Are you just starting your tax journey? Have you been employed by someone else in the past and are now working for yourself as a small business owner, independent contractor, or freelancer? Did your side hustle take off? Let’s talk about taxable income. What is Taxable Income? According to Investopedia, taxable income is “the portion of an individual’s or company’s income used to calculate how much tax they owe the government in a given tax year.” Taxable income includes wages, salaries, bonuses, tips, investment income (profits and dividends), and some types of unearned income (unemployment compensation, pensions, annuities and some social security benefits). Basically, if you received money from a person, business, or government program this year, there’s a large chance it is considered taxable income. One big exception to this rule is if the business is a nonprofit. Non-profit businesses are exempt from paying federal income tax, sales tax, and property tax if they meet certain criteria. The amount of taxable income you are responsible for will vary based on how much you made in the tax year you are filing for. And the taxes on your income get increasingly higher as you make more money, so it is important to take a close look at your earnings every year. How to Calculate Taxable Income There are a few steps to calculating your taxable income: Determine your filing status. There are 5 filing statuses to choose from, and taxpayers always want to choose the filing status that results in the lowest taxes possible for their situation. The filing statuses are: single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child. Gather all documents. You’ll need to gather all documents from all sources of income for you, your spouse, and your dependents, based on your living and family situation and the filing status you chose. Form W-2s are given when income is earned by a traditional …
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