Introduction — “Is that really taxable?”

Side-hustle payouts, marketplace sales, crypto, barters, even prize wins—owners often ask: what actually counts as taxable income? In Part 1, we translate the law into plain English so you can report confidently and avoid nasty surprises at filing time. (Texas note: we’ll stay federal; when we reference state rules for context, we’ll use Texas as the example, which has no personal income tax.)

The starting point is simple but broad: gross income means all income from whatever source derived—unless a specific law excludes it. That includes wages, business income, gains, interest, rents, royalties, prizes, and more. Legal Information Institute+1

1) What counts as taxable gross income?

Use this as your “include it unless clearly excluded” checklist.

  • Compensation & business income. W-2 wages, consulting fees, tips, commissions, and your Schedule C profits all belong in gross income. Legal Information Institute
  • Interest & dividends. Bank interest and most dividends are taxable; special rules apply to U.S. Treasury and tax-exempt bond interest (still reported). Internal Revenue Service+1
  • Capital gains. Profits from selling property, investments, or crypto are generally taxable; losses have limits and reporting rules. Internal Revenue Service
  • Rents & royalties. Rental receipts and license/royalty payments are income (usually reported on Schedule E unless it’s your active trade or business). Internal Revenue Service+1
  • Prizes, awards & gambling. Cash or the fair-market value of non-cash awards/winnings are taxable. Internal Revenue Service+1
  • Bartering. Trading services or goods? Include the fair market value you received—barter is taxable even when no cash changes hands. Internal Revenue Service
  • Unemployment compensation. Benefits are generally taxable at the federal level. Internal Revenue Service+1
  • Digital assets (crypto, NFTs). Selling, swapping, or receiving them as payment creates taxable income—you must answer the digital-asset question on your return. Internal Revenue Service+1
  • Canceled debt (COD). If a lender forgives what you owed, the forgiven amount is often income (exceptions exist). Internal Revenue Service+1

Key rule of timing: income counts when you actually or constructively receive it—when it’s credited to your account or made available so you can draw on it. Cash-basis owners use this rule a lot. Legal Information Institute

2) What’s not taxable? (Common exclusions you should know)

Some receipts are specifically excluded by law. Here are the big ones owners ask about:

  • Gifts & inheritances you receive aren’t taxable to you (the giver may have filing obligations). Internal Revenue Service+1
  • Life-insurance death benefits paid to a beneficiary are generally tax-free (interest on those proceeds is taxable). Internal Revenue Service
  • Child support received is not taxable (and not deductible by the payer). Internal Revenue Service
  • Workers’ compensation for job-related injury/illness is excluded. Internal Revenue Service
  • Qualified scholarships/fellowships used for tuition and required fees can be tax-free; amounts for room/board are typically taxable. Internal Revenue Service+1
  • Certain lawsuit/settlement payments. Physical-injury/sickness damages may be excluded; punitive damages, interest, and lost wages are generally taxable. Internal Revenue Service+1

3) Practical owner scenarios (and how the IRS sees them)

  • Marketplace payouts (no 1099 yet). You must report income even if a form never arrives; information-return thresholds don’t change taxability. Barter and digital-asset payments count, too. Internal Revenue Service+1
  • Perks & fringe benefits. Most employer-provided benefits are taxable unless a specific exclusion applies (e.g., de minimis, health coverage). Internal Revenue Service+1
  • Texas vs. other states. Texas doesn’t impose a personal income tax, but federal rules above still apply. If you operate in a state with income tax, many of these items also affect your state return (Texas is the “no state tax” example).

4) Owner’s quick checklist

Most dollar thresholds and phase-outs (e.g., reporting thresholds, certain credit limits) are inflation-indexed annually—always check the current year before filing. (Finpilot360 tracks these each season.) Internal Revenue Service

Want a 10-minute review of your 2025 income sources before year-end? Book a 15-minute Finpilot360 consult, and we’ll map what to report (and what not to).
Keep an eye out for Part 2 next: “Business & Side-Hustle Income: Tax Reporting Made Simple.”

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