What is Taxable Income?

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.