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Taxable income equals gross income minus allowed adjustments and deductions — that’s the foundation for computing tax. Gross income is the broad measure of what you earned (wages, interest, dividends, business receipts); adjustments (often called above-the-line deductions) come next to compute adjusted gross income (AGI), and then you subtract the standard or itemized deductions to reach taxable income. This distinction is important because many credit phase-outs and deduction limits reference AGI or taxable income; a small change early in the chain can ripple into larger effects on eligibility and final tax. Tracking gross income and foreseeable adjustments (retirement contributions, certain educator or student loan deductions where applicable) improves the accuracy of your taxable-income estimate.

For planning, keep a simple flow worksheet: gross income → adjustments → AGI → deductions → taxable income. Note that some income receives special treatment (qualified dividends, long-term capital gains) and tax rates may differ. Also be mindful of state tax systems, which can use different definitions and have distinct rules. Good bookkeeping and early estimations of AGI and taxable income help you identify whether you’ll face phase-outs or eligibility limits and let you time actions (like retirement contributions or charitable giving) to maximize tax efficiency.

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