Taxable Income

What is taxable income?

Taxable income is the amount of your income that's actually subject to tax. It's not your total revenue—it's what remains after subtracting allowable deductions like business expenses, retirement contributions, and other adjustments. Your tax is calculated on this reduced amount.

Calculating taxable income

For a self-employed person, the general flow is:

• Gross income — Total revenue from your business
• Minus business expenses — Deductible costs of running your business
• Equals net self-employment income — Your business profit
• Minus personal deductions — Standard or itemized deductions
• Equals taxable income — What you pay tax on

Reducing taxable income

Legitimate ways to reduce taxable income include maximizing business expense deductions, contributing to retirement accounts, and claiming all applicable personal deductions. Good record-keeping ensures you don't miss deductions you're entitled to.