The IRS Can’t Take These Types of Income

The IRS should not be paid more than what’s owed in taxes, and intelligent taxpayers know this. They are aware that, by overpaying and receiving a refund every year, means that they loaned the government money minus interest. And as it may bring you IRS problems, you also don’t want to underpay and owe the government money. But there are various income types that the government cannot collect taxes on legitimately, and most people don’t realize that. In fact, not many taxpayers realize that there are ways to keep the IRS at bay.

Because tax law doesn’t allow it, the IRS can’t tax particular types of income. You can keep your money if you know what the IRS cannot tax you with, but to prevent tax issues, you must do everything right.

Tax-free interest is one of these income types. This is income earned from political entity entitled to freedom from federal taxes such as income earned from state-issued bonds and other instruments. These investment instruments are more often known as municipal bonds, and when your marginal tax rate goes up, the value of their tax benefit also goes up. Basically, if your overall income increases, the value of the bonds goes up in parallel.

Money made from collecting fees in a car pool is a source of income that can’t be taxed. If you happen to drive to work each day in a car pool and collect from your passengers a small payment, that money can be excluded from your reported earnings without an IRS problem.

One source of income that can involve several people and complexities is the selling of a house. However, you can essentially exclude up to $250,000 in profits gained when you sell your home. This amount can go as much as $500,000 for two people, if they file a joint return. You are entitled to claim this exclusion every 2 years, and you do not even have to reinvest the money. Also, if you happen to sell your house sooner than the 2 years, you’ll still be able to claim a partial exclusion. For instance, if you sold your house after only 1 year and you made $75,000 in profit, then you can just exclude up to half of the $250,000 limit. Since that $75,000 is less than half of the $250,000, you can, in fact, pay no sales tax on that transaction. A mistake, however, could cost you $75,000 rather than earning it, so be sure you do this correctly by asking a tax professional since there are other restrictions.

Getting an increased paycheck amount isn’t the only way of getting a raise. Your employer can pick up the cost of a higher healthcare policy or a better insurance policy instead, if you choose. You will not have to address possible IRS problems because the IRS will not be able to tax your raise.

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