Some Things To Know About Income Tax Deductions

Your income isn't just your wages. It's also any other way you earn your living, such as interest, dividends and rental properties. Although you usually have to claim all your income on your tax return, you don't necessarily have to pay tax on the whole thing. Taking advantage of certain credits and deductions can chop your income and, in turn, cut what you owe the Internal Revenue Service.

At What Point of Unearned Income Does It Become Taxable?

Your earned income and unearned income are taxed the same way -- by a percentage. When you fill out your tax return, you use your total income, which is a combination of your earned and unearned income, to figure your tax. Because of this, if your total income is more than $9,750 as of 2012, the IRS will tax you, and you'll have to file a return.

Does Mortgage Interest Reduce Taxable Income or Come Back as a Refund?

When you write off your mortgage interest, to actually benefit, you have to itemize your deductions. Itemizing is similar to taking the standard deduction except you claim your actual expenses -- not just a preset amount. Deductions knock off part of your taxable income and slash your tax. Although you won't get the deduction back as a refund, it could potentially help get you a refund, depending on your credits and how much you had your boss withhold from your paycheck.

Does Loan Money Have to Be Claimed as Taxable Income?

Typically, the IRS doesn't consider a loan as taxable income because you have to pay it back and you don’t have to report the loan on your taxes. If you stop making the payments and the lender takes a loss, you'll have to claim the loan as income that year. The lender will send you a 1099-C, which you should enter as other income on your taxes.

Does a Stock Dividend Create Taxable Income?

Sometimes companies give investors shares of stock instead of paying cash dividends. Generally, a stock dividend isn’t taxed until you sell the stock -- but only if getting the stock was your only option. If you had a choice to take either the stock dividend or cash dividend, the stock dividend is taxable immediately. Once the stock dividend generates some cash income, the dividend income is taxable. You'll get a 1099-DIV from the payer.

Does Rental Property Loss Come off of Your Taxable Income?

Rental income is just that -- income. Rental income, business income and personal income are all taxed and reported the same way on your taxes. If you find out that you have a loss on Schedule E, you'll list the loss as a negative number. Once you add up your income from all sources, the loss will offset your other income. So, in the end, a loss from a rental property does come off your taxable income, but it cuts your total income first.

 

About the Author

Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.