Taxable Income
What does "Taxable Income" mean in law?
Taxable income, defined under IRC Section 63, is the final figure upon which a taxpayer's federal income tax liability is computed. It is calculated by subtracting from AGI either the standard deduction or itemized deductions (below-the-line deductions), plus any qualified business income deduction under Section 199A. For corporations, taxable income is gross income minus all allowable deductions under IRC Section 63(a). The distinction between gross income, AGI, and taxable income reflects the progressive narrowing of the tax base as Congress provides various forms of relief at each computational stage.
Definition
Taxable income, defined under IRC Section 63, is the final figure upon which a taxpayer's federal income tax liability is computed. It is calculated by subtracting from AGI either the standard deduction or itemized deductions (below-the-line deductions), plus any qualified business income deduction under Section 199A. For corporations, taxable income is gross income minus all allowable deductions under IRC Section 63(a). The distinction between gross income, AGI, and taxable income reflects the progressive narrowing of the tax base as Congress provides various forms of relief at each computational stage.
Example
A single filer with an AGI of $80,000 who takes the standard deduction of $14,600 has a taxable income of $65,400, which is the amount actually subject to the graduated rate schedule.