you can get some added benefits that increase the amount of the return as well. Whether you work for a company or you run a company, you need to file your taxes to avoid any legal proceedings against you.

Top Taxable Incomes in the United States

Types of Taxable and Non-Taxable Incomes And the Requirement of Tax Return Calculator

  • Taxable income comes in different types and slabs in the United States of America. The most common type of taxable income is salary, wages, and tips. If you run a profitable organization, then you need to send your employees a W-2 Performa, and it is a mandate. The W-2 Performa will have break-ins of salary in the form of base salary, commissions, bonuses; leave pays, and so on.
  • The following primary income source in the US is earning from side jobs. This kind of income is taxable and is considered a self-employed income. If you make more than $400 through your side job, then you need to file a separate ITR in this aspect in the form SE and have to pay Medicare and Social Security as well on this behalf.
  • Surprisingly, the third most earnings come from Alimony. This is the amount of money that someone receives due to divorce or separation.
  • Pensions and annuity payments are also considered taxable in the US, and some fixed amount tax is cut off from pensions and annuity payments as well.
  • The money obtained in the form of awards is also taxable. However, there is a particular slab of income in this aspect, after which you need to pay a certain amount of money in taxes.

Top Non-Taxable Incomes in the United States 

Types of Taxable and Non-Taxable Incomes And the Requirement of Tax Return Calculator

  • A rebate is a reduction in the price of the auto. It isn’t taxable income. However, a rebate reduces your basis in auto manner.
  • If you drive a carpool to and from work, you don’t need to report the payments you receive from passengers. These payments are considered reimbursement for your expenses, not income.
  • If you’re reimbursed for a loss, like a car accident or house fire, you usually don’t have to report the income on your return. However, you should include the payment when you figure any gain or loss from the casualty or theft. Some of these payments might be taxable.
  • Any money or property you inherit is tax-free unless the item is considered to be income in respect of a decedent (IRD). Items like retirement accounts are usually considered to be IRD. If you inherit a traditional IRA or company retirement benefits, you may have to include part of the inherited amount in your income.
  • Life insurance income is not considered as taxable in the US. If you are the insured person and the insurance matures on your name, then you will receive the proceeds in installments for some time and the base amount deposited in the first place is considered taxable but the interest gained on the base amount is payable. If you are buying an annuity with the life insurance earnings the annuity it will also come under taxable income as a pension from a nonqualified plan, not as interest income.

Benefits of Using a Tax Return Calculator

Types of Taxable and Non-Taxable Incomes And the Requirement of Tax Return Calculator

So, these were some income types that are considered under taxable and non-taxable income categories in the United States of America. Many times, it becomes challenging to fill out complete forms by calculating the exact amount of income tax and doing the required formalities. That is why you should take the help of a tax return calculator. These help you calculate your own tax return by using simple algorithms that make your life hassle-free and lets you remain calm and relaxed during the stressful financial year endings.