What is meant by "taxable income"?

Taxable income refers to the amount of income that is actually subject to taxation after accounting for any allowable deductions. This concept is crucial in understanding how taxes are calculated, as it determines the portion of an individual's or entity’s income that will be taxed by the government.

When an individual or business calculates their taxable income, they start with their gross income, which includes all earnings from various sources. From this gross income, specific deductions—such as business expenses, mortgage interest, and student loan interest—are subtracted. The result of this subtraction is the taxable income, which is used to apply the applicable tax rates to determine the total tax owed.

In this context, other options do not align with the definition of taxable income. The total income earned by an individual encompasses all earnings without considering deductions, while income before deductions is simply gross income. Lastly, net profit after taxes is a measure of profit remaining once taxes have already been subtracted, making it distinct from taxable income. Understanding these distinctions helps clarify the elements involved in tax filings and compliance.