Taxable income is your total assessable income minus all allowable deductions. It is the amount on which your income tax is calculated.
Taxable income is not the same as your accounting profit. It starts with your assessable income (all income that is subject to tax) and subtracts all allowable deductions to arrive at the amount on which tax is calculated. The difference between accounting profit and taxable income arises from timing differences (items treated differently for accounting and tax purposes, like depreciation methods) and permanent differences (items that are accounting expenses but not tax-deductible, or tax-free income that is not accounting revenue). Common adjustments from accounting profit to taxable income include: adding back entertainment expenses that are not deductible, adjusting for different depreciation methods between accounting and tax, removing tax-exempt income and adding back provisions that are not yet deductible. Understanding the difference between accounting profit and taxable income helps with tax planning and cash flow management - you need to know your likely tax bill before it arrives. SortBooks helps by accurately tracking both accounting and tax treatments of transactions in Xero.
SortBooks automates the bookkeeping processes related to taxable income by connecting to your Xero account and using AI to categorise transactions, reconcile bank feeds and generate accurate reports. Instead of manually managing taxable income, SortBooks handles it automatically with 97%+ accuracy - saving you hours every week and ensuring your books are always up to date and compliant.
A tax deduction is an expense that reduces your taxable income, therefore reducing the amount of tax you owe. It must be incurred in earning your assessable income.
Assessable income is the total income on which you are required to pay tax. It includes all ordinary income plus any statutory income items specified by tax law.
A tax return is the formal document lodged with your tax authority reporting your income, deductions and tax payable for a specific period, usually annually.
Tax compliance means meeting all your obligations to file tax returns, make payments and maintain records as required by your country's tax laws and tax authority.
SortBooks handles all the complexity automatically. Just connect Xero and let AI manage your books.