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Taxable Income

  • You can receive income in the form of money, property, or services
  • Generally, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax
  • Income that is nontaxable may have to be shown on your tax return but is not taxable

Constructively-received income

You are generally taxed on income that is available to you, regardless of whether it is actually in your possession.

Assignment of income

Income received by an agent for you is income you constructively received in the year the agent received it. If you agree by contract that a third party is to receive income for you, you must include the amount in your income when the party receives it. You must pay income tax on it although it is being received by a third party.

Employee Compensation

Income received from wages, salaries, commissions, fees, and tips, and other forms of compensation such as fringe benefits and stock options are taxable.

Childcare providers

If you provide child care, either in the child’s home or in your home or other place of business, the pay you receive must be included in your income. If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040) or Schedule C-EZ (Form 1040).


If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you.

Fringe Benefits

Fringe benefits you receive in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law.

Business and Investment Income

Rents from personal property

If you rent out personal property, such as equipment or vehicles, how you report your income and expenses is generally determined by:

  • Whether or not the rental activity is a business, and
  • Whether or not the rental activity is conducted for profit.

Generally, if your primary purpose is income or profit and you are involved in the rental activity with continuity and regularity, your rental activity is a business.

Partnership Income

  • A partnership generally is not a taxable entity.
  • The income, gains, losses, deductions, and credits of a partnership are passed through to the partners based on each partner’s distributive share of these items.

Partner’s distributive share

  • Your distributive share of partnership income, gains, losses, deductions, or credits generally is based on the partnership agreement.
  • You must report your distributive share of these items on your return whether or not they actually are distributed to you. However, your distributive share of the partnership losses is limited to the adjusted basis of your partnership interest at the end of the partnership year in which the losses took place.

Partnership return

  • Although a partnership generally pays no tax, it must file an information return on Form 1065, U.S. Return of Partnership Income.
  • This shows the result of the partnership’s operations for its tax year and the items that must be passed through to the partners
  • .

S Corporation Income

  • An S corporation does not pay tax on its income.
  • The income, losses, deductions, and credits of the corporation are passed through to the shareholders based on each shareholder’s pro rata share.
  • As a shareholder, you must report your share of these items on your return. The items passed through to you will increase or decrease the basis of your S corporation stock as appropriate.

S corporation return

  • An S corporation must file a return on Form 1120S.
  • This shows the results of the corporation’s operations for its tax year and the items of income, losses, deductions, or credits that affect the shareholders’ individual income tax returns.


  • Royalties from copyrights, patents, and oil, gas and mineral properties are taxable as ordinary income.
  • You generally report royalties in Part I of Schedule E (Form 1040), Supplemental Income and Loss.
  • If you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ.


Bartering is an exchange of property or services. You must include in your income, at the time received, the fair market value(FMV) of property or services you receive in bartering.

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