Taxable profit is the profit (or loss) upon which income taxes are payable. The composition of taxable profit varies by taxation authority, so it will vary depending upon the rules of the taxation authorities within which an entity is located or does business. For instance, a government may declare that certain qualifying organizations have nonprofit status, so that any of their qualifying earnings are not subject to income tax.
Taxable profit is primarily based on operating earnings, but other types of taxable earnings can come from:
- Dividend income
- Interest income
- Capital gains on the sale of long-term assets
Different tax rates may apply to the various types of taxable earnings. There may also be graduated tax rates that apply to different amounts of taxable profit.