DiSabatino CPA Blog
A blog by Michael DiSabatino CPA with topics on Tax Savings, Business, Management and more...
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Income the IRS Can't Touch
Wouldn't it be nice to have a source of nontaxable income? You may be more fortunate than you realize. Listed here are a number of income items that the IRS does not tax.
| 1. | Tax-Free Interest. Municipal bond interest is federal tax-free. This includes bonds issued by a state or municipality. The tax-free benefit increases the higher your income, but caution must be taken to ensure the underlying municipality is not in dire financial condition. |
| 2 | Health Insurance Premiums. For now, health insurance premiums are tax-free. This is scheduled to change in the future to help pay for health care reform, but for now this benefit can be paid in pre-tax dollars. |
| 3. | Income from Roth IRA and Roth 401(k) Accounts. While the amounts contributed to these retirement savings accounts is taxed, any earnings made on these contributions is federal tax-free as long as holding period and distribution rules are followed. |
| 4. | Health Related Spending Accounts (HSA). Contributions and earnings in these health related spending accounts are tax-free as long as the proceeds in the account are used to pay for qualified health care expenses. |
| 5. | Child Support Received. Unlike alimony received, child support income is federal tax-free. |
| 6. | Car Pool Revenue. While commuting expenses are not generally deductible, any reimbursement of your commuting expenses by fellow passengers is not reportable as income. |
| 7. | Home Sale Gains. Up to $250,000 ($500,000 for married filing jointly) of capital gains on a sale of your principal residence can be tax-free. |
| 8. | Certain Employer Compensation. In addition to health care premiums there are a number of employee benefits that are not taxable. All have limits, but every tax-free dollar is money in your pocket. These include |
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airline miles earned on business credit card expenses, |
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certain employee provided tuition expenses, |
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qualified adoption expense reimbursement, |
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up to $50,000 in employer paid term life insurance, |
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flex spending accounts for dependent care and health care, and |
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commuting expense benefits for parking and mass transit commuting. |
Remember any time you can pay for something in pre-tax dollars is like giving yourself a raise. Are you taking advantage of all your federal tax-free income opportunities?
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