Business Glossary

Individual: adjusted gross income (AGI) less itemized deductions and personal exemption . After taxable income is derived, the tax to be paid can be determined by looking at the tax rate schedules.Corporation:gross income less allowable business deductions.

amount of income (after all allowable deductions and adjustments to income) subject to tax. On an individual's federal income tax return, taxable income is Adjusted Gross Income (AGI) (the sum of wages, salaries, dividends, interest, capital gains, business income, etc., less allowable adjustments that, in part, include Individual Retirement Account contributions, alimony payments, nreimbursed business expenses and capital losses up to $3,000) less itemized or standard deductions and the total of personal exemptions. Once taxable income is known, the individual taxpayer finds the total income tax obligation for his or her tax bracket by checking the Internal Revenue Service tax tables or by calculating the tax according to a rate schedule. tax credits reduce the tax liability dollar-for-dollar.

net income of a self-employed person (self-proprietorship) and distributions to members of a partnership are included in adjusted gross income, and hence taxable income, on an individual tax return.

Taxable income of an incorporated business, also called net income before taxes, consists of total revenues less cost of goods sold, selling and administrative expenses, interest, and extraordinary items.

earned and unearned income on which current taxes must be paid. Tax avoidance is one of the goals of investment, and various tax-free or tax-deferred investments have been devised for this purpose. In the past, real estate and oil and gas limited partnerships have been a method of avoiding tax on current income, but changing tax legislation frequently alters the nature of taxable income and the taxes that must be paid on it. For example, the tax reform act of 1986 eliminated contributions to Individual Retirement Accounts as a deduction for many taxpayers.

Insurance products have long enjoyed special tax benefits because of the belief in the importance of protecting one's family. For example, the interest buildup in annuities is allowed to accumulate, tax deferred. Taxes are paid on the earnings only when the money is withdrawn. Because the 1986 federal tax law eliminated so many other forms of tax shelters, insurance products became even more attractive for these properties.

1. Individuals: gross income reduced by deductions allowable in obtaining Adjusted Gross Income and further reduced by the standard deduction or itemized deductions and allowed personal exemptions .
2. Corporations: total income reduced by total deductions, Net Operating Loss deduction, and special dividend deductions.
3. Trusts and estates: total income reduced by allowable expenses, income distribution deduction, and specific exemption.
4. Other: any amount of income subject to income tax, such as excess net passive income and build-in gains for an S Corporation , and undistributed personal holding company income for a Personal Holding Company .