Uncle Sam's hat fell over - guess what's inside?
Uncle Sam’s hat fell over – guess what’s inside?

Our clients, and other non-nerdy people, often talk about their “income” being taxable.  They use “income” in a general sense.  Grass-cutting money, your whopping paycheck and the credit card debt you defaulted on last month are all considered income by the IRS.  A lot of people may mistakenly think you multiply your “income” by your tax rate.

However, us nerdy CPAs speak in terms of “taxable income.”  Income is everything you got paid or constructively earned (i.e., you might not have gotten it, but its gonna’ get taxed anyway because it’s considered income by the IRS).  And from this “income,” you deduct allowable deductions (itemized or standard) and your exemptions.  THEN, you multiply your tax rate by your “taxable income” to determine what you owe Sam (that’s kinda’ how it works).
So, remember, you may be talking about “income”, but your CPA (don’t have a CPA? – I know a good one) is probably talking about “taxable income,” which is totally different.
Now, go do stuff with all of those smarts you have – you owe it to America.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.