This row explains the example calculation from Question 5: taxable income = gross income − standard deduction. With the provided fictional numbers ($48,000 gross and $12,000 standard deduction), the taxable income computes to $36,000. That subtraction is the essential first step in many tax calculations: taxable income is the base on which tax rates or tables are applied. Understanding this is important because changes to gross income (a raise, extra freelance earnings) or changes in deductions (itemizing vs. standard deduction) directly change taxable income and therefore tax owed. In practice, taxpayers should treat taxable income as the “effective income” that matters for determining tax brackets, credits phase-outs, and eligibility for certain benefits. When you’re budgeting for taxes, compute taxable income from likely gross income scenarios to get a realistic picture of expected tax liability.

Once you know taxable income, the next steps typically are to apply the applicable tax rates or table to compute tentative tax, subtract nonrefundable credits, determine final tax liability, and compare that to withholding and estimated payments to see if you owe or will receive a refund. Even when your actual tax system uses progressive brackets rather than a single rate, the taxable-income figure remains the starting point. For planning, if you expect adjustments to income (a moving expense, retirement plan contributions for certain systems, or educator expenses), include those early so your taxable income estimate is accurate. Also remember that some credits or deductions are subject to limits or phase-outs based on adjusted gross income (AGI) or taxable income; so while the subtraction to get taxable income is mechanically simple, its downstream effects can affect credits and phase-outs, making careful early estimation worthwhile.