what is income 
there are different terms for income depending on the quantity being measured gross income is the total value of your salary or payments without accounting for any cash outflows net income refers to the income left over after subtracting taxes or fees 1you discretionary income is the amount you have available after paying for necessary expenses or money available to budget discretionary income may also be calculated for student financial aid using your income and a poverty guideline 2for taxation purposes income refers to the types of revenues that are eligible for income tax these definitions may vary by jurisdiction salaries and sales are typically considered taxable income but inheritances and gifts usually are not although tax and accounting rules have similarities each system has special rules reflecting its distinctive context and purposes generally taxation and financial accounting measure income over a 12 month period while financial accounting income is comprehensive taxable income is calculated with special statutory exclusions exemptions and allowances that vary by tax status income source and individual and business decisions if you live and work outside the united states you are still required to file income taxes but you do not have to pay taxes on all of it for the 2023 tax year the foreign earned income exclusion covers the first 120 000 of your foreign earned income taxable incomefor income tax purposes the tax code attempts to define income to reflect taxpayers actual economic position the general tax framework applies to taxpayers personal revenue other than tax exempt income from all sources and offsets such revenue with deductions for expenses and losses to determine taxable income in addition public policies may offer favorable taxation for people at certain income levels or for favored economic activities such policies include tax exemptions for government bonds tax favored treatment for retirement savings tax credits for people below a certain income level and promoting energy efficiency through special tax credits 345types of incomethree main categories of income that are part of taxation are ordinary income capital gain and tax exempt income in the united states the tax law distinguishes ordinary income from capital investments ordinary income encompasses earnings interest regular dividends rental income distributions from pensions or retirement accounts and social security benefits ordinary income is taxed at rates ranging from 10 to 37 in 2023 6taxpayers whose net investment income exceeds specified thresholds pay an additional 3 8 net investment income tax 7capital gains are the gains from selling assets that have appreciated in value in the united states the capital gains tax rates on assets held for more than one year are 0 15 and 20 capital assets include personal residences and investments such as real estate stock bonds and other financial instruments 8qualified dividends that is dividends distributed with respect to the u s and certain foreign corporate stock holdings that meet statutory holding period requirements also are taxed at capital gains rates to qualify for the capital gains tax rate which is usually no higher than 15 you must hold an asset for longer than one year before selling it otherwise the gains on that asset will be taxed at the same rate as your ordinary income which is usually higher 9interest paid on certain bonds issued by governmental entities is treated as tax exempt income interest paid on federal bonds and treasury securities is exempt from state and local taxation 10interest on bonds issued by state and local governments generally is not subject to federal taxation municipal private activity bonds are not subject to the regular federal income tax but they are subject to the federal alternative minimum tax some states and local governments also exempt interest on state and local bonds from taxation 11