Taxable income is simply defined as income that is subject of taxation. A more technical definition would be any income earned from any source that is subjected to any type of income-based taxation in an amount provided for by appropriate taxation laws. For a better understanding of taxable income, it would be best to discuss the same by type.
What is Taxable Income? Individual Income Tax vs. Corporate Income Tax
Individual income tax is levied (collected) from a natural person or an individual. Of course, this is subject to exceptions and deductions as provided for by law. The basis for the taxation is the type of income as well as the amount of the same. As a general rule, the higher the income the higher the tax. This type of tax is paid on a “pay as you ear” basis. Meaning tax is collected as soon as the income is due to the individual.
Any overpayments or underpayments will then be corrected thru deficiency payments or refunds during the end of the taxable year. Why the overpayment or the underpayment? This usually happens because losses or earnings are generated suddenly after the tax has been paid.
Whereas corporate income tax is a tax on the total earnings of a corporation that is subject to taxation minus exceptions and deductions provided for by law. One important thing to note is that the corporation is taxed separately from the owners. This is because a corporation is separate and distinct from those comprising the same.
What is Taxable Income? Capital Gains tax vs. Payroll Tax
Any tax limited to the sale of assets that are considered capital assets as provide for by law. Simply put capital assets are those that are held by the corporation or owner with the intention of holding the same for longer than 1 year. These are not usually found on the inventory of goods for sale but used for the benefit of the business or enterprise.
Whereas payroll tax is levied on two entities, the employer and the employee. The payment process starts with an employee earning income subject to payroll. Next, the corporation withholds a certain amount of income from the net income collectible at any given interval (i.e. weekly, biweekly, monthly, etc.) Last, the corporation complies with applicable laws and internal procedures and either mirrors the amount collected or provides a higher or lower amount as their own contribution. A very important thing to remember is that the employer cannot pay lower than that provided for by law but can pay higher as their employer share.
What is Taxable Income? Inheritance vs. Estate Tax vs. Transfer tax
The first two types of tax is collected by reason of the death of a person. The former is collected from the person to inherit and the latter is collectible from the estate of the deceased person. The third type (transfer tax) does not require the death of a person in order to effectuate the transfer, rather it is enough that a person wants to transfer ownership and/or possession of a property to another.