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| Tax School Homepage |
| Taxable and Nontaxable Income |
| Almost anything you receive as compensation in exchange for services is taxable. You can receive income in the form of money, property or services. Generally, an amount included in your income is taxable unless it is specifically exempted by law. Thus, you are generally taxed on income that is available to you, regardless of whether it is actually in your possession. |
| For example, if you have a valid check that you received or that was made available to you before the end of the tax year it is considered income constructively received in that year even if you do not cash the check or deposit it to your account until the next year. To demonstrate further, if the post office tries to deliver a check to you on the last day of the tax year but you are not at home to receive it, you must include the amount in your income for that year. Additionally, if a valid check was mailed to you so that it could not possibly reach you until after the end of the tax year, and you could not otherwise get the funds before the end of the year, then you include the amount in your income for the next year. So if you agree by contract that a third party is to receive income for you, you must include the amount in your income when the third party receives it. Also if you and your employer agree that part of your salary is to be paid directly to your former spouse, you must include that amount in your income when your former spouse receives it. Generally, you must include in gross income everything you receive in payment for personal services such as wages, salaries, commissions, fees, tips, fringe benefits and stock options. Generally, you must include in gross income everything you receive in payment for personal services such as wages, salaries, commissions, fees, tips, fringe benefits and stock options. |
| Generally people are employees and that is not difficult to determine. You just go to work for a company and it is extremely obvious that you are employee. If you have your own business establishment for example it would be very obvious that you are not an employee. However, there are some individuals for whom this is not so clear. You generally would not be an employee you are not subject to the will and control of the person who employs you as to what you do and how you do are doing what you do. |
| Fringe benefits you receive in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or if they are specifically excluded by law. Abstaining from the performance of services such as when you have a covenant not to compete would not be considered a fringe benefit. |
| A fringe benefit is a form of pay for the performance of services such as allowing an employee to use a business vehicle to commute to and from work. You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. You are considered to be the recipient of a fringe benefit even if it is given to another person. If you are a partner, director, or independent contractor, you can also be the recipient of a fringe benefit. You don't have to be an employee of the fringe benefit provider in order to be a recipient of a fringe benefit. |
| Money you receive for the use of real estate or other property is taxable to you as rental income and you can deduct the expenses associated with such income. If you rent out personal property, such as equipment or vehicles, how you report your rental income and expenses is generally determined by whether or not the rental activity is a business and whether or not the rental activity is conducted for profit. Generally, if your primary purpose is income or profit and your are involved in the rental activity with continuity and regularity, then your rental activity is a business. |
| Interest Income |
| Use Schedule B if you have over $1,500 in taxable interest or ordinary dividends. You also will use schedule B to report a financial interest in, or a signature authority over, a financial account in a foreign country or you if you received a distribution from, or were a grantor of, or transferor to, a foreign trust. If you received interest or ordinary dividends as a nominee in any amount report this interest or dividend amount that is in your name but does not belong to you. You report any amount of interest on your tax report because interest income is normally taxable. Consequently, you normally would file Schedule B if your interest income is over $1,500. |
| Interest Received |
| Most interest that is taxable income is interest that you either receive or is credited to your account and can be withdrawn without penalty. Interest that would be taxable income is interest that you receive on bank accounts, money market accounts and interest received on certificates of deposit. Taxable interest is any interest received that is from certain distributions commonly referred to as dividends or interest income from Treasury bill, notes and bonds. Interest on insurance dividends left on deposit with the U.S. Department of Veterans Affairs is is not taxable income interest. Most interest received that is deemed taxable in any amount should be included on your tax return. A Form 1099-INT or a similar statement should be received from each payer of interest of $10 or more. |
| A nominee recipient is someone who receives, in his or her name, income or interest that actually belongs to another individual. Therefore, if you receive a Form 1099 for amounts of interest that actually belong to another person, you are considered a nominee recipient and it may be necessary for you to file Form 1099 with the IRS and furnish a copy of this form to the other owner or owners. If you received interest as a nominee for the actual owner, you need to show that amount below a subtotal of all interest income listed on Schedule B. Hence, you must prepare a Form 1099-INT for the interest that is not yours and give Copy B to the actual owner and also send a copy to the IRS. You must give the payer of your interest income your correct social security number. If you do not, you may be subject to a penalty along with backup withholding. |
| Copyright © 2014 [Hera's Income Tax School]. All Annual Filing Season Program rights reserved. |
| Revised: 12/14/14 |
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