Truth 5. Determining what’s taxable
Sometimes it feels like the Internal Revenue Service taxes every single cent you make. The truth, however, is that our tax system is designed to provide you with ways to reduce the amount of money that Uncle Sam can touch.
Yes, the IRS does tax our income. But it also categorizes income in ways that allow us to lower our eventual tax bills. For tax purposes, your income is not just one amount. During the filing process, it is considered as three distinct types:
1. Total, or gross, income
2. Adjusted gross income, usually referred to as AGI
3. Taxable income
When you file, each income category is considered sequentially, and portions of your earnings are filtered out along the way. By the time ...
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