You only have to examine your paycheck to realize that certain
income is tax-free. For example, health insurance premiums paid by your
employer are generally not includible in your income.
Do you know the tax status of other types of income? Here's
a quiz to test your knowledge.
1. You tell your son he'll be the sole beneficiary of your
estate, and that you've decided to give him an advance on his inheritance. You
hand him a check for $10,000. He wants to know how much he'll have to pay in
taxes. What do you tell him?
Answer: Gifts, bequests, devises, and inheritances are
generally not taxable to the beneficiary. Income produced from those sources is
taxable to the beneficiary.
2. You withdraw $20,000 of the contributions you made to
your Roth IRA over the past five years, but you're not of retirement age. Do
you have a taxable event?
Answer: Unlike traditional IRAs, distributions from Roths
are first allocated to amounts you contributed to the account. To the extent
the distribution is a return of your contributions, it's not included in your
income and you can withdraw it penalty- and tax-free.
3. You purchase a piano at an auction and take it home.
While cleaning it, you discover $5,000 inside. Is this money taxable to you?
No comments:
Post a Comment