01/04/2024
Everyone
Taxable Income
First, let’s talk about your taxable income. Your taxable income is the portion of your gross income (aka the amount of money you make before taxes and other deductions are taken out of your paycheck) that the IRS says you have to pay income taxes on.
Taxable income comes in all shapes and sizes—from earned income (your salary and holiday bonuses, for example) to unearned income (things like canceled debts and lottery winnings).
Here are some of the most common forms of taxable income you’ll need to report to the IRS:
Wages and salaries
Commissions
Freelance earnings
Bonuses and tips
Rental income
Interest or dividends from investments
Prize winnings
Bartered services
Canceled debt
Unemployment income
But the good news is, you can lower your taxable income through something called tax deductions. We’ll talk more about tax deductions later, but here’s a basic example.
Let’s say you’re single and your gross income for 2023 was $113,850. One way to lower your taxable income is to take the standard deduction, which is $13,850 for single filers. That one deduction lowers your taxable income to $100,000. If you don’t take any other deductions, that’s the number you’ll use to calculate how much you owe.
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