Taxable Income
The amount subject to income tax after adjusting gross income for deductions, exemptions, and other tax provisions, often differing from accounting income.
Taxable Income
The amount of income subject to taxation after adjusting gross income for allowable deductions, exemptions, credits, and other provisions of tax law, often differing from accounting income reported on financial statements.
For example, a corporation reporting $5 million in pretax accounting income might have taxable income of only $4.2 million after adjusting for tax-exempt municipal bond interest ($300,000), excess of tax depreciation over book depreciation ($400,000), non-deductible expenses ($100,000), and utilizing net operating loss carryforwards ($200,000).
For individuals, taxable income equals adjusted gross income minus either the standard deduction or itemized deductions. For businesses, it typically starts with book income before tax, adjusted for permanent differences (items treated differently for tax and financial reporting with no future reversal) and temporary differences (timing differences creating deferred tax assets or liabilities). The calculation varies by jurisdiction, entity type, and applicable tax laws. This figure serves as the base for applying tax rates to determine actual tax liability, making its accurate determination crucial for compliance and optimal tax planning.