📖 Tax Glossary
Taxable Income
Taxable income is the portion of your income the IRS uses to calculate your tax owed. It is your adjusted gross income (AGI) minus either the standard deduction or your itemized deductions, plus certain add-backs.
Simple definition
Taxable income is the amount of your income the IRS actually taxes after subtracting deductions.
🧮 How taxable income is calculated
The formula is straightforward:
AGI − Deductions = Taxable Income
Where deductions are either:
- Your standard deduction (most people use this), or
- Your itemized deductions.
💡 Certain rare tax situations may require adding back income, but most taxpayers will use the simple formula above.
⭐ Why taxable income matters
Your taxable income determines:
Every piece of your tax return ultimately leads back to this number.
✅ Income that contributes to taxable income
Taxable income includes the following types of income:
- Wages and salaries (W-2 income)
- Self-employment income
- Interest and dividends
- Capital gains
- Rental income
- Business profits
- Taxable Social Security benefits
- Unemployment benefits
❌ Income that does NOT count toward taxable income
- Child support
- Gifts or inheritances
- Workers' compensation
- Life insurance payouts
- Most HSA withdrawals (for qualified medical expenses)
- Roth IRA qualified withdrawals
📊 Visual example
Calculating your taxable income
💡 This is the number the IRS uses to assign your tax bracket and calculate your income tax.
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