Comprehending ‘Which type of income is taxable?’ is fundamental if you wish to be more responsible for your financial health. This must be equally important for individuals, freelancers, business owners, and investors.
L&Y Tax Advisors helps you explore which type of income is taxable. You will also learn about the types of income that may be exempt from taxation. This is a vital skill that is beneficial for navigating your monetary concerns.
What is Taxable Income?
Taxable income refers to the chunk of your total (gross) income that is subject to tax, after accounting for allowable:
- Deductions
- Exemptions
Until a particular law exempts it, gross income includes any economic benefit you receive. This can be:
- Money
- Property
- Services
Once you subtract deductions (like standard or itemized deductions) from gross income or adjusted gross income (AGI), the outcome is your taxable income.
Taxable Income Examples
There are several sources of taxable income. Common examples include:
Wages and salaries from employment
- Income from self-employment or freelance work
- Business income for entrepreneurs
- Rental income from properties
- Investment returns, such as:
- Interest
- Dividends
- Capital gains
- Royalties
- Less obvious sources, like:
- Gambling winnings
- Cancelled debt
- Benefit payments, like:
- Certain retirement distributions
- Unemployment
- Social Security benefits
- Other miscellaneous income, like:
- Judgment awards
- Bartering value
Read: What is a VAT number in the US?
Which Type of Income is Taxable?
Almost any income you receive is taxable unless explicitly excluded by law. The core taxable types are:
- Compensation for services (salaries, wages, tips, bonuses, commissions)
- Profits from business or self-employment
- Rental and royalty income
- Investment-related income (interest, dividends capital gains)
- Other miscellaneous income sources (canceled debt, bartered services)
Which Type of Income is Non-Taxable?
Not all income is taxed. Some categories are explicitly exempt. Examples often include:
- Gifts
- Inheritances
- Life-insurance proceeds
- Certain educational scholarships or grants (when used for tuition and related education expenses)
Other potentially non-taxable amounts may include:
- Certain employer-provided benefits (health insurance or reimbursements)
- Welfare or public-assistance benefits
- Other payments (excluded by law)
Read: What is tax yield?
The Bottom Line
Determining which type of income is taxable hinges on knowing what you received and if the law exempts it. Mostly, taxable incomes are earned from work, business, investments, and other gains.
Only a limited set of incomes are typically non-taxable. Consult our experienced taxation professionals for more clarity on your specific situation. We help you gain confidence in your monetary obligations and tax responsibilities. Call us now!
