Pay the IRS late with NO penalty!

Since time immemorial, it’s been an indisputable truth that if you pay the IRS late, you will be penalized. Alas, this year the IRS has announced that in certain circumstances taxpayers may qualify to pay their tax bill up to six months after the deadline with no penalties. Huzzah!

Sorry for the old-timey language, but it seemed appropriate in light of such an historic move by the IRS. If you’ve got a tax bill you can’t pay by next week’s dead-line, and you were unemployed in the last 16 months, or self-employed with a significant drop in business, then Form 1127-A may offer you very welcome relief! Here’s the word straight from irs.gov:

Most unemployed filers and self-employed individuals whose business income dropped substantially can apply for a six-month extension of time to pay. Eligible taxpayers will not be charged a late-payment penalty if they pay any tax, penalty and interest due by Oct. 15, 2012. Taxpayers qualify if they were unemployed for any 30-day period between Jan. 1, 2011 and April 17, 2012. Self-employed people qualify if their business income declined 25 percent or more in 2011, due to the economy. Income limits and other special rules apply. Apply using Form 1127-A.

Tax deadline? Don’t sweat it

It’s getting to that point in the year when many tax filing procrastinators start to panic about the looming deadline. And if they think about just giving up and taking everything to a professional, they’ll find many professionals have to tell clients who haven’t submitted all of their info yet that their return won’t be completed before the April deadline. This leaves people with the choices of…

1. do their best to do their own taxes and hope everything comes out OK,
2. take their taxes to one of the “McDonalds’” of tax preparation…the big national chains with plenty of minimally-trained, low-paid part-timers who will enter everything in a computer for you and hope it comes out OK, OR
3. file their taxes LATE and risk being carted off to federal prison!

Well this post is to let people know that filing your taxes late is not a one-way ticket to the slammer. In fact, in many cases simply filing an extension (more on that later), and making sure you get your taxes right–even if a little late–is the wisest choice to make.

People make mistakes when they hurry and they’re rushed. It’s human nature. Whether you prepare your own taxes, or pay somebody to do it for you, chances are whoever is working on your return in early April may feel a little pressure to get things done by the deadline. I’m unaware of any studies addressing this issue, but I would consider it almost a certainty that tax returns filed in the first half of April are more likely to contain mistakes than returns filed at other times. And fixing those mistakes later can be costly and time-consuming.

If you have investments, it’s very common to receive “corrected” statements regarding your income in March or April, and sometimes even later. If you have complex investments–particularly if you receive investment income reported on a Schedule K-1–you might not want to rush out and file because there may be corrected statements coming your way.

Also, if you pay somebody to do your return, you’re probably more likely to get that person’s undivided attention, and maybe even a little bit better rate, if you’re willing to work with them outside of the busy part of tax filing season.

But what about penalties and keeping the IRS off your back? Well these are certainly legitimate concerns, but let me explain what the actual consequences of filing late are so you can make an informed choice.

Penalties for filing late are based on your tax due. If you have no tax due because you’re getting a refund, then there’s no penalty. I’ve known clients who wait a few years and then file several years all at once. (I don’t recommend that approach, but some people are comfortable with it.)

If you do owe tax, the penalties are actually fairly minor as long as you file an extension. You can avoid the penalty completely by filing an extension and making a payment with that extension. Of course, if you don’t have your return done, how are you supposed to know how much to pay, right? Well, there are tools you can use to estimate your tax liability (TaxCaster is a pretty user-friendly, free tool to use for this purpose). Aim high with your estimate, and then when you file you’ll get the excess back–often with interest!

If your estimate comes in low, but you filed the extension, the late payment penalty is only 0.5% of the amount of underpayment, per month the payment is late. So if you owe an extra $5000, and you file and pay only one month late, then your late payment penalty is a whopping $25. Two months late…$50. So even for a fairly significant tax liability, the late payment penalty is often less than the cost of a parking ticket. There’s interest as well. But at 4% annually, this is almost too low to worry about.

One other consideration is whether filing late raises “red flags” or guarantees an audit. I’ve never seen any evidence that people who file extensions and file a few months late face a higher audit risk. The only possible downside is the IRS has 3 years to audit your return from the filing deadline or when you actually file, whichever is later. So filing after the April deadline can extend the time the IRS has to review your return. But if the IRS hasn’t selected your return for audit in 3 years, I wouldn’t worry much about the chance they’ll choose you in that extra month or two.

Of course, if you owe taxes and fail to file an extension by the filing deadline, then the situation is very different. If you owe money and haven’t filed a return or extension, the late filing penalty is 5% per month…ten times the rate for simply paying late. This can add up fast. So if you don’t think you’re going to be able to file by the deadline, then just follow these Instructions and get that extension filed (it’s easy).

