What's the Difference Between Taxable Income and Gross Income?

Gross income and taxable income are both measures of your income for tax purposes, but taxable income is the smaller number that your actual tax is calculated on. Gross income is your total income from all sources before any adjustments — wages, self-employment income, investment income, rental income, and more. From gross income, you subtract above-the-line deductions (like IRA contributions and student loan interest) to get your adjusted gross income. From your AGI, you subtract either the standard deduction or your itemized deductions, plus any qualified business income deduction, to arrive at your taxable income. Your actual federal income tax is calculated based on taxable income, so the lower your taxable income, the less you owe.