What is the first step in computing taxable income?

The process of computing taxable income begins with calculating the taxpayer's total income, which includes all sources of income that are subject to taxation. This step is foundational because total income serves as the starting point for all subsequent calculations and adjustments.

After determining total income, any adjustments to income are applied to arrive at the adjusted gross income (AGI). Following this, deductions from AGI, including the standard deduction or itemized deductions, as well as any applicable exemptions, are taken into account to compute the final taxable income.

Understanding this sequential approach is vital, as skipping the calculation of total income would lead to inaccuracies in determining the taxpayer’s eventual taxable income. Thus, the first step logically should focus on establishing that total income figure before moving on to adjustments and deductions.