In general, money earned from your job or business is completely taxable at the federal and, where relevant, state levels.
However, many types of investment income may be exempt from taxation, which can dramatically boost your earnings. Other non-wage payments you may get, such as insurance or other benefit payouts, may also be tax-free.
Bonds Issued By Municipalities
Municipal bonds are most likely the most frequent nontaxable investment. Municipal bonds pay interest that is not subject to federal taxation and is tax-free for citizens of the state issuing the bond.
This makes them more appealing to investors in the highest tax bands, as it increases their net yield.
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Capital Gains In The Long Run
Long-term capital gains (those held for more than a year) are taxed at 15% for the vast majority of investors. This is a significant advantage over short-term capital gains rates, which are the same as your regular income tax rate and could reach 37% in 2023.
However, if you are single and have a taxable income of $40,400 or less, or married filing jointly and have a taxable income of $80,800 or less, your long-term capital gains tax rate is 0%.
Profits From Real Estate
If you benefit from the sale of your home, you have a capital gain, just like if you sold a winning stock. However, the tax code includes a generous provision that exempts earnings on the sale of a primary residence up to $250,000 for singles (or $500,000 for joint filers).
Retirement Benefits From Social Security
Social Security benefits are taxed for the vast majority of retirees. If you make less than $25,000 as a single filer or $32,000 as a joint filer, your Social Security benefits are tax-free.
Disability Benefits
Disability payments may be deemed taxable income in some instances. If you pay all of the premiums for a health or accident insurance plan, any disability benefits you receive are not taxable income.
Compensation For Employees
Payments made under a worker’s compensation coverage are generally deemed nontaxable. However, in some cases, your worker’s compensation may be considered taxable income.
In particular, if your worker’s compensation payments diminish your Social Security or railroad retirement benefits, a portion of your worker’s compensation payments may be taxable.
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