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6 Steps from Taxable Income to Cashflow: Nontaxed Income

I call them the six Ns in my free module on ‘Green Legos, 6 Ns and a Map to Tax Return Analysis‘.

The first one is Nontaxable Income.

Most banks and credit unions have a short list and here are some likely items:

  • Child support received (not on the tax return)
  • Tax-exempt interest on municipal bonds. (1040 Line 8b)
  • Nontaxed portion of IRA (Line 15)
  • Nontaxed portion of Pension (Line 16)
  • Nontaxed portion of Social Security (Line 20)

Here is a longer list:

  • Untaxed wages
    • The difference between 1040 Line 7 and Gross Wages on a year-end pay-stub or W-2 Line 5. This is caused by untaxed 401 K deductions (optional), dependent care benefits (which they actually got) and the like
  • Foster care payments received
    • Not on the tax return. Get a letter from the agency that pays it.
  • Minister’s Housing Allowance
    • Not on the tax return. Get a letter from the religious entity that pays it.
  • Military wages for soldiers stationed in Iraq or Afghanistan
  • Income earned on a Native American Reservation
  • Some disability income (depending on who paid the premiums)
  • Some insurance settlements
  • Reindeer herd income
    • I did not actually check this one myself but a lender from Alaska said it is so

If you are using the tax return to determine cashflow, you need to find and add nontaxed income to the bottom line. If your approach does not start with a bottom line (like AGI) you need to find and use total income, not taxable.

If you are looking for historical cashflow, use it. If you are looking for recurring cashflow, consider if it is recurring before you use it.

Are there more that could be on the list? Undoubtedly.

What is on your list?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.
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