How is corporate taxable income calculated?

Corporate taxable income is calculated by taking gross income and subtracting allowable deductions. Gross income includes all income earned by the corporation, such as revenues from operations and any other income sources. Once gross income is determined, the next step involves subtracting allowable deductions. These deductions can include operating expenses, salaries, depreciation, and other expenses that the corporation can deduct under tax law.

This method accurately reflects the corporation's profit that is subject to taxation. By deducting permissible expenses from gross income, the calculation provides a clearer picture of the entity's actual taxable capacity, leading to the determination of its tax liability.

The rationale behind this process is to ensure that corporations are taxed based on their economic performance rather than just their revenue, considering legitimate costs incurred to generate that revenue. This approach aligns with the principles of income taxation, emphasizing fairness and the reality of operational expenses.