Small Business Tax Exclusions

Sun, Nov 22, 2009

Different kinds of income can fall into the “except as otherwise provided” of the IRS tax code (section 61). For example, the code of taxes specifically excludes inheritances and gifts from taxable income. There is not a monetary limit on how much you can get by these means without paying a single red cent of taxes. Sorry – that 5 million dollar larger then life check that Publishers Clearinghouse is dropping off at your doorstep is not a gift and still considered taxable. There are many so-called fringe benefits that the IRS provides to business owners and their employees are specifically excluded from income. Most of the income exclusions from your small business income can be found in the IRC section 101 to 150.

It is very important that Returns of Capital is also a return of capital investment (income, of course) that is not of the taxable type. To explain it another way, to the extent that you get back money exchanged for an assets, such as selling your business, you haven’t earned any actual income that is taxable. Only the profit from such a situation (if you make any) is taxable.