What is the definition of taxable income?

Taxable income is defined as gross income minus allowable deductions and exemptions. This definition captures the essence of taxable income because it accounts for the total earnings (gross income) while simultaneously allowing for adjustments through various deductions and exemptions that individuals and businesses are entitled to claim according to tax law.

These deductions can include items such as standard deductions, itemized deductions, business expenses, and contributions to retirement accounts, among others. By subtracting these from the total gross income, one arrives at the amount that is subject to income tax.

In contrast, other options such as income earned from investments only, income before deductions, or net income after all expenses are deducted do not accurately reflect the centralized definition of taxable income, as they either limit the scope of what is considered income or misrepresent the deductions process. Thus, the correct understanding of taxable income encompasses the interplay between gross income and allowable deductions and exemptions.