Taxable income
Encyclopedia
Taxable income refers to the base upon which an income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...

 system imposes tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system. Many systems provide that some types of income are not taxable and some expenditures not deductible in computing tax. Some systems base tax on taxable income of the current period, and some on prior periods. Taxable income may refer to the income of any taxpayer, including individuals and corporations, as well as entities that themselves do not pay tax, such as partnerships.

Most systems require that all income realized
Realization (tax)
Realization is a requirement in determining what must be included as income subject to taxation. It should not be confused with the separate concept of Recognition .-Defining Income:...

 be included in taxable income. Some systems provide tax exemption for some types of income. Many systems impose tax at different rates for differing types (e.g., capital gains or salaries) or levels of income (e.g., graduated rates
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...

). In the United States, gross income
Gross income
Gross income in United States tax law is receipts and gains from all sources less cost of goods sold. Gross income is the starting point for determining Federal and state income tax of individuals, corporations, estates and trusts, whether resident or nonresident."Except as otherwise provided" by...

 includes all income realized from whatever source, but excludes particular tax exempt items, such as municipal bond interest. In 2010, the United Kingdom and the United States both provided reduced rates of tax for capital gains and dividends.

Most systems and jurisdictions allow business taxpayers to reduce taxable income by cost of goods
Cost of goods sold
Cost of goods sold refers to the inventory costs of those goods a business has sold during a particular period. Costs are associated with particular goods using one of several formulas, including specific identification, first-in first-out , or average cost...

 or other property sold, as well as deductions for business expenses. Many systems limit some sorts of business deductions. For example, deductions for automobile expenses are limited in the United Kingdom and United States.

Some systems allow tax deductions for certain nonbusiness expenses. Such deductions may include personal expense items, such as a home mortgage interest deduction
Home mortgage interest deduction
A home mortgage interest deduction allows taxpayers who own their homes to reduce their taxable income by the amount of interest paid on the loan which is secured by their principal residence...

, and vary widely by jurisdiction. In addition, many systems allow deductions for personal allowance
Personal allowance
In the UK tax system, Personal Allowance is the level above which income tax is levied on an individual's annual income. A person who receives less than his/her personal allowance in taxable income in a given tax year does not pay income tax; otherwise, tax must be paid according to how much is...

s or a minimum deemed amount of personal deductions. The United States Federal system allows a deduction for personal exemptions, as well as a minimum standard deduction
Standard deduction
The standard deduction, as defined under United States tax law, is a dollar amount that non-itemizers may subtract from their income and is based upon filing status. It is available to US citizens and resident aliens who are individuals, married persons, and heads of household and increases every...

 in lieu of other personal deductions. Some states in the United States allow few personal deductions.

See also

  • Income tax
    Income tax
    An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...

  • Income tax in Canada
  • Income tax in the United Kingdom
  • Income tax in the United States
    Income tax in the United States
    In the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...

  • Wikipedia articles on income tax in the country of interest
  • Taxable wages
    Taxable wages
    Taxable Wages, in payroll, is the sum of all earnings by an employee that are eligible for a particular type of tax. Each tax is different and has different regulations about limits to the amount of wages that can be considered taxable with respect to that tax.-Example:A common example, the Federal...

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