Posted by Income Taxes and Bookkeeping LLC

Reasons to Know About Income Exclusions

Reasons to Know About Income Exclusions

There are different kinds of income that qualify as income exclusion, and you must know the type of income within your earning power that can get such exclusions. For example, the proceeds from life insurance after death, municipal bonds, and child support are all examples of income that apply to the rule. 

There is generally no limit to the amount of money that this income receives; however, municipal bond interests are exceptions and can be counted as an alternative smallest tax preference item. All income excluded from taxation is given the “Measure of relief” for the beneficiary. 

There are numerous ways to get income exclusion, but before we explore such ideas, you’ve got to know the importance of income exclusion. Why should we know about income exclusions? What is the value in knowing what you can expect from income exclusion tax? Read on for answers. 

  1. It prevents you from paying excessive taxes.

Knowledge of exclusion tax will prevent you from overpaying your taxes, which often happens to many people and businesses. If you don’t know the areas for which you have an exception, you will continue to pay total taxes, which might significantly affect your business or personal income. The next time you want to pay taxes, take the time to ask about the exclusions you may have and adhere to such exemptions. 

  1. You will perform your tax duties excellently when in a foreign country.

American citizens who live in other countries are also entitled to tax exclusions, especially if they live in the host country for a whole tax year. They can also get the tax exclusions if they live in America’s territories for at least 330 full days within a 12-month duration. The citizen will be permitted to remove up to $101,300 of funds earned from declared income for such a situation. 

  1. It enables you to know what you are entitled to when a natural disaster hits your property.

Benefits given to people because of disasters from natural causes are also a part of tax exclusions, including all relief payments. Now, if you experienced a natural disaster that wrecked your home, you may get benefits from your insurance company, and in some cases, you will be told that such benefits must be taxed. 

Well, the IRS briefly maintains that the tax exclusion laws protect such benefits, but you may still go ahead and pay if you are not aware of the income exclusion rules. Your benefits from the relief you get from experiencing an earthquake, for example, should not be taxed entirely or grouped as income tax hence the reason they are in income exclusions. 

  1. It gives military personnel insights into their tax exclusions. 

Military personnel still on active duty while in combat zones may exclude some forms of income from their annual income report. This law is put to good use monthly as they remain in the combat zone or are injured and hospitalized because of the services they render to their country. 

Offering such incentives to the military community is enough motivation for them to render wholehearted service. If you know a person serving in the military who will need this, now is a good time to share the information. 

Ignorance of tax laws is not an excuse for anyone to underpay or overpay their taxes. More so, the IRS has made it possible for every citizen to unravel what they ought to pay and when such taxes are due. Now you know why you should learn more about income exclusion, the next time you are ready to file your taxes, ask about your exclusions. 



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