What qualifies as income for tax purposes?
For federal tax purposes in the United States, income is broadly defined and includes all sources of income unless specifically excluded by law. This means that taxable income can come from:
- Wages and salaries
- Self-employment income
- Interest
- Dividends
- Capital gains
- Retirement income
- And many other sources
Even some non-monetary benefits, such as the value of employer-provided housing and meals, can be considered income.
There are some limitations and exceptions to what qualifies as income for tax purposes. For example, income received from certain types of government benefits may be excluded from income taxes, including:
- Supplemental Security Income (SSI)
- Workers' Compensation benefits
- Unemployment compensation
Additionally, certain deductions and credits can reduce the amount of taxable income or the amount of tax owed. For example, contributions made to a traditional IRA or 401(k) plan are tax-deductible and can reduce taxable income.
It is important to keep detailed and accurate records of all sources of income, as well as any deductions and credits, in order to accurately calculate taxable income and comply with IRS regulations. Taxpayers who fail to report all taxable income can face significant penalties and interest charges.
Individuals who have questions about what qualifies as income for tax purposes, or who require assistance in filing their tax returns, should seek the advice of a licensed tax professional.
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