Textbook Tax

The good news is you received a state income tax return refund. The bad news is you may be liable to pay federal taxes for the state tax refund. The IRS informs U.S. taxpayers that a state income tax return may sometimes be considered taxable income. The taxability of a state income tax refund is dependent upon if you benefited from the state taxes on your federal tax return. Let me explain. Related Posts -  Are your income items taxable? -  Dividend Income: How is dividend income taxed? - Do you qualify for the Sec. 199A QBI deduction? State Tax Refunds The receipt of a state income tax refund is taxable if the state income taxes paid in the tax year resulted in a tax benefit. The receipt of a state income tax refund is not taxable if the state income taxes paid in the tax year resulted in no tax benefit. This rule exists to prevent a double benefit. The IRS does not want you to claim a deduction for state income taxes and then receive a tax-free refund in the subsequ...

Stock ownership results in dividend income. U.S. tax code defines a dividend as a distribution of property (cash or property) by a corporation to a stock owner. The tax code specifies that the distribution comes from the company's earnings and profits (E&P). The specification is important because the source of the distribution determines the taxability of the dividend income [ side note: taxability should definitely be a word ]. The company should alert you of the source of the dividend income. Additionally, the company will take care of the dividend distribution accounting. So, it is not necessary for you to understand dividend tax accounting. However, in my opinion, it is always helpful to have a basic understanding of tax-related topics. So, I will briefly discuss the tax accounting rules relating to dividend distributions. Related Posts The Guide to Taxable Income versus Nontaxable Income How to determine your tax filing status? How to Pay Taxes as an Independent Con...

In a previous post, I detailed the individual taxable income formula . I described the major components in the calculation. Additionally, I provided general examples for each component. The first step in determining your individuals taxable income amount is to calculate gross income. Below I will provide a more detailed guide to taxable income versus nontaxable income. The guide should help you determine which income items to include in your gross income total. Lets begin! Related Posts -  How to calculate your taxable income amount? -  How to determine your tax filing status? -  How to take advantage of a declining stock market? By searching in the U.S. tax code, you will discover that the tax code defines gross income as all income from whatever source derived, unless specifically excluded. Well, that is not very helpful. Because of the ambiguous language, I thought I could help taxpayers by creating a guide to taxable income items and nontaxable income items. ...