We are continuing our discussion on taxes this week!
In order to determine how much we should pay in taxes, we need starting point. Our starting is taxable income!
Taxable income is included, but not limited to salary, wages, bonuses, and investment income. The IRS uses your taxable income as a baseline to determine how much you should pay in taxes, and ultimately if you receive a refund or owe money when it’s time to file your taxes.
On the other hand, a tax deduction is used to REDUCE our taxable income. Reducing our taxable income helps to reduce our tax liability, or how much we owe in taxes.