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What is Taxable Income

What is Taxable Income
Determining taxable income is essential for all salaried as well as business professionals. In the following article, this subject will be dealt with, in greater detail.
WealthHow Staff
Once we begin our professional career and start earning, there are many things related to financial management which we must be aware of. Paying taxes to the government where we live and work is mandatory in all parts of the world. If you are earning and living in the United States, you should be aware of what is taxable income for corporations, as well as individuals.

Taxable Income in the United States

In simple words, taxable income is that income for which you are required to pay federal taxes. The earned amount beyond which paying income tax is mandatory, is decided by the federal authorities after careful research. The incomes of people belonging to different age, localities, and occupations is studied and the overall scenario is analyzed before deciding what the taxable income should be. The income brackets are useful in determining the tax which an individual owes to the nation or state. By seeking help from a tax consultant you can easily get to know about what constitutes as taxable income in your case.

Maintaining the complete details of all your investments is essential for tax calculations. From total gross income, contribution to retirement plans, health insurance deductions, education expenses etc. are deducted. What remains after that, is your taxable income. The deductions help you save a lot of money. The formula for calculation is as follows:

Taxable income = (Total gross income - Deductions availed by the person)

Income from all sources is considered while calculating your total tax liability. Taxation laws and tax deduction rules are different in different countries. If you are migrating to some other place for work, you should inquire and be aware of the local taxation laws.

Penalties for Tax Evasion

Tax evasion penalties, imposed by the Internal Revenue Service can be quite strict. They have been effective in ensuring compliance with tax laws. The fine for tax evasion can be around $100,000 and a person may face a jail sentence for a period up to five years.

At the same time, there are laws to prevent people from providing false income details at the time of filing for income taxes. A person who provides false income information may get an imprisonment sentence of three years and/or a fine which could be equal to that for tax evasion. Apart from disclosing the right income, taxes need to be paid before the last date declared for all tax payers. Failure to do so can attract a penalty which can be equal to five percent of the total taxable amount of the person.