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Taxable Income
Definition
Gross income minus deductions — the amount used to calculate your actual tax liability.
Explanation
Taxable income = Gross Income − Standard or Itemized Deductions. This is the amount that tax brackets are applied to in order to calculate your total tax liability. Reducing taxable income through deductions and pre-tax contributions directly lowers taxes owed.
Strategies to reduce taxable income include 401(k) contributions, HSA contributions, and pre-tax benefit deductions.
Example
$50,000 gross income − $14,600 standard deduction = $35,400 taxable income (the amount tax brackets are applied to).