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What Is Considered Taxable Income?

Taxable income is anything that you cannot deduct, cannot shield from taxes, and was earned through a non-exempt job. There are a few things you need to talk to your accountant about during the tax season, and taxable income is perhaps the most important of all these things.

1. What Is Taxable Income?

Your income is taxable when it is not exempt, not deducted, and comes from a non-exempt investment. Even when you work a W2’d job that has taxes applied every time you are paid, that income is further taxable if you have not adjusted your withholdings properly. This means that you did not meet your tax obligation during the course of the year.

Taxable income comes from investments that are not shielded from regular taxes, and you are taxed on dividends from investments, retirement accounts, and even the money you receive from an insurance settlement. Someone who wants to check their tax liability must ask their accountant if their income is taxable. Someone who has not planned ahead can make a payment arrangement with the government so that they can pay off their taxes.

2. What Is Nontaxable Income?

Nontaxable income is something that people are not forced to pay taxes on. The money that you have earned should not be taxed when it comes from an exempt investment, you have already paid enough taxes, and/or the money from from an exempt organization. There are a number of people who have nontaxable income that they are not aware of. To benefit from these, you should seek the help of a qualified tax accountant.

3. Collect Your Records

You can collect your records during the year so that you can pass them off to your accountant when it is time to write your tax return. The tax return that you have completed should be written up by an accountant who will use your records to complete this work to the best of their ability. If you have any questions about which records you should collect, you can talk to your accountant. Your accountant will give you a list of things to bring to the office when it is time to complete your return.

4. Will You Lose Money On Taxable Income?

You will not necessarily lose money from taxable income so long as you have enough deductions. You should make sure that you have talked to your accountant about what they can do for you based on how much you have earned. There are many people who will get a refund just because they had one regular job during the year. However, there are other people who are self-employed, invest their money, or have collected a windfall that need to be careful with their tax return.

The best thing you can do is to ask your accountant what they would do in your position. Your accountant can give you advice about how to manage your return, which documents to collect, and how long to keep these records.

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.