GUIDELINES FOR DETERMINING WHAT INCOME IS TAXABLE

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, February 10, 1992                   TAG: 9202080123
SECTION: BUSINESS                    PAGE: A-9   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium
GUIDELINES FOR DETERMINING WHAT INCOME IS TAXABLE
More than 70 percent of the income reported by couples and individuals is from wages and salaries - clearly taxable. Most of taxpayers' problems arise from that other 30 percent.
Is my Christmas bonus taxable? What are capital gains? Is it really income if I swap my plumbing skills for landscaping? Does the government get a piece of my Social Security pension? What if I win the lottery? Do I pay tax on the proceeds of a life insurance policy when a relative dies?
The general rule is simple enough: All income is taxable unless specifically exempted by law or regulation.
There are guidelines that cover the great majority of incomes. Some examples:

Capital gains. These are profits from the sale of investments and personal property, which can be anything from a vacant lot to a share of stock to an antique guitar. In general, all such gains are taxable, although special rules exclude or defer taxation on some of the profit from the sale of a home under certain conditions.
If you sell investment property at a loss, you generally may deduct the loss from your capital gains and, if any loss is left over, up to $3,000 from wages and other income. No capital-loss deduction is allowed on the sale of non-investment property, including your principal home.

Unemployment compensation. Fully taxable, including benefits paid from a dues-financed union fund.

Bartering. The IRS wants a cut if you trade goods or services for others. If you were a member of a formal barter exchange, you - and the IRS - should have received a Form 1099-B noting the value of barter income you received last year.

Gambling. Cash or other prizes from gambling, including a state lottery, must be reported as income. If you itemize, you may deduct losses up to the amount of winnings - but only after reporting the winnings as income.

Employer payments. Vacation pay, Christmas or performance bonuses, severance pay and moving expenses paid by an employer are taxable. If the employer pays your share of Social Security taxes without deducting it from your gross wages, that is taxable income to you. Also taxable is the value of a club membership or company car provided by the employer for personal use.

Fringe benefits. If an employer has an organized plan that is not biased toward executives, most worker benefits are tax-exempt. These include group health insurance, up to $50,000 of life insurance, limited child-care benefits, company athletic facilities, and meals and lodging provided workers for the convenience of the employer. Employer-furnished tickets or tokens for mass transit are not taxable unless they are worth more than $21 a month.

Tax refunds. Report as income the refund of any state and local taxes that you deducted in a prior year.

Life insurance. As a rule, a life insurance payout on the death of the insured person is not subject to income tax, although estate taxes may apply. If installment payments are made over a period of years, the interest segment of the payout generally is taxable.

Scholarships. In general, the portion of a scholarship granted after Aug. 16, 1986, to a degree candidate and earmarked for tuition and supplies is tax-free. Grants for room and board are taxable.

Tips. All tips are taxable. If you work for a large restaurant and reported to your employer tips of less than 8 percent of your sales, you may have to pay tax on a higher amount. IRS Publication 531 spells out the rules.
> Illegal income. Proceeds from bribes, kickbacks, drug sales and other illegal activities is taxable.
Also taxable is alimony; punitive damages, except those that compensate for sickness or injury; fees for serving as a juror or election official; income from hobbies, although you may be able to deduct some associated costs; most interest, including that on tax refunds; self-employment income; rents received and pensions.
Not taxable are: gifts; inheritances; worker compensation for illness; payments received for child support; a manufacturer's cash rebate on the purchase of a car; federal tax refunds; welfare payments, and - if your income is within limits - interest from Series EE savings bonds that were bought after 1989 and redeemed to pay for education.

by Bhavesh Jinadra by CNB