What is defined as the amount of income that is subject to taxation after deductions and exemptions?

Taxable income refers to the amount of income that remains after all allowable deductions, exemptions, and adjustments have been taken into account. This figure is critical because it is the income that the tax authorities use to calculate how much tax an individual or entity owes.

Understanding this term is crucial for effective financial planning, as it directly impacts tax liability. For instance, an individual might have a gross income, which represents the total earnings before any deductions. However, once deductions such as retirement contributions, student loan interest, or educational expenses are subtracted from the gross income, the resulting amount is the taxable income. This is the amount on which tax rates are applied, ultimately determining the taxpayer's obligation to the tax authorities.

In contrast, net income is often used in different contexts, such as representing take-home pay after taxes have been deducted, while disposable income refers to the money left over after mandatory expenses and taxes, which can be used for discretionary spending. These concepts provide useful insights but don't specifically represent the calculation of income subject to taxation.