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Glossary of Human Resources Management and Employee Benefit Terms
The consequences of not declaring your taxable income are:
Taxable income refers to the portion of an individual or entity's income that is subject to taxation by the government. It is calculated by subtracting allowable deductions and exemptions from the total income earned during a specific tax period.
Taxable income is important for several reasons:
The consequences of not declaring your taxable income are:
Here are some professionals you can consider consulting:
Here's a step-by-step guide to help you calculate taxable income:
Start by calculating your gross income, which includes all sources of income earned or received during the tax year. This may include wages, salaries, tips, interest, dividends, rental income, business income, capital gains, and any other taxable income. Add up all sources of income to arrive at your total gross income.
Next, subtract any above-the-line deductions from your total gross income. These deductions are also known as adjustments to income and include expenses such as contributions to retirement accounts (e.g., IRA, 401(k)), health savings accounts (HSA), self-employment taxes, alimony payments, student loan interest, and certain educational expenses. The resulting amount is your adjusted gross income (AGI).
Determine whether you will claim the standard deduction or itemize deductions. The standard deduction is a fixed amount that varies depending on your filing status. Alternatively, you can choose to itemize deductions, which involves listing specific deductible expenses such as mortgage interest, property taxes, charitable contributions, and medical expenses. Subtract either the standard deduction or total itemized deductions from your AGI to arrive at your taxable income.
If you qualify for personal exemptions, subtract them from your taxable income. Personal exemptions reduce your taxable income for yourself, your spouse (if filing jointly), and any dependents you claim.
After subtracting all deductions and exemptions, you will arrive at your taxable income. This is the amount of income that is subject to taxation at the applicable tax rates for your filing status and income level.
Use the taxable income amount to calculate your federal income tax liability using the tax brackets and rates provided by the IRS for the tax year. Tax brackets specify the income ranges at which different tax rates apply.
Finally, reduce your tax liability by any tax credits for which you qualify. Tax credits directly reduce the amount of tax you owe. Common tax credits include the Earned Income Tax Credit (EITC), Child Tax Credit, education credits, and energy-efficient home improvement credits.
Compare your total tax liability after credits to any tax payments already made through withholding or estimated tax payments. If your tax payments exceed your tax liability, you are entitled to a refund. If your tax liability exceeds your tax payments, you will owe the difference to the IRS.
The ways you can reduce your taxable income are:
Contributions to tax-advantaged retirement accounts such as 401(k)s, traditional IRAs, and Roth IRAs can reduce taxable income. Contributions to these accounts are often tax-deductible, meaning they are subtracted from gross income before taxes are calculated.
Contributions to HSAs and FSAs can be made on a pre-tax basis, reducing taxable income. HSAs are available to individuals with high-deductible health plans and can be used to pay for qualified medical expenses tax-free. FSAs are offered through employers and can be used for medical expenses and dependent care.
If your itemized deductions exceed the standard deduction amount, you may be able to lower your taxable income by itemizing deductions. Common deductible expenses include mortgage interest, property taxes, state and local income taxes, charitable contributions, and certain medical expenses.
Certain deductions, known as above-the-line deductions or adjustments to income, can be taken regardless of whether you itemize deductions or claim the standard deduction. Examples include contributions to retirement accounts, student loan interest, educator expenses, and self-employment taxes.
Tax credits directly reduce your tax liability, making them particularly valuable. Take advantage of credits such as the Earned Income Tax Credit (EITC), Child Tax Credit, education credits, and energy-efficient home improvement credits to lower your tax bill.
Take advantage of employer-sponsored benefits such as health insurance, retirement plans, commuter benefits, and dependent care assistance programs to reduce taxable income.
These are short surveys that can be sent frequently to check what your employees think about an issue quickly. The survey comprises fewer questions (not more than 10) to get the information quickly. These can be administered at regular intervals (monthly/weekly/quarterly).
Having periodic, hour-long meetings for an informal chat with every team member is an excellent way to get a true sense of what’s happening with them. Since it is a safe and private conversation, it helps you get better details about an issue.
eNPS (employee Net Promoter score) is one of the simplest yet effective ways to assess your employee's opinion of your company. It includes one intriguing question that gauges loyalty. An example of eNPS questions include: How likely are you to recommend our company to others? Employees respond to the eNPS survey on a scale of 1-10, where 10 denotes they are ‘highly likely’ to recommend the company and 1 signifies they are ‘highly unlikely’ to recommend it.
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