Wanting to reduce one’s tax liability is normal. Most Connecticut residents take steps to do it. No one wants to see the government get more in taxes than it should. However, the steps one takes to limit his or her tax liability can cause problems if one is not careful. For instance, failing to declare all taxable income could have significant criminal and/or financial consequences if the Internal Revenue Service figures it out.
What counts as taxable income? This is a question many people have. Taxable income is one’s gross income minus any allowed exemptions and/or deductions. Gross income can come from:
- Tips
- Investment earnings
- Salary
- Hourly wages
- Bonuses
- Certain gifts
- Lottery winnings
In general, if one is paid for something, the money earned is taxable. There are few exceptions to this. For example, if one receives a life insurance payout after the death of a loved one, that money is typically considered non-taxable income. Those who are not sure if cash earned counts as taxable income would be wise to ask questions about it before simply excluding it from their tax returns.
There are a number of ways for Connecticut residents to reduce their tax liabilities. Failing to report income should not be one of them. Those who are believed to be hiding income may face tax evasions charges, which, if convicted, carry some stiff penalties. It just isn’t worth it. Those who do find themselves being audited or otherwise in trouble with the IRS over their declared taxable income can turn to legal counsel for assistance with addressing the matter as quickly as possible.