7 things you don't have to pay taxes on

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Uncle Sam may act like the greediest relative ever, but he won't take every dollar that comes your way. It only seems like it.

So if you're starting your taxes soon or are in the midst of it and feeling full of despair, take a little heart. Here are some items you don't have to pay taxes on.

1. Profits on your house.

Did you sell a home in the last year? You may be in luck, says Pam Blair, owner of San Mateo, California-based Compass Financial Management, which specializes in tax services.

"One of the few things in the tax code that provides us with tax-free income is your personal residence," Blair says. "As long as you've lived in your personal residence for two out of five years before selling your residence, you can exclude up to $250,000 in gain from taxation – $500,000 for most married couples. It's one of the last remaining sources of tax-free income."

But again, this is your primary residence, not a rental property, and there may be some restrictions if you were, say, running a business out of the home, Blair says. If you think you fall into a gray area, you'll want to consult a tax professional.

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7 things you don't have to pay taxes on
To preserve the uniqueness of their island paradise, Hawaii since 2004 has had an "Exceptional Tree" tax allowance. Landowners can deduct up to $3,000 from their income for expenses such as pruning and fertilization for any tree designated as rare, big, old or a combination thereof. That's per tree. Top-bracket earners taxed at the state's highest rate (11 percent) would save $330 via the deduction. The work must be done by a certified arborist, and the deduction can be claimed only every third year. Hawaii has had a list of "Exceptional Trees" since 1975, and there are now estimated to be more than a thousand thus designated.
Maine legislators tax anyone who deals in their official state fruit-blueberries, at the rate of 1.5 cents per pound. The resulting revenues-more than $1.6 million to state coffers in the fiscal year that ended in June 2013-are used to promote the crop and agricultural research. 
The state also taxes harvesters and processors of hard-shell clams (known in the state as mahogany quahogs) at $1.25 a bushel, but state revenues for that are much lower. 
Alabama is the last in the union to tax a deck of cards as if it were a "vice," like alcohol and tobacco. Taxing decks of cards, associated with gambling, was once fairly common, but most states have since set up separate control boards to regulate liquor and tobacco, and have let the cards slide.
But in Alabama, you'll still pay a 10 cent sales tax on any pack of cards you purchase. Retailers also have to pay $2 to the state each year for the privilege of selling playing cards.
Virginia levies a 50-cent excise tax on every lamb or sheep sold in the state. Both the Maine and Virginia taxes are examples of checkoff programs that collect taxes from an industry to fund promotional campaigns for the products. National commodity checkoff programs, authorized by the U.S. Department of Agriculture, have brought you campaigns such as "Beef: It's What's for Dinner" and "Got Milk?" But the Virginia program is extremely modest by comparison, having collected only $9,000 in fiscal year 2013. The funds go to the Virginia Sheep Industry Board, which spends them largely on predator control.
In 2013, in part to meet federal pollution-control mandates, Maryland legislators enacted fees on property owners in Baltimore and nine other Maryland counties, aimed at curbing storm water runoff. The fees were meant to fund programs to improve the water quality of the Chesapeake Bay, the largest marine estuary in the U.S. Sounds simple enough, but the way Maryland legislators wrote the law has led to an angry backlash in some corners against this so-called “rain tax.” One way localities calculate the tax is by measuring how much of a landowner’s tract is "impervious" to precipitation seeping into the ground. So the more you've developed it with buildings, driveways, tennis courts and the like, the less it will absorb and the more you pay. That's how the tax is being implemented (through aerial and satellite photos) in Montgomery County, a heavily developed suburb of Washington, and many landowners are up in arms. New Maryland Gov. Larry Hogan, a Republican, campaigned against this tax in his winning 2014 campaign and has introduced legislation to repeal it, though it’s not clear that will fly with Democratic state legislators. Money still needs to be raised to satisfy the federal pollution mandates, but the methods may change.
Kansas is among a bevy of jurisdictions that allows sale of lower-alcohol beer (the term of art is “cereal malt beverage”) in convenience and grocery stores. But Kansas also taxes “3.2” beer differently -- and there lies the rub. At a liquor store, all products, including, say, a conventional six-pack of Budweiser (with 5 percent alcohol by volume), are taxed at a special rate of 8 percent. At the convenience store down the street, however, ordinary sales tax is levied on the lower-alcohol, cereal malt beverage bottle of Bud. That often ends up being more than the 8 percent alcohol tax. In Pomona, Kansas, for example, the effective rate on the weaker beer would be 9.7 percent. Go figure.
When it comes to taxation, the rule is generally the stronger the booze, the higher the tax (that's why Kansas's beer tax scheme is an anomaly). California follows that curve, but at 100 proof, you better be ready to pay through the nose. Distilled spirits are taxed at $3.30 a gallon if below 100 proof, or 50 percent alcohol. Go over that, like with Bacardi 151, and the tax doubles to $6.60. Maryland also notes the 100 proof point, but it only adds 1.5 cents per proof, per gallon to the relatively modest liquor tax of $1.50 per gallon, taking the Bacardi 151 to $2.27 per gallon.
Entertainment venues pay a business tax to Nevada ranging from 5 percent to 10 percent on admissions fees (and food, drink and merchandise sales) whenever there’s live entertainment going on. There are exemptions, however, including this one, for businesses that provide "instrumental or vocal music, which may or may not be supplemented with commentary by the musicians, in a restaurant, lounge or similar area if such music does not routinely rise to the volume that interferes with casual conversation and if such music would not generally cause patrons to watch as well as listen." So your piano player can play “Feelings” softly and even crack a few jokes, tax-free, for your business. Just make sure they're not funny enough to attract attention.
Want to own a plush or fuel-thirsty ride? That’ll cost you extra in New Jersey. Cars that cost $45,000 or more or have a combined EPA fuel-mileage average of 19 or below pay an additional 0.4 percent on top of New Jersey’s 7 percent sales tax. 
In New Mexico, making it to 100 years has a payoff beyond the chance that Willard Scott will wish you a happy birthday: You don’t have to pay state income tax anymore. If you’ve been physically present in the state for at least six months and a resident of the state on the last day of the year, and you’re not someone’s dependent, you’re eligible. You’ll still need to file, and there are some complications if you’re married and your spouse doesn’t qualify.

