Taxable income is the amount of income that is subject to income taxes. It is the amount of money that you earn during a year that is subject to federal, state, and local taxes. Taxable income is calculated by taking your gross income and subtracting any deductions, credits, and exemptions that you are eligible for.

Gross income is the total amount of money that you earn from all sources, including wages, salaries, tips, bonuses, interest, dividends, and capital gains. However, not all of this money is considered taxable income.

Deductions are expenses that are used to reduce your taxable income. These include things like charitable donations, mortgage interest, and state and local taxes. There are two types of deductions: the standard deduction and itemized deductions. The standard deduction is a fixed dollar amount that you can deduct from your income, while itemized deductions are specific expenses that you can deduct from your income.

Credits are another way to reduce your taxable income. Tax credits are dollar-for-dollar reductions of the tax that you owe. For example, the earned income credit is a credit that is available to low-income taxpayers. Tax credits can be either nonrefundable or refundable. Nonrefundable credits can only reduce your tax liability to zero, while refundable credits can result in a refund if the credit exceeds the tax owed.

Exemptions are a way to exclude a certain amount of income from being taxed. An exemption is a specific dollar amount that can be claimed for each person who is supported by the taxpayer. In 2021, the personal exemption is suspended.

Once you’ve calculated your taxable income, you can use it to determine your tax liability. Taxable income is used to determine the tax bracket that you fall into, and the tax rate that applies to your income. Tax rates are progressive, which means that the higher your income, the higher the tax rate that applies to it.
It’s important to note that taxable income can vary depending on your filing status, which can include single, married filing jointly, married filing separately, or head of household. Each status has its own set of tax rates and deductions.

In summary, taxable income is the amount of income that is subject to taxes. It is calculated by taking your gross income and subtracting any deductions, credits, and exemptions that you are eligible for. Deductions, credits, and exemptions are used to reduce your taxable income. Taxable income is used to determine your tax bracket and tax rate. The tax rate that applies to your income is based on your taxable income and filing status. Understanding your taxable income and how it is calculated is important for ensuring that you pay the correct amount of taxes. If you have any questions about taxable income, it’s always a good idea to consult with a tax professional.