Tax benefits of adoption

The adoption credit has become one of the most valuable tax credits, potentially worth over $13,000 per adopted child. And thanks to a loop-hole in the tax code, it has become one of my personal favorite tax credits.

I have many clients in same-sex marriages. As a result of DOMA, the IRS does not recognize these marriages, and does not consider the couple to be each other’s “spouse”. Because they are not recognized as “spouses” by the IRS, same-sex couples are able to take this credit to cover the adoption costs incurred for both spouses to become legal parents of the child. (Normally, this credit isn’t allowed for the costs incurred to adopt your spouse’s child as your own.) In fact, in the case of a same-sex married couple where the child is a special needs child, the IRS would permit the full $13,000 credit for one spouse to become the legal parent of the child…even though the actual cost may be far less than $13,000.

It would be much better if same-sex married couples simply got the same treatment as other married couples, but as long as this inequality exists, it always makes me smile to find loop-holes like this that work in favor of same-sex couples.

IRS Tax Tip 2012-42

If you paid expenses to adopt an eligible child in 2011, you may be able to claim a tax credit of up to $13,360.

Here are six things the IRS wants you to know about the expanded adoption credit.

1. The Affordable Care Act increased the amount of the credit and made it refundable, which means you can get the credit as a tax refund even after your tax liability has been reduced to zero.
2. For tax year 2011, you must file a paper tax return, Form 8839, Qualified Adoption Expenses, and attach documents supporting the adoption. Taxpayers claiming the credit will still be able to use IRS Free File or other software to prepare their returns, but the returns must be printed and mailed to the IRS, along with all required documentation.
3. Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and/or the state’s determination for special needs children.
4. Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of the child. These expenses may include adoption fees, court costs, attorney fees and travel expenses.
5. An eligible child must be under 18 years old, or physically or mentally incapable of caring for himself or herself.
6. If your modified adjusted gross income is more than $185,210, your credit is reduced. If your modified AGI is $225,210 or more, you cannot take the credit.

For more information see the Adoption Credit FAQ page available at www.irs.gov or the instructions to IRS Form 8839, which can be downloaded from the website or ordered by calling 800-TAX-FORM (800-829-3676).

When a debt is canceled, you may still owe taxes

Many people who’ve had a home foreclosed on, or a credit card bill written off as uncollectable, are surprised to find out at tax time that the amount of canceled debt may be considered taxable income. Fortunately, there are a number of exceptions available that usually allow people to avoid paying tax on the canceled debt. This IRS Tax Tip focuses on the most common exclusion, the Qualified Principal Residence Indebtedness exclusion.

There are other possible exclusions available for different situations. One important fact that the IRS doesn’t mention here is your state might NOT allow you to exclude the canceled debt from your income. California, for example, almost disallowed this exclusion a couple years ago. Fortunately, they updated the law at the last minute to allow this. But every state has their own rules. The main thing to realize if you’ve had a debt canceled and received a 1099-A or 1099-C during tax time is the rules are quite complex, and this is one area where it’s almost always a good idea to get some professional assistance.

IRS Tax Tip 2012-39

Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012.

The IRS would like you to know these 10 facts about Mortgage Debt Forgiveness:

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit www.irs.gov. IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments, is also an excellent resource.

You can also use the Interactive Tax Assistant available on the IRS website to determine if your cancelled debt is taxable. The ITA takes you through a series of questions and provides you with responses to tax law questions.

Finally, you may obtain copies of IRS publications and forms either by downloading them from www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Form 982
• Form 1099-C
• Publication 4681

Extra incentive for saving for retirement

If you’ve completed your tax return, but haven’t filed it yet because you aren’t liking the bottom line, you might be able to take advantage of the Saver’s Credit.

The income limits on this credit are relatively low…not quite half of all taxpayers have income below the limits to qualify. But if you do qualify, you might be able to take action after year-end to make yourself eligible for this credit. The credit is based on contributions to qualifying retirement accounts, like 401(k)s and IRAs. Since IRA contributions can be made up until April 15 of the following year, and still apply retro-actively, you might be able to make an IRA contribution right now, get a deduction for the money you put into the account, and get a credit on top of that based on how much you put in the account. This is one of my favorite credits to suggest to young people who’ve recently entered the working world and aren’t making big salaries yet. It can be a good tax move, and it starts people in the early habit of putting something aside.

IRS Tax Tip 2012-36

If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be eligible for a tax credit, depending on your age and income.

