Understanding Income

Definitions

• Gross Income: Total Value of one's salary or payments, without accounting for any cash outflows

• Net Income: Income left over after subtracting taxes or fees. Discretionary Income is common for individual earners which is the amount they have available after paying for necessary expenses

Taxable Income

• The general tax framework applies to taxpayers' personal revenue (other than tax-exempt income) from all sources and offsets such as revenue with deductions for expenses and losses to determine taxable income.

• There are various income levels that determine tax rates for income tax

Types of Income

Ordinary Income

• Encompasses earnings, interest, regular dividends, rental income, distributions from pensions or retirement accounts, and SS benefits

Capital Gains

• Gains from selling assets that have appreciated in value

• In the US, Tax rates for Capital Gains on assets held for more than one year are 0%, 15%, and 20%.

• Include personal residences and investments such as real estate, stock, bonds, or other financial instruments. Qualified dividends can also be taxed at capital gains rates.

Tax-Exempt Income

• Interest paid on certain bonds issued by gov't entities is treated as tax-exempt income.

• Interest on bonds issued by state and local gov't generally is not subject to federal taxation.

• https://www.investopedia.com/terms/e/exemptincome.asp

References:

• https://www.investopedia.com/terms/i/income.asp