We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Taxable Income?

Tricia Christensen
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Taxable income is gross income made by an individual or business that is considered taxable by a state or country, or both in the US. There are certain things, depending upon income level and other country-mandated deductions, that are reduced from the amount of income considered taxable. For example, a certain amount of contributions made toward a person’s 401k is not taxable income, and amounts deducted for social security payments in the US are usually removed and considered not taxable either.

The degree to which your income is taxable is dependent, in a progressive tax system, on certain allowable deductions. If you make income below the poverty level, it’s unlikely that you’ll pay much in the way of taxes, if any at all. People with middle incomes are granted individual deductions for self-support when they file their taxes, and also for the support of any others in their home, like spouses and dependent children. These deductions are subtracted from gross income levels to determine your tax bracket or tax rate when you are filling out income tax forms.

There are a number of defined deductions, like donations to charity, payment for childcare expenses, and payment for education expenses that can reduce taxable income. When you’re filing federal taxes for the US, you’ll usually go through a list of deductions you can take, which are then subtracted from your gross pay. Once you’ve made all these subtractions, federal forms like the 1040 read to the effect of “This is your taxable income,” and then ask you to look up your tax based on this amount.

You’ll then be asked to compare the amount you were taxed with the amount of tax allowed for your income bracket. If you paid more than that allowed by your taxable income, you’ll get a refund, and if you paid less, you’ll owe the IRS money. However, there are certain deductions to taxes owed that can reduce total tax. These are called tax credits, and they are deducted not from your taxable income, but from the tax you owe on that income. Tax credits can quickly cheer up your mood if you can take quite a few of them, and they reduce the amount you owe to what you have already paid (or more than you have paid) through paycheck deductions.

There are certain types of income that can be taxed under very different rules than standard income made when you work for an employer. If you inherit large sums of money, win the lottery, make an enormous profit on stock or receive a huge, unexpected bonus, this income can be taxed at different levels and different percentages than other income considered taxable. Much depends upon the amount of extra money you make, win, or inherit, but these are all considered “income” of a sort. They do have to be accounted for on your federal tax returns, and may change the amount you must pay at the end of the year.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Tricia Christensen
By Tricia Christensen , Writer
With a Literature degree from Sonoma State University and years of experience as a SmartCapitalMind contributor, Tricia Christensen is based in Northern California and brings a wealth of knowledge and passion to her writing. Her wide-ranging interests include reading, writing, medicine, art, film, history, politics, ethics, and religion, all of which she incorporates into her informative articles. Tricia is currently working on her first novel.

Discussion Comments

By Crispety — On Jul 15, 2010

Oasis11- I agree with you. The Republicans always try to repeal the estate tax, but somehow it never gets passed. Maybe if there were more Republicans serving in congress the estate tax might get repealed.

Repealing the estate tax is part of the Republican Party platform so a majority is the one way to make that happen.

By oasis11 — On Jul 15, 2010

Good article- I would like to add that estate taxes are exempt for an inheritance of 3.5 million or less. Beyond the 3.5 million the tax rate goes to 45%. So anything over 3.5 million is taxed at the 45% rate.

While I understand that estate taxes offer the federal government a large source of revenue, I feel that it is unfair to tax an inheritance regardless of the amount.

Money in an estate has been taxed through the lifetime of the deceased; therefore taxing again upon the person’s death seems like double taxation. I feel that estate taxes should be repealed.

Tricia Christensen

Tricia Christensen


With a Literature degree from Sonoma State University and years of experience as a SmartCapitalMind contributor, Tricia...
Read more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.