Taxable income refers to a portion of your total income, which is used to estimate how much tax you need to pay in a tax year. Broadly it can be described as Adjusted Gross Income (AGI) subtracted by standard deductions or permissible itemized deductions. Taxable income entails salaries, wages, tips, and bonuses, along with different kinds of unearned income and investment income.
Taxable income involves both unearned and earned income. Unearned income that is deemed taxable comprises government benefits, canceled debts, lottery payments, and strike benefits. Earnings created from appreciated assets that were sold through the year and from interest income and dividends also come under taxable income.
For deductions, the option of claiming a list of deductions that are itemized or a standard deduction is offered to individual tax filers by the IRS. Itemized deductions involve medical expenses surpassing a certain threshold, other expenses, and interest reimbursed on mortgages. Businesses do not report their revenue amount directly under a taxable income when filing taxes. Instead, they deduct the business expenses from the revenue to measure their overall business income. Thereafter, they minus the deductions to estimate their taxable income. Almost every type of income is considered taxable by the IRS, except a small number of income sources that are deemed taxable. For instance, if you are someone who works with an NGO or religious organization to tackle poverty, your income would be nontaxable. Likewise, if you get an employee achievement award, its value would be nontaxable as long as it meets certain criteria. If someone expires and you get a life insurance payment, it would come under nontaxable income as well.