The Internal Revenue Service (IRS) defines taxable income as any income received by an individual, business, or organization that is subject to taxation by the federal government. This includes wages, salaries, tips, investment income, rental income, and self-employment income.
There are exceptions to this rule, such as nontaxable income like gifts, inheritance, or life insurance death benefits. Also, certain deductions can be taken from taxable income, such as expenses related to running a business, medical expenses, mortgage interest, and charitable donations.
When preparing taxes, it is important to accurately report all taxable income and applicable deductions. Failure to do so can result in penalties, interest payments, or even legal action from the IRS. It is recommended that individuals seek the advice of a licensed tax professional to ensure full compliance with tax laws and to maximize potential deductions.
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