Share:

Under IRS guidelines, you must claim almost every type of income on your federal tax filings, including wages, rents, and investment dividends. However, the code does make some sources of income and benefits exempt. If you end up overpaying on your taxes, the IRS won’t give you an automatic refund, so it pays to understand what income is exempt before filing.

Examples of Exempt Income & Benefits

Gifts & Inheritances

federal tax filingIn general, the person giving a gift of money or property is responsible for paying the taxes, so you usually don’t have to report cash or other valuables you receive. Estates of less than $5.6 million for an individual or $11 million for a couple also aren’t subject to tax, so most people will never have to worry about it.

Child Support Payments

Child support is tax neutral, so the payer can’t claim an exemption and the recipient doesn’t have to report it as income. While it’s important to keep track of all child support payments for other reasons, you shouldn’t include it in your federal tax filings.

Life Insurance Payments

Because policies are purchased by taxed income, life insurance death benefits aren’t subject to federal income tax. In other words, every dollar of insurance you purchase goes directly to supporting your family.

Compensatory Damages

If you’ve been awarded an insurance settlement or won a lawsuit related to someone else’s negligence, the proceeds are usually tax-free. This exemption applies whether you’re paid in a single lump sum or through regular installments.

 

If you need help with your federal tax filings, turn to the accomplished accountants at Lee & Smith, PLLC. For nearly 30 years, they’ve been one of the Texarkana area’s leading accounting firms, providing a wide range of services to individuals and businesses alike. Follow their Facebook for more tax advice, and call (903) 832-4339 or visit their website to learn more about income tax exemptions.

tracking