To address the given question, let's define the terms and walk through the explanation step-by-step:
1. Income: This is the total amount of money earned by an individual before any deductions, taxes, or credits. From the chart provided, the income is \[tex]$50,000.
2. Taxable Income: This is the portion of the income that is subject to tax after accounting for certain allowable deductions. From the chart, the taxable income is \$[/tex]41,050. This means that \[tex]$8,950 in deductions have been applied to the original income.
3. Deductions: These are specific expenses allowed by the tax code that can be subtracted from the income to arrive at the taxable income. In this case, \$[/tex]8,950 has been deducted from the \[tex]$50,000 income to arrive at the \$[/tex]41,050 taxable income.
4. Explanation of the Difference:
- The l statement: "Income is what a person earns, while taxable income reflects deductions subtracted for relevant expenses." accurately describes the difference.
- The other options:
- "Income is what a person earns, while taxable income reflects what is left after paying federal taxes." This is incorrect because taxable income is determined before taxes are calculated.
- "Income is what a person earns, while taxable income reflects what is left after paying local and state taxes." This is also incorrect because taxable income is determined before paying any taxes.
- "Income is what a person earns, while taxable income reflects what is received from the IRS in a tax refund." This is incorrect as well, because taxable income does not involve refunds.
Therefore, the correct explanation is:
Income is what a person earns, while taxable income reflects deductions subtracted for relevant expenses.
