Think you need to include ALL income on your tax return? Think again!
There are several sources of income the IRS tax code does not allow to be taxed. Below I've listed a few types of income that you should not include on your tax return.
1. Tax Free Interest
Tax free interest includes any interest earned on municipal bonds (bonds issued by a state, territory, or political subdivision). These are tax free because the government wants you to invest in these bonds and therefore include their tax free status as an incentive.The interest on these bonds is not only excluded at the federal level, but it may be excluded at the state or local level as well. Check with your state and specific type of bond to ensure at what level it is excluded from your taxes.
2. House Sales
Gains on investments are typically included in income, however there is an exclusion for home sales. If the house being sold was your principal residence for at least 2 of the last 5 years, then you can exclude up to $250,000 in gains ($500,000 for married filing jointly) for the year you sell. If you do not meet the 2 year requirement and need to move because of "unforeseen circumstances", then you are able to exclude a proportion of the gain based on how long you resided in the house.
This exclusion can be claimed every 2 years.
3. Carpooling
Besides being more friendly to the environment, carpooling can potentially be more friendly to your wallet as well. If you carpool to and from work, any money received from your passengers should not be included as income. Therefore, if you receive $100/month for carpooling with people to work, none of it is included as income. However, any commuting costs are not deductible on your return.
4. Group Life Insurance
While this technically is not money in your pocket, any employer-paid group term life insurance up to $50,000 is not included as income to you. Another attractive feature of this employee benefit is that YOU get to pick the beneficiary of the life insurance. Therefore, as an employee benefit, you pay no money for being insured.
However, any group term life insurance over $50,000 is taxable. This is because the life insurance premiums are basically another form of compensation and the IRS deemed anything over $50,000 to be excess, and therefore taxable.
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I built a home several years ago while I was married. Now I am divoiced last year and we are selling the home. I have 475,000 in the home including in this is a lot I paid 85,000 for. I settled with my former wife since the market dropped and could not sell at that time so I gave my wife her settlement on the home and I will sell for a price and then take all the proceeds. The house apraisal came back at 100,000,000 (1 Million dollars) If I sell for that price the sale will show a gain of 550,000 roughly before deducting expenses of the sale. Since we both owned the home prior to our divoice, would I still be alowed 500,000 deduction on the gain or will the IRS demand only 250,000 deduction since I am now no longer married.
Bob Lassiter