Is taxable income the same as income tax
Taxable income is not the same thing as income tax. Income tax refers to the calculated tax you pay on your income. In other words, the tax that is calculated on the taxable income is what is known as income tax.
Taxable income is the remaining part of your gross income that is subject to tax payment after exemptions and deductions have been removed. As individuals or corporations, tax is never paid on the gross income, rather tax is calculated on the balance left after allowable or standard deductions and exemptions such as alimony payment, retirement plan contributions, interest on student loans and other government-allowed tax exemptions have been deducted. The amount that is left after these deductions is what is known as taxable income.
Taxable income includes income from sources like salaries, wages, bonuses, tips, self-employment income, rental income, investment income, and other forms of income not directly earned through labor or employment, such as dividends, interests, rental income, capital gains, and other investment incomes.
Income tax, on the other hand, is the actual tax amount you owe based on your taxable income. It is calculated based on the tax rates and brackets determined by the government.
Is adjusted gross income the same as taxable income?
No, adjusted gross income is not the same as taxable income. While both terms are both a part of the total income of an individual or corporation, they are not the same and have different uses in taxation.
Adjusted Gross Income (AGI) is a part of the total or gross income that is calculated and used as the basis for arriving at the taxable income. It consists of earned income from different sources such as wages, salaries, self-employment income, rental income, and investment income; and it is calculated by subtracting certain deductions, such as student loan interest, educator expenses, and contributions to retirement accounts, from the total income.
These deductions include contributions to traditional individual retirement accounts (IRAs), health savings accounts (HSAs), and self-employed health insurance premiums, certain business expenses necessary for running self-employment, freelancing, and small business, charitable contributions and medical expenses exceeding a set percentage of the adjusted gross income.
Some other deductions that can be made from the gross income are education-related expenses such as qualified tuition and fees, student loan interest payments, and even costs related to work-related education, all of which encourage individuals to invest in their own education and skill improvement.
Taxable income, on the other hand, is the portion of the adjusted gross income that is subject to taxation. Further deductions, either the standard deduction or itemized deductions and personal exemptions, are subtracted from the adjusted gross income to arrive at what is known as taxable income. This final amount is what is used in calculating the payable tax.
Is taxable income the same as net income
Taxable income is not the same as net income but rather a component of net income. Taxable income, as explained previously, is used to determine the amount of tax that you owe the government. Whereas, Net income is the remaining amount of money left for personal use after deducting all expenses.
These expenses include not just income tax, but also other expenses like rent, utilities, and groceries. That is to say, net income goes beyond just tax-related expenses. It is often used as a measure of the profitability or financial health of a business or individual.
Is earned income the same as taxable income
No, they are not the same thing but rather both earned income and taxable income are terms describing parts of your total or gross income.
Earned income is the term used to describe all income you receive or earn as compensation for your work or services offered. Wages, salaries, tips, self-employment income, and other income obtained from active participation in a trade or business, all fall under earned income.
On the other hand, taxable income covers a broader range of income sources including both earned and unearned incomes such as investment, retirement benefits, and rental income. Any income that is subject to taxation falls under taxable income. This goes without saying that while all earned income is taxable, not all taxable income is earned.
Is social security tax the same as federal tax
Social Security tax and federal tax are not the same but are two different types of tax.
Social Security tax is a fixed percentage tax, up to a certain limit, on income collected to fund the social security program which provides financial assistance to retirees, the disabled, and the families of deceased workers. Social security tax is also known as the FICA (Federal Insurance Contributions Act) tax.
Federal tax includes all the various taxes you pay to the federal government, all of which are collected to fund the various government programs, obligations, and services. This includes income tax, corporate tax, estate tax, excise tax, as well as social security tax.
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