What is Taxable Profit? | Definition, Types vs Computation

Taxable Income refers to a business corporation or an individual’s compensation to determine the tax liability. Gross income or total income is used as a basis for the calculation to determine how much an organization or an individual has to pay the government for a specific tax year. One important point is that Taxable Income not only includes an individual’s salary but only considers other forms of compensation like bonuses, tips, commissions, allowances, and capital gains.

This Income includes all compensation categories in services, cash, and property. Every income is included in the report of Income Tax return and it is taxable unless the law exempts the income from tax liability. Examples are wages, salary, stock options, interest from the bank, dividends, rent earned from personal property, and unemployment compensation.

Key Takeaways

Taxable profit is the amount of profit that is subject to taxation by the government.

It is calculated by deducting allowable expenses and deductions from a company’s gross or accounting profit.

The tax rate for taxable profit varies based on the country’s tax laws, and businesses must accurately calculate and report their taxable profit to avoid penalties and legal consequences.

Types of Taxable Income

1. Business and Investment Income

Self-employed people also have to pay taxes on the income they earn from their businesses. It includes income from rent and partnership income.

2. Employee Benefits and Compensation

These types of Taxable Income include salaries, fringe benefits and wages. These Taxable Incomes are the most common.

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Finance Quiz

Test your knowledge about topics related to finance

1 / 10

What is the difference between a savings account and a checking account?

Savings accounts have a higher interest rate, checking accounts have lower fees

Checking accounts have a higher interest rate, savings accounts have lower fees

Savings accounts are for long-term savings, checking accounts are for everyday spending

Checking accounts are for long-term savings, savings accounts are for everyday spending

2 / 10

An 'Overdraft' is where a business is permitted to overspend on its bank account up to an agreed limit.

True

False

3 / 10

Why do companies engage in M&A?

For better brand recognition

To grow in size and bounce their rivals

Because of increasing competition

All of these

4 / 10

What is a credit score?

A measure of a person’s financial stability

A measure of a person’s creditworthiness

A measure of a person’s wealth

A measure of a person’s debt

5 / 10

What is a portfolio in finance?

A collection of stocks

A collection of bonds

A collection of investments

A collection of real estate properties

6 / 10

What is a mutual fund?

A type of stock

A savings account

A pool of investment from multiple investors

A type of bond

7 / 10

What is a balance sheet?

A financial statement that shows a company’s stock performance

A financial statement that shows a company’s revenue and expenses

A financial statement that shows a company’s assets, liabilities, and equity

A financial statement that shows a company’s cash flow

8 / 10

Government grants are generally offered to businesses in:

Properous areas

Economically deprived areas

Areas with high employment

Cold areas

9 / 10

If a bank thinks lending money to a certain business is risky it will:

Charge a lower interest rate

Charge a higher interest rate

Send the business packing

Think about it

10 / 10

What is the stock market?

A type of investment

A place to buy and sell stocks

A type of loan

An insurance company

Your score is

3. Miscellaneous Taxable Income

Incomes that don’t come under other incomes are included in Miscellaneous Taxable Income. Some examples are life insurance, death benefit, and cancelled debts. Some other incomes in this category are alimony, income earned from hobbies, and barter trading.

Computation of Taxable Income

Tax season means everyone must now calculate how much they have to pay by determining their total income for the period. Some people do this task to accountants, and some calculate their tax amount.

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Chara Yadav

Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.