2. Money received from selling personal assets.

In other words, everything in the house that you've sold. But there are some important exceptions, says Daniel Henn, a certified public accountant in Rockledge, Florida. For starters, you can keep the money from your car, your computer, your furniture – provided you sold it for less than the original purchase price, Henn says.

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"Generally, that wouldn't apply to jewelry, real estate or collectibles," Henn says, since that's assuming those items increased in value, he adds.

3. Employee benefits and other fringe benefits.

Maybe your boss has occasionally given you a gift, and you've thought, "You know, I wish she had just given me money instead." Well, that would be nice, but you'd also pay taxes on it. The gift may actually be the nicer gesture.

"There are a number of employee-benefit programs that you can receive from work without having to pay taxes," says Benjamin Grosz, a tax attorney at Ivins, Phillips & Barker in the District of Columbia.

As for what you can be given by your company tax-free, as long as your employer follows various rules, "which can get complicated," Grosz cites a slew of examples: insurance coverage, transit subsidies, educational assistance, moving expenses, free use of the company gym, subsidized meals at the company cafeteria, personal use of a company-provided cellphone, tickets to a sporting event or show and holiday nonmonetary gifts, like a Christmas ham.

So if your boss has given you a mix of those perks, especially the expensive stuff like transit subsidies and free use of the gym, you may want to give him or her a hug. Well, in this day and age of mixed signals, maybe just a friendly fist bump.

4. Child support.

That's right. It isn't taxable. "As long as it is not classified in any way as alimony," Hann stresses.

Because, yes, if you receive alimony, that is taxable.

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5. A medical settlement or workers comp.

Good news here, mostly. "This income is nontaxable, unless it includes interest, income for punitive damages or lost wages," says Crystal Stranger, a tax accountant based in Los Angeles who runs 1stTax.com, an online tax preparation service.

She adds: "Generally, a good lawyer will structure the settlement to be primarily for future medical expenses and related emotional distress, which are nontaxable forms of payment."
Gifts. Did a relative give you money? You don't need to consider it income, says Kevin Smith, an executive vice president and financial advisor with Janney Montgomery Scott, a wealth management and investment banking firm in York, Pennsylvania.

"In rare instances in which the gift is sizable and subject to gift tax, the donor, not the recipient, is responsible for any gift taxes due," Smith adds.

6. Life insurance payouts.

Did you lose a spouse or a parent who looked out for you by getting life insurance? You won't have that added insult to injury by having the IRS take a chunk of that money, Smith says.

But sure, there's always that rare caveat. Life insurance, when you get the money all at once, isn't taxable.

"Should the insurance beneficiary elect to receive an insurance payout over a period of months or years, however, each payment is considered part interest and part return of principal," Smith says. "In this instance, only the amount considered interest would be taxable, whereas the amount considered to be a return of principal would be income tax-free."

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7. Frequent flier miles.

This is a great example of something that can be worth thousands of dollars, but you don't have to pay tax on it, says Robin Solomon, a tax and benefits attorney with Ivins, Phillips & Barker in the District of Columbia.

"If the miles are awarded by the airline or in connection with credit card use, they are considered nontaxable rebates. The same rule applies to loyalty programs sponsored by hotels and rental cars," she says.

There are some exceptions, Solomon adds. "One catch is that you can't exchange the miles or points for cash," she says. "Cash is always taxable."

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