What is taxable income defined as?

Taxable income is defined as the income that is subject to taxation after all allowable deductions and exemptions have been applied. This includes wages, salaries, bonuses, and investment income, from which you subtract specific deductions (such as retirement contributions and specified expenses) and exemptions (like personal exemptions or tax credits). The result is the amount of income that is subject to tax rates set by the government.

Understanding taxable income is essential for individuals and businesses as it determines the tax liability. By only considering income after deductions and exemptions, this definition recognizes the financial realities of taxpayers, allowing them to reduce their taxable base and subsequently lower their overall tax burden.

In contrast, total income after taxes, income before deductions, and net profit of a corporation do not accurately reflect the concept of taxable income because they do not account for the specific deductions and exemptions that reduce the amount of income that is ultimately taxed.