What is the formula for calculating taxable income?

The formula for calculating taxable income involves taking the total income and subtracting both tax deductions and exemptions to arrive at the amount that is subject to taxation. This concept aligns with standard accounting and tax principles, where deductions reduce the amount of income that is taxable, and exemptions further decrease that taxable income.

When looking at the crafted formula, it accurately represents the necessary components: you begin with total income, then deduct eligible tax deductions, which could include business expenses, contributions, and other allowable deductions, and then subtract total exemptions, which are specific amounts that reduce taxable income based on personal circumstance or status.

Using this understanding, the selected option reflects the accurate approach to deriving taxable income by ensuring that both deductions and exemptions are subtracted from total income, leading to the correct calculation for tax liability.