Gross Income And Taxable Income Discussed And Explained.
Gross Income And Taxable Income – Is There A Difference Between The Two?
Some taxpayers’ claims refer to the meaning of income, excluding wages, tips and other compensation received for personal service from their taxable income. Their argument basically is that wages are not taxable income because people exchange their labor for the money they receive.
The IRS clearly specifies “all compensation for personal service, no matter what the form of payment, must be included in gross income”. Since the IRS has the full support of the United States government, it’s going to be hard to convince them that your income is different.
Another frivolous argument that taxpayers bring into court is: Only foreign source income is taxable. The argument here relies on a misread premise that federal income taxes are imposed only on nonresident aliens or foreign corporations for receiving income within the U.S territories.
Some taxpayers argue that Federal Reserve Notes are income. They contentiously claim that Federal Reserve Notes are not valid currency, because they are not gold or silver and may not be exchanged for gold and silver.
To help a little more with our explanation of gross income, we have compiled a list of commonly non-taxable income:
- Adoption Expense Reimbursements for qualifying expenses
- Child support payments
- Gifts, bequests and inheritances
- Workers’ compensation benefits
- Meals and Lodging for the convenience of your employer
- Compensatory Damages awarded for physical injury or physical sickness
- Welfare Benefits
- Cash Rebates from a dealer or manufacturer
There are some instances where some income can be taxable or non-taxable, all depending on the circumstances. Here are a few examples.
- Life Insurance When someone decides to surrender a life insurance policy for cash, they are obligated to the cash as income. Any proceeds that are more than the cost of the life insurance policy must be counted as income when they are NOT collected due to someone’s death. Any life insurance proceeds, that are paid to you because of the insured person’s death, will not be taxable unless the policy was turned over to you at a cost.
- Scholarship or Fellowship Grant When a taxpayer is a candidate for a degree, they can exclude amounts you receive as a fellowship or qualified scholarship. Any amounts used for room and board can’t be excluded.
- Non-cash Income Not all taxable income is in the form of cash. An excellent example of this is bartering, which is the exchange of property and/or services. When you consider this, you must include the fair market value of the goods and/services in your income.
Still confused about your gross income and taxable income? Contact us today for assistance!