As responsible citizens of the country, it is mandatory to pay taxes on the income received throughout the year. It is an illegal practice for citizens to evade taxes. Hiding the actual financial aspects of the government can land one into jail for a considerable period. However, there are certain exceptional cases which need to be known by the citizens of any country for sound financial planning and investing wisely.
The exceptions of non-taxable sources of income have been stated below:
Disability Insurance Payments-If the benefits come to you with a policy formulated by your employer and their accompaniment is the premium, it becomes taxable. However, in some cases, such benefits can be non-taxable, which find mention below:
Physical injury or sickness causing damage that is compensatory but not punitive
Private Disability Insurance with after-tax dollars
Benefits of disability derived from the public welfare fund
Health Savings Account- Those individuals who are enrolled in HDHP which stand for High Deductible Health Plan can avail it. It is a non-taxable source of income in the category of medical benefits for the citizens of a country.
Life Insurance Payouts- If your parents or relatives leave you with a benefit of life insurance, such income is a non-taxable source of income. However, if you plan to convert it into cash, the tax may come into the picture and play a role.
Income earned in the Seven States- In the United States, every state can formulate its law, independent of the others. At the federal level, most income comes under the taxable category. However, seven such countries do not have to pay a state tax on the income received by its residents. Some of these seven states are Alaska, Washington, and Texas.
Gifts– Gifts received are not considered in the category of taxable income. In the US, gifts over $ 15000 fall under the category of taxable sources.
Retirement Income- Income after retirement becomes non-taxable from Roth IRAs. A good set of advantages are provided in case of retirement account investing. Also, if the account holds for five years, the benefit of non-taxable income is provided, given that the age of the person is less than 59.5 years.
Municipal bond interests- This is one of the most popular non-taxable sources of income. Investment in municipal bonds requires you to pay federal, state, and local taxes, but if you earn from the city bonds, the revenue is non-taxable. It is also important to note that this exemption is applicable only if the investment is on individual bonds.