In the United States, the Internal Revenue Service (IRS) collects taxes on most forms of income. However, there are certain types of income that are exempt from federal income tax. This means that you can earn this income without having to pay taxes on it.
Here are 11 ways to make tax-free money legally:
- Gifts and inheritances
Gifts and inheritances are not taxable income. This means that you can receive money or property from someone else without having to pay taxes on it. However, if you sell the property you inherit, you may have to pay capital gains tax on the profit.
- Tax-free home sale gains
When you sell your home, you can exclude up to $250,000 of the gain from your taxable income if you are single, or $500,000 if you are married and filing jointly. To qualify for this exclusion, you must have owned and lived in the home for at least two of the past five years.
- Life insurance proceeds
Life insurance proceeds are not taxable income. This means that you can receive money from a life insurance policy without having to pay taxes on it. However, if you receive the proceeds from a life insurance policy that you own, you may have to pay income tax on the interest earned on the policy.
- Economic Impact Payments (EIPs)
Economic Impact Payments (EIPs) are payments that the government sends to eligible individuals to help them cope with the economic impact of the COVID-19 pandemic. EIPs are not taxable income.
- Qualified Roth IRA withdrawals
Withdrawals from a qualified Roth IRA are not taxable income. This means that you can withdraw money from a Roth IRA without having to pay taxes on it. However, you must have had the Roth IRA for at least five years and you must be at least 59 1/2 years old to qualify for tax-free withdrawals.
- Qualified Section 529 withdrawals
Withdrawals from a qualified Section 529 plan are not taxable income if the withdrawals are used to pay for qualified education expenses. Qualified education expenses include tuition, fees, books, and supplies.
- Tax-free rebates for purchases
Rebates that you receive from retailers, dealers, or manufacturers for items you buy are not taxable income. However, you must reduce your tax basis in the item by the amount of the rebate.
- Tax-free long-term capital gains and dividends
Long-term capital gains and dividends are taxed at a lower rate than ordinary income. In some cases, you may be able to exclude all or part of your long-term capital gains and dividends from your taxable income.
- Tax-free scholarships
Scholarships that you receive to pay for qualified education expenses are not taxable income. Qualified education expenses include tuition, fees, books, and supplies.
- Tax-free court awards and damages
Damages that you receive from a lawsuit for personal physical injury or physical sickness are not taxable income. However, punitive damages are taxable income.
- Prizes and awards
Prizes and awards that you receive are not taxable income if they are given in recognition of your achievements. However, if you receive a prize or award for services that you performed, the prize or award is taxable income.
These are just a few of the ways to make tax-free money legally. If you are looking for ways to reduce your tax bill, be sure to explore these options.
How to (LEGALLY) Pay $0 In Taxes | Why The Rich Don’t Pay Taxes?
FAQ
What income does not get taxed?
What passive income isn’t taxed?
How much money can I make tax free?
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Filing Status
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Taxpayer age at the end of 2022
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A taxpayer must file a return if their gross income was at least:
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single
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under 65
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$12,950
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single
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65 or older
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$14,700
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head of household
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under 65
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$19,400
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head of household
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65 or older
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$21,150
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Can my parents give me $100 000?
How can I get Money tax-free?
Another interesting way to receive money tax-free is to accept it as a gift. According to the IRS, in 2014, 2015, and 2016, taxpayers were allowed to give away up to $14,000 per year to as many people as they liked. A gift over this amount would trigger a tax with the IRS.
How much income can you get without income tax?
Tack on another $27,700 in income that is tax-free from a standard deduction, and you can escape income tax on at least $116,950. Let’s break these elements down and show you how they can qualify you for no income taxes.
How can I make my assets tax free?
You can make some of your assets and income tax free. Here are seven tax-free tax strategies to consider adding to your portfolio or increasing the use of if you already have them. Long-term capital gains. The maximum tax rate on long-term capital gains is 20%. But many people forget the 20% rate applies only at the highest income levels.
How can I earn tax-free income with a Roth IRA?
1. Contribute to a Roth IRA The smartest way to earn tax-free income is simply by opening up and contributing to a Roth IRA. Image source: Getty Images. The Roth is a retirement account that allows the money you contribute to grow completely free of taxation so long as you make no unqualified withdrawals.