How to calculate taxable income

To arrive at taxable income, deductions allowed are subtracted from the gross income. These deductions encompass expenses such as those related to business, charitable contributions, and mortgage interest. The resulting amount is then liable to taxation at the relevant rate.

The significance of knowing your taxable income

Understanding your taxable income is crucial because it serves as the basis for calculating your tax obligation. Being aware of this figure enables you to estimate your tax liability accurately and plan your financial future. Furthermore, it can influence your eligibility for specific tax credits and deductions.

Differentiating taxable income from net income

Taxable income represents the portion of income subject to taxation, while net income reflects the remaining amount after deducting all company expenses, including income tax.

Illustrative instance of taxable income

Income liable to taxation typically encompasses various sources, such as wages, salaries, tips, commissions, employee compensations, investment income like interest and dividends, earnings from property, business income, and specific gains. Essentially, income not excluded from taxation is considered taxable.

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