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The IRS Can't Tax These Different Income Types From YouWise taxpayers know that they should not pay the IRS any more than whatthey owe in taxes. They understand that receiving a huge refund every yearshows that they overpaid and basically loaned money to the governmententirely interest-free. Of course, you do not wish to end up underpayingand having to owe the government tax money since it may open up a potentialIRS issue. However, there are many income types that the government can'tcollect taxes on legally, and many people do not know that. In fact, thereare possibly more ways to keep the IRS at bay than many taxpayers know.Since tax law doesn't allow it, the IRS cannot tax certain types of income.Being aware of what the IRS can't tax can help you keep your money, but youhave to do everything correctly to avoid tax issues.One of these types of income is tax-free interest. This is income earnedfrom instruments like state-issued bonds, or any other political entitywhich is entitled to freedom from federal taxes. Municipal bonds is thecommon name for these types of investment instruments, and the value oftheir tax benefit essentially goes up when your marginal tax rate goes up.Essentially, if your overall income increases, the value of the bonds goesup in parallel.Earning money from a car pool is another income that can't be taxed. Youwon't encounter IRS problems if you exclude your earnings from a car pool.Selling your home is another income source that's excluded from taxes. Ifyou sell your home, you can exclude up to $250,000 in profits, $500,000 ifyou file a joint return with your spouse. Every two years, you can claimthis exclusion. If you sell your house after less than two years, you canalso claim a partial exclusion. There are various restrictions, so it'sbest to consult a tax professional to ensure that you are doing thiscorrectly.Most people assume that when they get a raise at work, they can onlyreceive it in the form of additional money in their paychecks. You mayactually be able to ask your employer for a more unique method of a raise,depending on your situation. As an example, you can save money as it'simpossible for the IRS to tax your raise if you get your employer to coverthe cost of a better insurance option instead. Also, as opposed to gettingyour employer pick up the payment for you, you can make payments withafter-tax money by choosing a higher healthcare plan. You will not have todeal with potential IRS problems and you gain in numerous ways if you pickan option such as this.Darrin T. Mish is a nationally recognized tax attorney whose practice
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