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.
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.
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.
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.
