Is All the Money in My Bank Account Considered Taxable Income?
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- By Miriam Caldwell
- March 2, 2013
The amount that you pay each year in taxes is determined by your income. When taxpayers consider their income, they generally assume it’s the amount they earn through work. However, you can be taxed on all of your income, which includes the gains from investment sales, any contract or freelance work you do or royalties you receive. It is important that you include all of your taxable income when you file your taxes.
What Is Taxable Income?
It can be difficult to determine exactly what is taxable income. Most of your income is taxable, including wages, business profits, bonuses, tips and dividends.
Note, however, that some of the benefits that you receive from work may come out pre-tax and lower your taxable income. This may include your health insurance, your retirement contributions and your contributions to flexible spending account. If you receive child support, that money is not considered taxable, either, as well as gifts you received from family members for under $10,000.
How to Determine Taxable Income
It is important to understand how to determine taxable income. The government does require business, banks and investment firms to send you a form reporting taxable income to you at the end of each year. This is a good place to start.
However, it is unlikely that your family will need you a form if they give you more than $10,000 during the year, and you will need to report it. If you have questions about what is taxable, you should visit an accountant, who can answer specific questions about your situation. Most income you receive will be considered taxable.
Is Social Security Income Taxable?
When you retire, the answer to the question “is Social Security income taxable?” may determine how you plan your budget each year. There is a specific formula that determines if and how much you will be taxed on your Social Security income.
If your combined income is between $25,000 and $34,000, you will pay taxes on half of your Social Security income. If you have a combined income of more than $34,000, then you will pay on 85 percent of your Social Security income. Your combined income is your income, and your spouse’s income, plus any interest that you earn, and half of your Social Security benefits.
Is Disability Income Taxable?
People who qualify for disability benefits may have the question “is disability income taxable?” If you qualify for Social Security disability benefits from the government, the same formula applies to you as it does to people who receive Social Security benefits in retirement.
If you qualify for disability benefits from private insurance, you may need to count them as part of your taxable income. If you paid taxes on the premiums, then you do not need to pay taxes on the benefits. If you did not pay on the premiums, then any money you receive is considered taxable income. Often, this will come into play if your work was paying for your disability insurance, and you should contact a human resources representative to determine if the benefits are taxable.
Determine Your Taxes by Consulting a Taxable Income Table
One you have determined your taxable income, you should consult the taxable income table for the current year. This table should tell you how much you owe in taxes. Since the tax rate changes each year, you should consult the new table each year. You can also use a withholdings calculator to make sure you are having the correct amount withheld each year.
Filing Your Taxes If You Do Not Have a Minimum Taxable Income
If you meet the minimum taxable income threshold, you will need to file your taxes. You may want to file even if you made less because you will likely qualify for a refund of the taxes that were withheld. You are required to file a return if you were self employed, and earned more than $400.00. You are also required to file if you sell your home or receive unemployment benefits.
How to Calculate Taxable Income
Once you understand how to calculate taxable income, you can estimate your taxes. You simply need to add up any income that you receive throughout the year. You can look at your paycheck to see what your pretax income is to determine the amount of your income from your job is taxable.
If you have any questions or you have a complicated tax year, consult an accountant to ensure you don’t accidentally commit tax fraud.