Here are six things the IRS wants you to know about the Savers Credit:

1. Income limits The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and 2011 income of:

• Single, married filing separately, or qualifying widow(er), with  income up to $28,250
• Head of Household with income up to $42,375
• Married Filing Jointly, with incomes up to $56,500

2. Eligibility requirements To be eligible for the credit you must be at least 18 years of age, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s return.

3. Credit amount If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 ($2,000 if filing jointly). The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

4. Distributions When figuring this credit, you generally must subtract distributions you received from your retirement plans from the contributions you made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date – including extensions – for filing the return for the credit year.

5. Other tax benefits The Retirement Savings Contributions Credit is in addition to other tax benefits you may receive for retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.

6. Forms to use To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.

For more information, review IRS Publication 590, Individual Retirement Arrangements (IRAs), Publication 4703, Retirement Savings Contributions Credit, and Form 8880. Publications and forms can be downloaded at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Links:

• Form 8880, Credit for Qualified Retirement Savings Contributions (PDF 46K)
• Form 1040, U.S. Individual Income Tax Return (PDF 176K)
• Form 1040A, U.S. Individual Income Tax Return (PDF 136K)
• Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
• Tax Topic 610

Reduce student loan debt by paying for college with tax credits

This IRS Tax Tip discusses two valuable education credits.

The American Opportunity Credit, in particular, can be a way for students to pay for college, or at least pay a good chunk of college expenses, by using tax credits that don’t have to be repaid. Granted, this credit only pays dollar-for-dollar for the first $2,000 of qualified expenses, and 25% of the cost for the next $2,000, so it won’t go very far if you’re going to Stanford. But for people willing to do their prerequisites at a community college, and then get a degree by doing a couple more years at a state school, the $10,000 value of the American Opportunity Credit over four years can go a LONG way toward reducing the student loan burden upon graduating.

IRS Tax Tip 2012-37

Two federal tax credits may help you offset the costs of higher education for yourself or your dependents. These are the American Opportunity Credit and the Lifetime Learning Credit.

To qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by either the parent or the student, but not both. If the student was claimed as a dependent, the student cannot file for the credit.

For each student, you may claim only one of the credits in a single tax year. You cannot claim the American Opportunity Credit to pay for part of your daughter’s tuition charges and then claim the Lifetime Learning Credit for $2,000 more of her school costs.

However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your spouse’s graduate school tuition.

Here are some key facts the IRS wants you to know about these valuable education credits:

1. The American Opportunity Credit

• The credit can be up to $2,500 per eligible student.
• It is available for the first four years of postsecondary education.
• Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
• The student must be pursuing an undergraduate degree or other recognized educational credential.
• The student must be enrolled at least half time for at least one academic period.
  Qualified expenses include tuition and fees, coursed related books supplies and equipment.
• The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $80,000 or $160,000 for married couples filing a joint return.

2. Lifetime Learning Credit

• The credit can be up to $2,000 per eligible student.
• It is available for all years of postsecondary education and for courses to acquire or improve job skills.
• The maximum credited is limited to the amount of tax you must pay on your return.
• The student does not need to be pursuing a degree or other recognized education credential.
• Qualified expenses include tuition and fees, course related books, supplies and equipment.
• The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $60,000 or $120,000 for married couples filing a joint return.

If you don’t qualify for these education credits, you may qualify for the tuition and fees deduction, which can reduce the amount of your income subject to tax by up to $4,000. However, you cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

For more information about these tax benefits, see IRS Publication 970, Tax Benefits for Education available at www.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).

Links

• The American Recovery and Reinvestment Act of 2009: Information Center
• American Opportunity Credit
• Form 8863, Education Credits and instructions.

Raiding the retirement fund

Taking distributions from a retirement fund before you actually retire is usually a bad tax move. But sometimes circumstances offer no other choices…or at least no better choices. This IRS Tax Tip provides some useful general information. And my article on this topic from last year provides potentially more valuable tips about avoiding the nasty penalties commonly involved with these distributions.

IRS Tax Tip 2012-34

Taxpayers may sometimes find themselves in situations when they need to withdraw money from their retirement plan early. What they may not realize is that that transaction may mean a tax impact when they file their return.

Here are 10 facts from the IRS about the tax implications of an early distribution from your retirement plan.

1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
2. Early distributions are usually subject to an additional 10 percent tax.
3. Early distributions must also be reported to the IRS.
4. Distributions you roll over to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
6. If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.
7. If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.
8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
9. There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home (up to $10,000), for certain medical or educational expenses, or if you are totally and permanently disabled.
10. For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions, see IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available on this website or by calling 800-TAX-FORM (800-829-3676).
    

