what is ordinary income 
ordinary income is any income earned by an organization or an individual taxable at marginal tax rates it can include wages salaries tips bonuses commissions rents royalties short term capital gains unqualified dividends and interest income 1individual income vs business incomeordinary income comes in two forms personal income and business income personal ordinary income can be defined as cash inflow subject to the standard marginal income tax rates and defined by the internal revenue service irs for businesses ordinary income is generated from regular day to day business operations excluding any income earned from the sale of long term capital assets such as land or equipment long term capital gains and qualified dividends are taxed differently and not considered to be ordinary income 23marginal tax ratesmarginal rates for tax years 2023 and 2024 that are applied to ordinary income for individuals and married couples are 45examplesordinary income for individuals typically consists of the salaries and wages earned from their employers before taxes a person who holds a customer service job at target and earns 3 000 per month will have a calculated annual ordinary income of 36 000 or 3000 x 12 months this 36 000 is taxed on their year end tax return as gross income if the individual also owned rental property and earned 1 000 a month in rent ordinary income would increase to 48 000 per year 36 000 plus 12 000 deductions can reduce the amount of ordinary income subject to tax 6a company s ordinary income is the pretax profit from selling its products or services retailer target made 109 1 billion in total revenue in its fiscal year fy ending jan 28 2023 7 however those sales cost money to generate the company claimed costs attributable to the production of goods sold cogs were 82 2 billion target also spent 20 6 billion on selling general and administrative expenses sg as factor in depreciation and amortization and ordinary income or operating income totals 3 9 billion the amount of income subject to taxation 8dividends and taxesmost stock dividends on long term investments are subject to a lower rate than ordinary income 2the jobs and growth tax relief reconciliation act of 2003 jgtrra reduced the tax on most dividend income and some capital gains to 15 this change prompted companies to increase or pay dividends instead of holding onto their cash 9in 2017 president donald trump signed the tax cuts and jobs act tcja into law which changed the tax rate on qualified dividends to 0 15 or 20 based on an individual s taxable income and filing status 10 unqualified dividends include those paid out by real estate investment trusts reits income paid on employee stock options esos and dividends paid by tax exempt companies and on savings accounts or money market accounts regular dividends paid out to shareholders of for profit companies usually qualify for taxation at the reduced capital gains rate but investors must adhere to minimum holding periods for common stock a share must be held for more than 60 days during the 121 day holding period that begins 60 days before the ex dividend date for preferred stock the holding period is longer beginning 90 days before the company s ex dividend date 2