Tax Tip of the Week | No. 376 | Nine Ways to Receive Tax-Free Income

Tax Tip of the Week | October 12, 2016 | No. 376 | Nine Ways to Receive Tax-Free Income

Don’t overlook these nine tax-free sources of income:1.    Roth IRAs and Health Saving Accounts:  Any money contributed to either of these accounts is not tax deductible.  However, if you meet the holding requirements (Five years) and age requirements (age 59.5) all distributions from a Roth IRA (including earnings) is tax-free.  HSA accounts can also earn income, and all distributions from the HSA are tax-free if spent on qualified medical expenses.2.    Selling your primary residence:  Selling your home (if you have lived in it for at least two years) will not trigger a capital gains tax if you don’t exceed the $250,000 exclusion for singles or $500,000 exclusion for joint filers.  This means, if you are married, you would not be taxed unless you sold it for more than $500,000 over what you paid for it.  (This doesn’t happen often in the greater Dayton area!)3.    Receive a cash gift:  Any “Gift Tax” consequences are the responsibility of the giver, not the recipient.4.    Ohio Municipal Bonds:  All earnings from Ohio municipal bonds, or Ohio municipal bond mutual funds are tax-free at the federal and state level.5.    Compensatory damages awarded in court for a physical injury or physical sickness or emotional distress related to a personal injury.6.    Disability Payments:  Only if you paid the disability insurance premiums.7.    Zero % Tax Rate:  For those in the 10% or 15% tax bracket (up to $37,450 taxable income for single filers/$74,900 taxable income for joint filers) there is no tax on qualified dividend income or on long-term capital gain income.8.    Rental income from personal property and personal residence.  If you are not engaged in the business of renting equipment, any occasional income would generally be tax-free.  For example, if you are a retired farmer and a friend asks to rent your idle tractor for a couple of weeks, this would not be considered business income.You can also rent your personal residence for 14 days or less without incurring any taxable income.  For example, if you owned a home that backs up to Muirfield Village Golf Club in Dublin, Ohio, you could rent your home tax-free during the Memorial Tournament. (If you have ever been to this golf tournament you have seen quite a few of the residents doing this—like they need it!)9.    Death benefits from a life insurance policy.  Any benefits you receive as a beneficiary from a life insurance policy are generally tax-free.Please note:  This is a very simplified list and should not be relied upon without consulting with us first.  As always:  “Call us BEFORE you do something, NOT after!”You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.Rick Prewitt – the guy behind TTW...until next week.