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Taxable income refers to the base upon which an
income tax An income tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelate ...
system imposes
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act accord ...
. In other words, the income over which the government imposed tax. 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 (sometimes called non-assessable income) and some expenditures not deductible in computing taxable income. 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, in which case it may be called “net profit”. Most systems require that all income realized (or derived) be included in taxable income. Some systems provide
tax exemption Tax exemption is the reduction or removal of a liability to make a compulsory payment that would otherwise be imposed by a ruling power upon persons, property, income, or transactions. Tax-exempt status may provide complete relief from taxes, reduc ...
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). In the United States,
gross income For households and individuals, gross income is the sum of all wages A wage is the distribution from an employer Employment is the relationship between two party (law), parties, usually based on a employment contract, contract where wo ...
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 businesses to reduce taxable income by cost of goods 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 the United States. Some systems allow
tax deductions Tax deduction is a reduction of income that is able to be tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of ...
for certain nonbusiness expenses (sometimes called personal or domestic expenses).Sec. 1.212-1 Nontrade or nonbusiness expenses
Retrieved December 4, 2013 Such outlays may include personal expenses, such as a
home mortgage interest deduction A home mortgage interest deduction allows taxpayers who own their homes to reduce their taxable incomeTaxable income refers to the base upon which an income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of ...
, and vary widely by jurisdiction. In addition, many systems only levy taxes on earnings above an
income tax threshold The income tax threshold is the income level at which a person begins paying income taxes. The income tax threshold equates to the: * Personal allowance in the UK, which is £12,500 for 2019/20. *Basic allowance in Germany, which is €9,408 in 20 ...
, allow deductions for
personal allowance In the UK tax system, personal allowance is the threshold above which income tax An income tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law ...
s or a minimum deemed amount of personal deductions. The United States federal tax system allows a deduction for personal exemptions, as well as a minimum
standard deduction Under United States tax law, the standard deduction is a dollar amount that non- itemizers may subtract from their income before income tax (but not other kinds of tax, such as payroll tax) is applied. Taxpayers may choose either itemized deduct ...
in lieu of other personal deductions. Some states in the United States allow few personal deductions.


See also

*
Income tax An income tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelate ...
*
Income tax in Australia Income tax in Australia is imposed by the federal government on the taxable income of individuals and corporations. State governments have not imposed income taxes since World War II World War II or the Second World War, often abbr ...
*
Income tax in Canada Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms.Smith's financial dictionary. Smith, Howard Irving. 1908. Income is defined as, "Revenue; the amount o ...
* Income tax in Hong Kong *
Income tax in the United Kingdom Taxation in the United Kingdom may involve payments to at least three different levels of government: central government A central government is the government A government is the system or group of people governing an organiz ...
*
Income tax in the United States Income taxes in the United States are imposed by the federal government A federation (also known as a federal state) is a political entity A polity is an identifiable political entity—any group of people who have a collective identit ...
* Taxable wages


References

{{reflist Income taxation Tax terms