Links:

• Publication 575, Pensions and Annuities (PDF 227K)
• Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
• Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts   (PDF 72K)
• Form 5329 Instructions (PDF 40K)

The (tax) benefits of being a parent

Just a quick run-down of some of the most common, and valuable, tax benefits associated with being a parent:

IRS Tax Tip 2012-15

Your kids can be helpful at tax time. That doesn’t mean they’ll sort your tax receipts or refill your coffee, but those charming children may help you qualify for some valuable tax benefits. Here are 10 things the IRS wants parents to consider when filing their taxes this year.

1. Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2. Child Tax Credit You may be able to take this credit for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit You may be able to claim this credit if you pay someone to care for your child or children under age 13 so that you can work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit The EITC is a tax benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. IRS Publication 596, Earned Income Credit, has more details.

5. Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with required adoption-related documents.  For details, see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Children with earned income If your child has income earned from working, they may be required to file a tax return. For more information, see IRS Publication 501.

7. Children with investment income Under certain circumstances a child’s investment income may be taxed at their parent’s tax rate. For more information, see IRS Publication 929, Tax Rules for Children and Dependents.

8. Higher education credits Education tax credits can help offset the costs of higher education. The American Opportunity and the Lifetime Learning Credits are education credits that can reduce your federal income tax dollar-for-dollar. See IRS Publication 970, Tax Benefits for Education, for details.

9. Student loan interest You may be able to deduct interest paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970.

10. Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage for any child of yours who was under age 27 at the end of the year, even if the child was not your dependent. For more information, see the IRS website.

Forms and publications on these topics are available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Are my Social Security benefits taxable?

This fits with the recent them covering what items are considered income according to the IRS. Social Security benefits are an item that may or may not be considered taxable income depending on how much is received, and what other income is received.

This can be particularly important in determining whether somebody can be claimed as a dependent. Many taxpayers provide significant support to their elderly parents, and often the parent’s only source of income is Social Security. One of the criteria for claiming a dependent in this situation is they must not have more than a certain amount of taxable income. This amount changes each year (currently $3700), but a common source of confusion is whether Social Security is considered income for purposes of this test.

This IRS tip helps determine whether or not Social Security income must be considered taxable:

IRS Tax Tip 2012-26

Many people may not realize the Social Security benefits they received in 2011 may be taxable. All Social Security recipients should receive a Form SSA-1099 from the Social Security Administration which shows the total amount of their benefits. You can use this information to help you determine if your benefits are taxable. Here are seven tips from the IRS to help you:

1. How much – if any – of your Social Security benefits are taxable depends on your total income and marital status.

2. Generally, if Social Security benefits were your only income for 2011, your benefits are not taxable and you probably do not need to file a federal income tax return.

3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status (see below).

4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet. Your tax software program will also figure this for you.

5. You can do the following quick computation to determine whether some of your benefits may be taxable:

• First, add one-half of the total Social Security benefits you received to all your other income, including any tax-exempt interest and other exclusions from income.
• Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

6. The 2011 base amounts are:

• $32,000 for married couples filing jointly.
• $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouse at any time during the year.
• $0 for married persons filing separately who lived together during the year.

7. For additional information on the taxability of Social Security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. You can get a copy of Publication 915 at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

Publication 915, Social Security and Equivalent Railroad Retirement Benefits

Does it have to be reported?

For the rest of the tax filing season, I’ll primarily be re-posting a lot of the more relevant “Tax Tips” from the IRS with some commentary. This Tip recently came out, and I thought it fit well with the recent series I did on understanding the tax return, particularly the article on determining what is income. All income must be reported, but not all money you receive is legally considered “income” according to the tax code. Here are some tips from the IRS to help you know what counts and what doesn’t.

IRS Tax Tip 2012-25, February 7, 2012

Although most income you receive is taxable and must be reported on your federal income tax return, there are some instances when income may not be taxable.

The IRS offers the following list of items that do not have to be included as taxable income:

• Adoption expense reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers’ compensation benefits (some exceptions may apply; see Publication 525, Taxable and Nontaxable Income)
• Meals and lodging for the convenience of your employer
• Compensatory damages awarded for physical injury or physical sickness
• Welfare benefits
• Cash rebates from a dealer or manufacturer

Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:

• Life insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are generally not taxable unless the policy was turned over to you for a price.
• Scholarship or fellowship grant If you are a candidate for a degree, you can exclude from income amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify for the exclusion.
• Non-cash income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

All other items—including income such as wages, salaries, tips and unemployment compensation — are fully taxable and must be included in your income unless it is specifically excluded by law.

These examples are not all-inclusive. For more information, see Publication 525, Taxable and Nontaxable Income, which can be obtained at the IRS.gov website or by calling the IRS at 800-TAX-FORM (800-829-3676).
Links:

• IRS Publication 525, Taxable and Nontaxable Income