Tax Filing Help
 

What is Taxable Income?

When filing tax returns, taxpayers have to pay particular attention to taxable income because taxable income is the income that the IRS will use to calculate how much taxes are owed. The lower the taxable income, the less taxes taxpayers have to pay to the IRS. So, if you want to pay less tax, you should try to minimize the taxable income. Taxpayers can reduce their taxable income by claiming as many tax deductions as possible. However, taxpayers should not claim tax deductions on items that they are not qualified to deduct. While the chance of an IRS audit is small, all taxpayers should be prepared to produce proofs of all tax deductions, tax credits claimed and tax exemptions. According the the IRS tax laws, all taxable income must be reported even if no tax forms are received for them.

Definition of taxable income

Taxable income includes earned income and unearned income.

Taxable income definition

Examples of typical taxable income
  • Wages, salaries, bonuses, commissions, tips, other compensation for personal services
  • Business income
  • Taxable interest
  • Dividends
  • Unemployment compensation
  • Taxable part of Social security benefits
  • Refunds of state and local taxes (if itemized deductions for the year the taxes were paid and the taxpayer's tax liability was reduced because of the deduction)
  • Taxable part of pension and annuities
  • Taxable part of IRA distributions

Other taxable income
  • Alaska Permanent Fund Dividend income
  • Alimony
  • Allowances and reimbursements
  • Court awards and damages
  • Credit card insurance payments
  • Estate and trust income
  • Gambling winnings (less gambling losses)
  • Hobby income
  • Illegal income
  • Jury duty pay
  • Prizes and awards
  • Canceled debts
  • Recoveries
  • Rental of personal property
  • Repayments