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Taxable Income
Taxable income is the portion of your gross income that is subject to taxation. It is calculated by subtracting certain deductions and exclusions from your gross income.
Formula for taxable income:
Taxable income = Gross income - Deductions - Exclusions
Examples:
- If your gross income is $50,000, and you have deductions of $10,000 and exclusions of $5,000, your taxable income would be $45,000.
- If your gross income is $20,000, and you have deductions of $2,000 and exclusions of $1,000, your taxable income would be $17,000.
Factors that affect taxable income:
- Salary: Your salary is the largest factor that affects your taxable income.
- Bonuses: Any bonuses you receive are added to your taxable income.
- Interest income: Interest income from investments is also taxable.
- Dividends: Dividends from stocks and other investments are taxable.
- Capital gains: Capital gains from the sale of investments are taxable.
- Deductions: You can deduct certain expenses from your taxable income, such as mortgage interest, charitable contributions, and business expenses.
- Exclusions: You can exclude certain income from your taxable income, such as income from Social Security or certain retirement plans.
Note: Taxable income is used to calculate your tax liability. The amount of tax you owe is based on your taxable income, your filing status, and your applicable tax rate.