Tax Free Income
Some different ways you can earn tax free income.
You know your main ways of earning income include your salary at work and the returns on any investments you have. But these earnings must be taxed. If you're looking for some ways to have income but not have to pay taxes on it, consider these.
• Savings bonds. If you buy a savings bond today, your earnings are tax free. This is especially good for parents who buy savings bonds for their children's college education when they're young. The year these bonds are cashed in, no tax payments need to be paid.
• Scholarships. As long as the scholarship money is not for work done, the recipient does not have to pay any taxes on it. This is the case only if the money is used for college tuition, room, board, and fees.
• Home rental. If you rent your vacation home or other home for 14 or fewer days a year, you don't need to pay a tax on that income.
• Child support. If you're collecting child-support income from an ex-spouse, you aren't required to pay taxes on that income.
• Gifts. If you receive a gift from someone, you don't need to pay taxes on that money. This includes any monetary or estate gifts. The person who gives the gift is the one responsible for paying the tax.
• Life insurance. If you are the beneficiary of insurance money, you aren't required to pay a tax on that money. However, if you cash in your policy, you'll have to pay income taxes on any money earned over and beyond what you've paid in your life insurance premiums.
• Older person's sale of a home. If you're selling your home and are over 55 years old, you aren't required to pay taxes on that home up to $125,000 of the profit.
• Municipal bonds. You aren't required to pay federal income tax on any interest from a municipal bond. That's because these are bonds secured at the local or state level.
• Disability. If you collect worker's compensation money, you aren't required to report that on your income tax returns.