Taxable income includes all income earned (gross income) minus exemptions and deductions. Exemptions, as previously mentioned, depend on whether an individual is self-employed, a wage earner, married, single, has dependent children, and applies to married couples wherein the spouse earns an income. Once a taxpayer determines the category he or she falls under, the taxpayer, with the assistance of an accountant or tax professional, will collectively decide whether to use the standard deduction form or itemize his or her deductions separately. Depending on one’s finances and the taxpayer’s marital status, he or she would then determine which method provides the most tax relief.
Taxable Income and Homeowner’s Exemption
A homeowner’s exemption is a real property tax exemption that reduces a portion of the property tax or which the homeowner is due. The exemption typically bases property taxes on a reduced property value when determining property taxes. The Morgan Property Taxpayer’s Bill of Rights, enacted into law in 1994, is an act that ensures property owners have the right to accurate and full disclosures of their property taxes including, but not limited to, the ability to understand how taxes are determined.
Taxable Income vs Nontaxable Income
The IRS is the agency tasked with creating and implementing tax law. The IRS classifies all types of income as taxable, however there are instances when income will not be taxed depending on the type of income and the party who made the income. Religious institutions for example are not subject to taxation. There are several other types of nontaxable income. To name a few:
Child support payments
Reimbursements for child support payments
Taxable Income and Unearned Income
Another type of taxable income is unearned income. Unearned taxable income includes unemployment benefits, retirement income, social security, alimony, interests and dividends, etc.
Taxes can be reduced by itemizing deductions. Deductions are expenses that can reduce a tax filers taxable income, thereby reducing their overall tax bill. Expenses that lower your taxable income are medical expenses, health insurance, cost of prescriptions, mortgage interest paid on a home loan, losses resulting from accidents or theft, state and local income or sales taxes, property taxes, home office expense, and charitable contributions to churches and other nonprofit organizations. As of 2017 individuals can utilize a maximum tax deduction of $6,350.