Taxable Income

AAA

DEFINITION of 'Taxable Income'

The amount of income that is used to calculate an individual's or a company's income tax due. Taxable income is generally described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments that are allowable in that tax year.

Taxable income is also generated from appreciated assets that have been sold or capitalized during the year and from dividends and interest income. Income from these sources is generally taxed at a different rate and calculated separately by the tax entity.

INVESTOPEDIA EXPLAINS 'Taxable Income'

Individuals may choose to use a standard deduction amount for a given tax year. This amount is subtracted from gross income to arrive at the final taxable income figure. If individual deductions are claimed, the person or company will hope to have a total amount deducted from gross income lower than what would be achieved using the standard deduction. Some typical deductions that lower many tax bills include IRA contributions and certain business expenses.

VIDEO

Loading the player...
RELATED TERMS
  1. Expatriate

    An individual living in a country other than their country of ...
  2. Worldwide Income

    The aggregation of a taxpayer's domestic and foreign income. ...
  3. Adjusted Gross Income - AGI

    A measure of income used to determine how much of your income ...
  4. Income Shifting

    A strategy of moving a person's income from a high income bracket ...
  5. Active Income

    Income for which services have been performed. This includes ...
  6. Exempt Income

    Certain types or amounts of income not subject to federal income ...
RELATED FAQS
  1. What are the best free online calculators for calculating my taxable income?

    Free online calculators for determining your taxable income are located at Bankrate.com, TaxACT.com and Moneychimp.com. Determining ... Read Full Answer >>
  2. What is the difference between taxable income and gross income?

    Gross income includes all of the income a person receives during a year that is not explicitly exempt from taxation, whereas ... Read Full Answer >>
  3. Will I make more money in a Roth 401(k) or a traditional 401(k)?

    When looking at which type of 401(k) makes more money, a Roth 401(k) or a traditional 401(k), it depends on the period of ... Read Full Answer >>
  4. What is the difference between a state income tax and a federal income tax?

    The United States has a multi-tiered income tax system under which taxes are imposed by federal, state and most local governments. ... Read Full Answer >>
  5. What is the highest marginal tax rate in the United States?

    In a marginal tax rate system, such as the one found in the United States, the more income one makes, the more one is expected ... Read Full Answer >>
  6. Can you calculate the marginal tax rate in Excel?

    Marginal tax rates are higher for higher-income individuals. Accurate information about current tax brackets is needed to ... Read Full Answer >>
  7. How are an employee's fringe benefits taxed?

    Common fringe benefits provide employees total compensation above and beyond stated wages or salaries, and a wide range of ... Read Full Answer >>
  8. What is the difference between gross income and taxable income?

    There are numerous tax terms that are beneficial to know and understand when you are preparing and filing your tax returns. ... Read Full Answer >>
  9. What are the penalties for early withdrawal from a Registered Retirement Savings ...

    Withdrawing from your Registered Retirement Savings Plan (RRSP) before retirement carries several penalties. Penalties for ... Read Full Answer >>
  10. What was the Mahonia company and why did it become the subject of a lawsuit?

    In 1992, J.P.Morgan went into the energy trading business by creating a venture company called Mahonia Limited. At least, ... Read Full Answer >>
  11. Will I pay taxes on my Social Security payouts?

    Some people have to pay federal income taxes on the Social Security benefit they receive. Typically, this occurs only when ... Read Full Answer >>
  12. What is the "stretch IRA" concept?

    The "stretch IRA" is not a new IRA account on the market, or even a new investment concept, it is simply a wealth transfer ... Read Full Answer >>
  13. Should I put money into a retirement account even if it isn't tax deductible?

    One of the biggest and most often-touted advantages of putting money into a retirement account is the tax savings that come ... Read Full Answer >>
Related Articles
  1. Taxes

    Explaining Taxable Income

    Taxable income is the net of gross income and allowable deductions.
  2. Taxes

    Minimize Taxes With Asset Location

    Learn how to maximize your investment returns with this tax-minimization strategy.
  3. Taxes

    Are You Paying Too Much in Taxes?

    Overpaying taxes amounts to an interest-free loan to the government. Here are some ways to avoid that scenario.
  4. Taxes

    What's a Tax Shield?

    A tax shield is a deduction, credit or other means used to reduce the amount of taxes an individual or business owes to the government.
  5. Taxes

    What's an Indirect Tax?

    An indirect tax is levied on goods or services rather than on an individual or a company.
  6. Taxes

    Understanding Excise Taxes

    An excise tax is an indirect levy charged for the sale or use of a particular item.
  7. Taxes

    Understanding the W-2 Form

    The W-2 Form is a standard Internal Revenue Service (IRS) form that employers are required to furnish employees at the end of each year.
  8. Economics

    What is a Resident Alien?

    A resident alien is a foreigner who is a permanent resident of the country in which he or she resides but does not have citizenship.
  9. Taxes

    IRS Refund Lost? Here's What to Do

    Don't panic. There are a number of reasons your refund might be delayed – and solutions for each.
  10. Investing

    Three Reasons Inflation Isn’t What You Think

    Though U.S. inflation has been firming recently— the core consumer price index rose in April for a 3rd month in a row—prices likely aren’t rising as much.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!