The IRS Can't Take These Different Income Types From You

To avoid IRS problems like a wise taxpayer, you understand you should not be paying less or more of what you owe the IRS in taxes. The government cannot legally collect taxes on various income types, and not a lot of taxpayers realize this.

The IRS cannot tax certain income types because it is not allowed by tax law. You can keep your money if you are aware of what the IRS can't tax you with, but to avoid tax problems, you need to do it right.

Among these types of income is tax-free interest. This is income earned from instruments such as state-issued bonds, or any other political entity that is entitled to freedom from federal taxes. These investment instruments are more commonly known as municipal bonds, and when your marginal tax rate increases, the value of their tax benefit also increases. In plain speak, the value of the bonds rises in parallel to the rise of your overall income.

Money earned from collecting fees in a car pool is a source of income that cannot be taxed. The money you charge your passengers in a car pool can be excluded from your reported earnings with problems with the IRS.

Another source of income that is excluded from taxes is selling your home. You can exclude up to $250,000 if you sell your home, and if you file a joint return with your partner, $500,000. Every two years, you can claim this exclusion. If you sell your house after less than 2 years, you can also claim a partial exclusion. There are various restrictions, so it's best to consult a tax professional to ensure that you are doing this correctly.

Getting a raise does not only mean getting an increased paycheck amount. Your employer can cover the cost of a higher healthcare policy or a better insurance policy instead, if you choose. You will not need to address potential IRS problems because the IRS won't be able to tax your raise.

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Originally posted 2008-07-06 16:23:01. Republished by Blog Post Promoter

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