To explain the difference between income and taxable income, let's break down both terms:
- Income: This is the total amount of money earned by a person before any deductions. It's the gross earnings from salary, wages, or other sources.
- Taxable Income: This is the portion of the income that is subject to tax after subtracting allowable deductions. Deductions can include expenses such as mortgage interest, charitable donations, work-related expenses, and other qualifying items.
Given the provided chart:
- Income: \[tex]$50,000
- Deductions: \(-\$[/tex]8,950\)
- Taxable Income: \[tex]$41,050 (which is calculated as \$[/tex]50,000 - \$8,950)
From our definitions, we see that taxable income is the income after taking into account various deductions. The true distinction here is that taxable income is what remains after subtracting deductions from the total earnings (income).
Hence, the correct explanation for the difference between income and taxable income is:
- Income is what a person earns, while taxable income reflects deductions subtracted for relevant expenses.
This explanation aligns with the first option provided. So, the correct answer is:
Income is what a person earns, while taxable income reflects deductions subtracted for relevant expenses.
