Income Types That The IRS Cannot Tax

The IRS shouldn't be paid more than what's owed in taxes, and wise taxpayers understand this. They are aware that, by overpaying and getting a refund each year, means that they loaned the government money without interest. Obviously, you don't want to end up underpaying and having to owe the government tax money since it may open up a possible IRS issue. But there are various income types that the government cannot collect taxes on legitimately, and many people don't know that. In fact, there are probably numerous ways to keep the IRS at bay than many taxpayers are aware of.

The IRS cannot tax particular income types because it's not allowed by tax law. Knowing what the IRS can't tax can help you keep your money, but you must do everything correctly to avoid tax issues.

Tax-free interest is among these income types. This is income earned from instruments like state-issued bonds, or any other political entity that is entitled to freedom from federal taxes. Municipal bonds is the common name for these types of investment instruments, and the value of their tax benefit basically increases when your marginal tax rate increases. Basically, if your overall income goes up, the value of the bonds rises in parallel.

Another income that can't be taxed is money earned from a car pool. You can exclude your car pool profits without IRS issues.

Selling your house is another income source that is excluded from taxes. If you sell your home, you can exclude up to $250,000 in revenues, $500,000 if you file a joint return with your spouse. Every two years, you can claim this exclusion. If you sell your home after less than two years, you can also claim a partial exclusion. Obviously, you must ask a tax professional to make sure that you're doing this the correct way as there are many restrictions.

A lot of people assume that a raise can only be received as more money in their paychecks. Actually, depending on your case, it may be a good option to ask your employer to give you a more unique form of a raise. As an example, you can save money as it is impossible for the IRS to tax your raise if you ask your employer to pick up the cost of a better insurance policy instead. Also, compared to getting your employer pick up the payment for you, you can make payments with after-tax money by picking a higher healthcare policy. When you choose an option such as this, you gain in numerous ways without the hassle of handling any possible IRS problems.