Taxable income is the portion of your total income that is subject to income tax after deductions and exemptions are applied. It is the figure governments use to calculate how much tax you owe.
How It’s Calculated
Taxable income = Total income – Eligible deductions and exemptions. For example, if you earn $70,000 and contribute $10,000 to an RRSP, your taxable income would be $60,000.
Why It Matters
- Determines taxes owed: Your taxable income decides which tax bracket you fall into.
- Encourages planning: Using deductions effectively lowers taxable income and reduces taxes.
Final Thoughts
Understanding taxable income is key to managing taxes efficiently. Strategic use of deductions and exemptions helps lower your tax bill legally and effectively.