How to Make Extra Money With These 15 Sources of Tax-Free Income
When you think about it, getting a big tax refund every year is really just a short-term gain. More than likely, it means you’ve overpaid your taxes and forgot about deductions that could give you more money to spend on other life necessities. Uncle Sam wants a piece of everyone’s pie, and that’s fine. But he’s not entitled to all of it.
Some income is exempt from taxation — probably more than you realize. Here are 15 ways you can increase your earning potential and put more money in your wallet by simply utilizing tax deductions.
1. Use Airbnb
We all know about the monetary benefits of rental properties and second homes, and some of that attributed income is tax-free — if you’re only renting for 14 days or fewer annually. With Airbnb’s growing popularity, there’s no excuse not to cash in on this potential.
Now, it’s easier than ever to rent out your entire home or just a single room to paying customers. Of course, you’d have to claim income if you grew your rentals into a six-figure business, such as this guy. But for most of us, a casual rental stream would work just fine. Is there a sporting event in your hometown that could enable you to rent out a room for a night? Cash in on those tax savings and extra income.
Next: This type of tax-free income might seem a bit morbid.
2. Receive life insurance payouts
There’s always at least one good reason to be nice to weird Uncle Stew. If he leaves you money in his will, you’ll get it tax-free. Any other life insurance payouts resulting from death are also tax-exempt. But be warned, the fine print regarding this break can get pretty sticky.
Next: Is relocation to another state worth it?
3. Live in certain states
Federal taxes are hard to escape, but state income taxes vary. Seven states — Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming — do not operate a personal income tax. Plus, Tennessee and New Hampshire do not tax wages. For workers who live in a state with astronomical tax rates (looking at you, New York and Hawaii), you might want to consider moving to one of these states to pocket additional income.
Next: Stop paying for gas, and cash in on this next tax-free revenue source.
4. Take mass transit
If you take mass transit to work, you might qualify for transportation fringe benefits. People can claim up to $255 per month in transit vouchers, commuter highway vehicle fares, and parking fees. Even those who carpool or bike to work are eligible. But go ahead, and continue to tell everyone you do it for the environment and not the tax break. We won’t tell.
Next: Anyone up for a career change?
5. Get paid to live in a house
A career change might be in order for this next source of tax-free income. If part of your working compensation includes a free roof over your head, and it has a business purpose, you could get paid in lodging tax-free. Imagine what you could do without that monthly rent bill or mortgage payment dragging you down. This is perfect for hotel managers, building supervisors, or church pastors.
Next: Launch that side business.
6. Claim job fees
Here’s yet another reason to start that side business. For those who have additional sources of income, such as freelancing gigs or moonlighting jobs, many of your expenses attributed to that business can be written off. Things, such as office space ($5 per square foot, up to 300 square feet), internet and phone bills, office supplies, marketing fees, even vehicular fuel and maintenance, apply. So some freelance dollars are pure profit, considering these are expenses you couldn’t typically write off elsewhere.
Next: Let’s hear it for the teachers.
7. Claim your teaching materials
Those who can manage a classroom of unruly kids day in and day out surely deserve a tax-break, especially considering their salaries are hardly proportionate to the laborious job requirements. Luckily, educators can deduct $250 for teacher-related expenses. All those dry erase markers and Valentine’s Day candy hearts you bought last year? Keep your receipts, and write them off.
Next: How to profit from a gift.
8. Receive a gift
If you’re looking for quick ways to earn extra income this year, you could get a second job. Or you could just be extra sweet to Granny and Gramps. If they supply you with a monetary gift of less than $14,000 ($28,000 combined), you won’t have to claim it come Tax Day.
Next: Here’s a bright spot in a divorce.
9. Claim alimony payments
In a divorce, alimony is deductible for the paying spouse on your 1040, and it’s taxable for the recipient. But make sure this payment is made in cash form, not property, to qualify. It’s also worth noting child support payments are not considered alimony and are therefore taxable income.
Next: Most people forget about disability income.
10. Receive disability benefits
The IRS counts any payments received from a disability insurance policy as unearned income, and thus they are tax-free. Plus, any home modifications made to accommodate your disability, such as wheelchair ramps or guard rails, are deductible under medical expenses.
Next: Here’s a hidden benefit of having a credit card.
11. Use credit cards
Credit cards aren’t always a bad thing. Cash-back rebates and travel bonuses are tax-free income on your personal credit cards. And interest charges, annual membership fees, and swipe fees are all deductible expenses when applied to your business credit card. All of these instances leave you with more money in the bank to spend elsewhere.
Next: Profit from real estate sales.
12. Sell your home
It’s easy to get sidetracked by all the money and financial lingo being tossed around during home sales. But don’t forget the profit you make on your home is likely tax-deductible. As long as the capital gain is less than $250,000 for individual filers (and $500,000 for joint filers), and you’ve lived in the home for two years prior to the sale, you’re home free.
Next: This is perhaps the easiest form of tax-free income.
13. Pay into a Roth IRA
One of the smartest and easiest ways to earn tax-free income is to open up a Roth IRA. Any growth on your contributions into the retirement account is completely out of reach from Uncle Sam’s sticky fingers. As long as you don’t make any unqualified withdrawals from the account, that income is all yours.
Next: Get money back after paying for college.
14. Pay college tuition
As you sign that check for spring semester tuition, know it can also be a tax-deductible income source. Any qualified education expense that’s paid for you, your spouse, or a dependent can be claimed as an exemption, as long as you don’t file separately if married. Other related expenses, such as books and rental equipment, are also included under this tax-free umbrella.
Next: Be charitable.
15. Give to charity
Americans gave $373 billion to charity in 2016. And though we’d like to think the motivating factors behind such generosity are pure, applicable tax deductions might have something to do with it. Making a contribution to any qualified organization puts money back in your wallet, as the fair market value listed on your donations receipt can be excluded from your taxes.
Follow Lauren on Twitter @la_hamer.