Definition
Taxable income is the portion of your income actually subject to tax after deductions are applied.
How It Works
You take AGI and subtract either the standard deduction or itemized deductions, plus any qualified business income deduction. The remaining amount is taxable income, which is run through the tax brackets to determine the tax owed.
Example
A married couple with $300,000 of AGI who takes a $30,000 standard deduction and a $20,000 QBI deduction has $250,000 of taxable income.
Who It Applies To
Every individual taxpayer.
Watch-Outs
Lowering taxable income is the central goal of most tax planning, but the levers differ depending on whether income is from wages, business, or investments.
