Next year’s federal income tax filing deadline of April 18, 2016 seems like a long way off in the midst of the holiday season. However, knowing whether you will be eligible for a tax refund, or will be owing money is an important question to be resolved in the New Year. Because of this, understanding what your taxable income is can be very helpful in your tax planning activities.
So what exactly is taxable income? This post will explain how you can find yours.
The first step is determining what your gross income is. After all, your taxable income is reached by taking your gross income and subtracting it by the various credits and deductions you may be eligible for given how much you make and specific gains and losses you have incurred during the year. This post will focus on what comprises gross income.
Earned income - This includes all of the income you have earned during the year; including earned income, which is the money you are paid for work you perform, (i.e. salary, commissions, bonuses) as well as sick leave, unemployment benefits and non-cash fringe benefits.
Unearned income – This refers to the money you earn from interest and dividend payments that come from investments, as well as profits earned from the sale of a business, rents collected on investment properties, as well as gambling winnings over a certain amount. Unearned income also includes Social Security benefits payments and earnings from retirement plans and funds.
In our next post, we will focus on the deductions that may be applicable to you.