Taxable income includes all money a person earns in a tax year that is subject to income tax. This can include income from a job, self-employment, investments, interest earned, and capital gains. The purpose of taxable income is to calculate the amount of tax that an individual has to pay.
What Are Taxable Income Sources?
The types of income that are subject to taxation vary depending on the taxpayer’s specific situation. Some of the most common sources of taxable income are wages, salaries, tips, commissions, bonuses, and self-employment income. Any income from investments such as stock dividends, capital gains, interest, and rental income are all taxable as well. Real estate gains, some tax refunds, alimony, and some scholarships are also generally considered taxable income.
What to Consider When Calculating Taxable Income
When calculating taxable income, taxpayers should take into account deductions, exemptions, credits, and any other applicable factors. Depending on the situation, some deductions may be more beneficial than others for reducing taxable income. Taxpayers should also be aware of the limits imposed by the Internal Revenue Service for certain deductions, exemptions, and credits.
Moreover, any income that is NOT taxable under the law must still be reported on a tax return. This can include income that is not subject to tax laws such as child support, gifts, or inheritances. Furthermore, any income that is excluded from taxation must also be reported as part of the individual’s gross income on their tax return.
Conclusion
Taxable income is a term that taxpayers should be familiar with when filing their taxes. Knowing what income is taxable, as well as which deductions and credits apply to their situation can help taxpayers save money and maximize their tax refunds.