Differences Between Accounting and Taxable Income FAQs What is the difference between taxable income and accounting income? Taxable income is the amount of money that an individual or entity must pay taxes on while accounting income is the net operating profit after all expenses, including taxes, have been accounted for. What are some common deductions from taxable income? Common deductions from taxable income include charitable donations, mortgage interest, state and local taxes, health insurance premiums, alimony payments and certain business expenses. How does depreciation affect accounting and taxable income? Depreciation affects accounting and taxable incomes differently; it reduces a company's tax liability by allowing them to deduct depreciation costs from their taxable income but does not reduce their accounting income. What are some differences between taxable income and net income? Taxable income includes all sources of revenue whereas net income only includes primary sources of revenue, such as wages or interest earned on investments. Additionally, deductions that can be made from taxable income do not necessarily apply to net income. Are itemized deductions relevant to both accounting and taxable incomes? Itemized deductions may be used for either accounting or taxable incomes, depending on the type of deduction it is and how the organization treats it for tax purposes. Generally, most expenses listed in an organization's books will qualify for a deduction but may not be applicable to the taxable income figure if they are not listed separately on the tax return. About the Author True Tamplin, BSc, CEPF® Facebook Linkedin Instagram Twitter Youtube True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists. True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics. To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.