“When it comes to paying taxes, what you don’t know can hurt you. Taxes are an inevitable part of doing business. Sometimes it seems like for every dollar that comes in, another dollar goes out for tax payments. That’s partly because the tax code is so complex and tangled, but it’s also because each taxpayer has his or her own set of financial circumstances and particulars, so one “size” doesn’t fit all. Obviously, you’ll need to consult your tax advisor to make sure you are in compliance with federal and state regulations. That being said, read below to know the items you probably shouldn’t pay tax on.”
Uncle Sam may act like the greediest relative ever, but he won’t take every dollar that comes your way. It only seems like it.
So if you’re starting your taxes soon or are in the midst of it and feeling full of despair, take a little heart. Here are some items you don’t have to pay taxes on.
Profits on your house. Did you sell a home in the last year? You may be in luck, says Pam Blair, owner of San Mateo, California-based Compass Financial Management, which specializes in tax services.
“One of the few things in the tax code that provides us with tax-free income is your personal residence,” Blair says. “As long as you’ve lived in your personal residence for two out of five years before selling your residence, you can exclude up to $250,000 in gain from taxation – $500,000 for most married couples. It’s one of the last remaining sources of tax-free income.”
But again, this is your primary residence, not a rental property, and there may be some restrictions if you were, say, running a business out of the home, Blair says. If you think you fall into a gray area, you’ll want to consult a tax professional.
Money received from selling personal assets. In other words, everything in the house that you’ve sold. But there are some important exceptions, says Daniel Henn, a certified public accountant in Rockledge, Florida. For starters, you can keep the money from your car, your computer, your furniture – provided you sold it for less than the original purchase price, Henn says.