How are realized income, gross income, and taxable income similar, and how are they different? Why?

ANSWER

Realized income, Gross income, and Taxable income

The tax laws are based on the concept of income earned from all the sources. Hence for the purpose of income tax, the income can be categorized as;

Gross income

Realized income

Taxable income

Similarity: The similarity among these types of income is that gross income is inclusive of realized and taxable income.

Difference: Gross income is not taxed in its entirety. Only part of realized income can be termed as taxable income. Some revenues are exempted and some are deferred to the future years, from the gross income of the current year. An unrealized income, an exempted income, and a deferred income cannot form part of the taxable income. Hence the realized income may differ from the taxable income.