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Do you know what all is considered taxable income? The easy answer would be that all income is taxable unless the law specifically says it is not. You’re probably saying to yourself, duh, but there’s more to it than that. Taxable income can be any number of sources of money such as wages and tips. However, taxable income also includes non-cash income from services or tangible goods or property. Here’s an example: Jimmy wants to have his deck repaired in the back of his house but can only offer the repair man, Joe, a tangible good in exchange for his services. Jimmy ends up giving him a motorcycle in his garage. Joe, has to record the fair market value of the motorcycle as income for payment of his services. Another scenario would be where they exchange both of their services in which they would both record the fair market of the services received as income.
Other sources of income that are typically not taxable include
· Gifts and Inheritances
· Damage Awards for Physical injury or sickness
· Child Support payments
· Welfare Benefits
· Reimbursements for qualified adoption expenses
· Cash rebates from a dealer or manufacturer for an item you buy
There are also other sources that are not taxable except under certain conditions. Some examples include:
· Life Insurance proceeds
· State or Local income tax refund
· Income from a qualified scholarship
· Bartering Income is Income and is taxable
Let’s first define bartering which is the trading of one product or service for another. One might see that bartering frequently occurs in small businesses. An example might be an Information Technology consultant trading his skills for a plumber to do work in his kitchen. By bartering, the value of products or services which are received are considered taxable income. Here are a few things you should be aware of for bartering income:
· Trade and barter dollars are the same as real dollars for tax purpose and need to be reported on a tax return. Both parties must report as income the fair market value of the product or service they receive.
· Just like a constructively received income, bartering is taxable in the year it occurs. The tax rules vary based on the type of bartering that takes place. The barterer may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.
· If you are in a business or trade you would normally report it on Form 1040, Schedule C, or Loss from Business.
· Also, be aware that if you go to a barter exchange, an organized marketplace where members barter products or services, it is required to issue Form 1099-B , Proceeds from Broker and Barter Exchange Transactions. The exchange must give a copy of the form to its members and to the IRS.