Question:   Just what does the IRS count as taxable Income?

Answer:      Realizing you have an IRS tax debt can be alarming if unexpected. Unfortunately, in many cases, people aren’t quite sure why they owe money to the government.

Typically this occurs when you’ve received income that is taxable, but for whatever reason the taxes were not withheld. Before you accept money, always be sure to plan for how the taxes will be paid.

Let’s discuss briefly just what the IRS considers taxable income.

Essentially all of the money you have received from an employer is taxable income. Regardless of your position in an organization, you employer should be withholding the appropriate amounts of Federal and State tax.

If your employer is not doing this you will find yourself stuck with an IRS tax debt when April approaches. Taxable income includes any hourly wages, tips, bonuses, and money earned from odd jobs.

People who are not employed by a business but are self-employed instead still have earned income and it is also taxable. Those who are self-employed must fill out and submit quarterly tax payments, both Federal and State.

Self-employed individuals must account for all revenues and expenses throughout the entire year as they will not receive a W-2 document from an employer. The bookkeeping can be confusing at times so seek professional assistance if necessary.

Make sure to account for everything properly as it is necessary to ensure that any potential problems with the IRS are avoided. Failing to fill out your tax forms correctly will only lead to audit, which typically results in you paying penalties and owing even more IRS tax debt.

Pay derived from employment is not the only type of taxable income. Interest earned on savings accounts or investments is also subject to tax. Receiving money due to appreciation from the sale of items such as investments or real estate is also taxable and will need to be reported as capital gains.

Certain payments you might receive on a regular basis like alimony is also subject to taxation. There are a great many miscellaneous items such as legal settlements, gambling winnings, and sweepstakes winnings that are also taxable.

You are required you to pay taxes on all earnings for the year in which they were received. Often times these payments have not had tax removed prior to you receiving the funds, so it’s important to understand what tax rate applies.

Paying less money than is owed to the government will result in an IRS tax debt that becomes more of a nuisance down the road. You do NOT ever want to get in a confrontation with Uncle Sam. Avoid this at all costs!

With so many forms to fill out and the constant knowledge that tax laws continually change, be sure you are totally comfortable with filing taxes if you do it yourself. Otherwise, the money you pay an accountant to do your taxes for you is money well spent.

» What are the key steps to reducing my debt?
Recognize that debt does not provide opportunity and freedom, it destroys it. Say to yourself, “It’s time I act as if I’m the adult in the room and take ownership of the problem to pay my debts.”

» Of all the important financial principles, which one should be weighted most heavily?
Living debt free is critical to your happiness, which is the number one “life” principle.

» What’s the difference between debit cards and credit cards?
You never have to pay off your debit card, but you are always dreaming of paying off credit cards. Debit cards only spend money that currently exist in your checking account.

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