What are the different types of income that are taxable in the USA?

"Categories of Taxable Income for Individuals and Businesses in the United States

For Individuals:
1. Employment Income: Wages, salaries, bonuses, tips, and other forms of compensation for services rendered.
2. Self-Employment Income: Earnings from running a business or working as an independent contractor. Self-employed individuals must pay self-employment tax in addition to income tax.
3. Investment Income: Includes interest, dividends, capital gains, and rental income.
4. Retirement Income: Distributions from retirement plans such as IRAs, 401(k)s, and pensions.
5. Miscellaneous Income: Other income such as prizes, awards, gambling winnings, and alimony received.

For Businesses:
1. Business Income: Revenue from the sale of goods or services minus the cost of goods sold and other business expenses.
2. Capital Gains: Profits from the sale of business assets.
3. Dividends: Income received from investments in other companies.
4. Rental Income: Earnings from renting out property.
5. International Income: Income from business activities outside the U.S. may be subject to taxation and eligible for foreign tax credits.

Special Considerations:
- Effectively Connected Income (ECI): For foreign persons engaged in a trade or business in the U.S., certain income is considered ECI and is taxed at graduated rates.
- Nonresident Aliens: Nonresident aliens have specific filing requirements and are taxed on income effectively connected with a U.S. trade or business and on certain U.S. source income.
- Disaster Relief: Special tax provisions may apply for individuals and businesses affected by federally declared disasters.

Tax Credits and Deductions:
- Credits: Reduce the amount of tax due, such as the Work Opportunity Tax Credit for hiring individuals from certain targeted groups.
- Deductions: Reduce the amount of taxable income, including standard or itemized deductions for individuals and various business expenses for businesses.

Classification of Taxpayers:
- U.S. Persons: Includes U.S. citizens, residents, domestic partnerships, domestic corporations, certain trusts, and estates.
- Foreign Persons: Includes nonresident alien individuals, foreign corporations, foreign partnerships, foreign trusts, and foreign estates.

Employment Classification:
- Employees: Subject to income tax withholding by the employer.
- Independent Contractors: Responsible for their own tax payments, including estimated taxes and self-employment tax.

Taxable income categories are subject to change based on new tax laws and regulations. It is important for taxpayers to stay informed about current tax rules and seek guidance on specific tax situations as they arise.

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Sources:

Independent contractor (self-employed) or employee? 2024-08-03

Taxation of Nonresident Aliens | Internal Revenue Service 2024-08-04

Work Opportunity Tax Credit | Internal Revenue Service 2024-08-03

Classification of Taxpayers for U.S. Tax Purposes 2024-08-03

Effectively Connected Income (ECI) | Internal Revenue Service 2024-08-04

Disaster assistance and emergency relief for individuals and businesses ... 2024-07-31

Self-employed individuals tax center | Internal Revenue Service 2024-08-03

Credits and Deductions | Internal Revenue Service 2024-08-03

Publication 514 (2023), Foreign Tax Credit for Individuals 2024-08-01