[{"@context":"https:\/\/schema.org\/","@type":"Article","@id":"https:\/\/moneydoneright.com\/taxes\/personal-taxes\/what-is-taxable-income\/#Article","mainEntityOfPage":"https:\/\/moneydoneright.com\/taxes\/personal-taxes\/what-is-taxable-income\/","headline":"What Is Taxable Income?","name":"What Is Taxable Income?","description":"Taxable income is the total amount of a taxpayer’s income subject to income tax...","datePublished":"2021-10-08","dateModified":"2022-06-29","author":{"@type":"Person","@id":"https:\/\/moneydoneright.com\/author\/logan-allec\/#Person","name":"Logan Allec, 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Taxable Income Used?Taxable Income: ConclusionDefinition and Example of Taxable IncomeTaxable income is a tax calculation that adds up a taxpayer\u2019s total income except items of income that are specifically excluded from tax by the tax code and then subtracts from this amount certain adjustments and deductions allowed by the tax code.For example, let’s say that last year a single taxpayer:Made $45,000 a year from their day jobNetted a $5,000 profit from a side hustleEarned $3,000 in interest income from municipal bondsSold their primary residence for a $200,000 gain that qualifies for the home sale gain exclusionPaid $1,000 in student loan interestDid not have itemized deductions in excess of his 2021 standard deduction amount of $12,550This taxpayer’s taxable income would be calculated as follows:+ $45,000 Day Job Income+ $5,000 Side Hustle Profit– $1,000 Student Loan Interest Deduction– $12,550 Standard Deduction– $1,000 Qualified Business Income Deduction= $35,450 Taxable IncomeThe $3,000 in municipal bond interest income and $200,000 gain from selling their primary residence is not included in taxable income because the tax code excludes these kinds of income from federal income taxation.The $1,000 qualified business income deduction is calculated as 20% of the taxpayer’s net side hustle income.How Taxable Income WorksAdjusted gross income is calculated on Line 15 of Form 1040.Taxable income is the sum of all of a taxpayer’s income items subject to income tax, less certain adjustments to income allowed by the Internal Revenue Code, less the taxpayer’s itemized deductions or standard deduction amount, less the taxpayer’s qualified business income deduction.Taxable Income vs. Adjusted Gross IncomeAdjusted gross income is a component of taxable income, but the terms are not synonymous.Adjusted gross income includes everything that taxable income includes except a taxpayer’s qualified business income deduction and standard deduction amount or itemized deduction amount.Adjusted Gross Income– Standard Deduction or Itemized Deductions– Qualified Business Income Deduction= Taxable Income.simple_table-44315 table tr th{\ttext-align: center;\t\t}.simple_table-44315 table tr td{\ttext-align: center;\t\t}Taxable Income vs. Adjusted Gross IncomeTax ItemIncluded in Taxable IncomeIncluded in Adjusted Gross IncomeAll Income Subject to TaxYesYesAdjustments to IncomeYesYesStandard DeductionYesNoItemized DeductionsYesNoQualified Business Income DeductionYesNoHow Is Taxable Income Used?Once a taxpayer’s taxable income is calculated, their regular income tax amount is calculated based on their taxable income.If the taxpayer does not have special income amounts subject to special tax rates such as long-term capital gains and qualified dividends, the taxpayer’s regular income tax is calculated by applying the tax rates in effect for the tax year for their filing status to their taxable income.Taxable Income: ConclusionHere’s what you have to know about taxable income.Taxable income is a tax calculation that adds up all of a taxpayer\u2019s income subject to tax and subtracts certain adjustments and deductions allowed by the tax code.Adjusted gross income is calculated on Line 15 of Form 1040.Taxable income is used to calculate a taxpayer’s regular income tax liability for the year.Taxable income is not the same as adjusted gross income."},{"@context":"https:\/\/schema.org\/","@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"name":"Taxes","item":"https:\/\/moneydoneright.com\/taxes\/#breadcrumbitem"},{"@type":"ListItem","position":2,"name":"Personal Taxes","item":"https:\/\/moneydoneright.com\/taxes\/\/personal-taxes\/#breadcrumbitem"},{"@type":"ListItem","position":3,"name":"What Is Taxable Income?","item":"https:\/\/moneydoneright.com\/taxes\/personal-taxes\/what-is-taxable-income\/#breadcrumbitem"}]}]