10 Types of Income The IRS Cannot Touch — Most People Only Know 1!

It's not about how much income you earn, it's about how much you can keep after taxes. Believe it or not, all income is not taxed the same. There are people who make well beyond six and seven figures paying little to no money in taxes. And it's not because they're cheating or using some secret loophole. They just know which types of income are not taxed according to the internal revenue code. And today you're in for a treat because I'm going to show you not one, not two, but 10 types of income the IRS cannot touch, even if they wanted to. So let's jump right in. Okay, so let's start with number one, the 0% tax bracket. A lot of people do not know this, but the IRS actually has a 0% tax bracket for investment gains, which ultimately depends on one, the length of time you hold your investment for. Second, your taxable income. For example, in 2026, single earners with less than about $49,450 in taxable income qualify for the 0% rate. And married taxpayers with up to about $98,900 in taxable income were able to qualify as well. Keep in mind that the taxable income here is not your total income. This is your income after applying all deductions and losses to your taxable income. As a licensed CPA, I have seen people with two to three times more in income than these limits and use all different types of deductions and losses to reduce their taxable income into this bracket, which is worth exploring at a minimum. But I've especially seen retirees use this bracket to closely map their income and gains to it to significantly reduce their taxes over time. But it's also worth mentioning strategy number two, the unrealized gains. Which refers to investments you do not sell. Right now, there is over $20 trillion in untaxed wealth. Technically referred to as unrealized gains. Now, these gains represent the increase or appreciation of your investment assets. But the key is that the government cannot tax them because they are unrealized. They only become taxable when you sell them and trigger realized gains. That is what triggers a taxable event. Which means if you never sell your investment assets, you will never pay capital gains tax on them. This is such a simple concept that even some of the most sophisticated investors miss it. And it gets even better when you pair it with strategy number three, loan proceeds. Loan proceeds are explicitly exempt from taxation in the internal revenue code. Which means when you borrow money against your investment assets, you receive those proceeds tax-free. So instead of selling your investment assets and triggering taxes, some people will borrow against them to eliminate Uncle Sam from the equation. But that does introduce another expense to the equation here: interest expense. But even that can be deductible when the loan proceeds are used for legitimate business or investment purposes. Now, if that is not your cup of tea, you can be aware of strategy number four, Roth income. Put simply, the government cannot tax your earnings inside a Roth plan. They cannot touch it. That's the core benefit of these accounts. You can buy stocks, bonds, real estate, and even portions of private businesses, and those earnings accumulate tax-free inside of that account. So your dividend income, your interest income, capital gains, business income, and other income generated inside of that account will not be subject to any taxation. For example, someone who invests $10,000 per year into Roth may have $1.75 million dollars over 30 years with a 10% rate of return. They contributed nearly $300,000 of their own money and their investment grew to make $1.45 million dollars in income. The beauty of the Roth plans is that you can pull out those dollars without paying a single penny in taxes, whereas the average person would have to pay some form of capital gains tax, dividend tax, or income tax on this type of income. Now, you can also be aware of strategy number five, HSA plan income. A health savings account is the most tax-advantaged investment account that exists. You get a tax-deductible contribution on dollars you put into it, tax-free investment growth on dollars invested inside of it, and tax-free withdrawals when you make qualified distributions. A lot of people think that they can only use their HSA as a piggy bank for their health expenses, but these are literal investment accounts that you can use to buy income-producing assets like stocks, bonds, real estate, and even portions of private businesses. Those earnings accumulate tax-free inside of that account. So your dividend income, your interest income, capital gains, business income, and other income generated inside of that account will not be subject to any taxation. For example, someone who invests $10,000 per year into Roth may have $1.75 million dollars over 30 years with a 10% rate of return. They contributed nearly $300,000 of their own money and their investment grew to make $1.45 million dollars in income. The beauty of the Roth plans is that you can pull out those dollars without paying a single penny in taxes, whereas the average person would have to pay some form of capital gains tax, dividend tax, or income tax on this type of income. Now, you can also be aware of strategy number five, HSA plan income. A health savings account is the most tax-advantaged investment account that exists. You get a tax-deductible contribution on dollars you put into it, tax-free investment growth on dollars invested inside of it, and tax-free withdrawals when you make qualified distributions. A lot of people think that they can only use their HSA as a piggy bank for their health expenses, but these are literal investment accounts that you can use to buy income-producing assets like stocks, bonds, real estate, and even portions of private businesses. Those earnings accumulate tax-free inside of that account. So your dividend income, your interest income, capital gains, business income, and other income generated inside of that account will not be subject to any taxation. For example, someone who invests $10,000 per year into Roth may have $1.75 million dollars over 30 years with a 10% rate of return. They contributed nearly $300,000 of their own money and their investment grew to make $1.45 million dollars in income. The beauty of the Roth plans is that you can pull out those dollars without paying a single penny in taxes, whereas the average person would have to pay some form of capital gains tax, dividend tax, or income tax on this type of income. Now, you can also be aware of strategy number six, 529 plan income. 529 plans are similar to Roth retirement accounts but for education expenses. You can make similar investments inside of this type of account and they benefit from tax-free investment growth and can also be withdrawn tax-free when you use for qualified education expenses. Many people think that they can only use their 529 as a piggy bank for their education expenses, but they can now roll over into a Roth plan for the beneficiary. Now, let's switch gears and get out of all of these different accounts and talk about other sources that the government cannot touch or tax, like number seven, municipal bonds. Municipal bond investments generally involves lending money to the federal government to fund things like military, education, infrastructure, and more. There are various types of treasury securities, there's treasury bills, treasury notes, treasury bonds, and so on. But the overall tax treatment is generally the same. They are usually exempt from state and local taxes, which adds a major incentive for investors to make these types of investments. Now, something else that the government cannot touch or tax is number nine, life insurance proceeds. Most life insurance policies have a cash value element to it. And to that point, it is very popular for people to borrow against that cash value to avoid paying taxes because when they do, the proceeds they receive are not taxable. But in addition to that, the death benefit portion of any life insurance policies are explicitly exempt from taxation according to the internal revenue code. So whoever receives the life insurance proceeds are not taxable on the assets they receive. You actually receive one major benefit called step-up basis. This means you receive the assets at their fair market value and not what was paid for it. For instance, if you inherit a house and sell it immediately at its fair market value, you will likely owe little to no tax at all on the transaction, if it is sold at its fair market value. Now, there are little nuances for all of these where you may trigger taxes on certain types of assets, so be sure to talk to a qualified CPA about this. And if you need one, just apply to work with me today at mycpacoach.com. Thank you. The #1 Tax CPA Service. mycpacoach.com. Watch more!