Tax time can be a confusing situation for many taxpayers in terms of knowing what exactly should go onto a 1040 tax form. There are many points of information that must be filed, but surprisingly, not absolutely everything must be included on a tax return.
Consider also: Which Form 1040 Do You Need for 2022?
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What Must be Included on a 1040?
The 1040 tax form is used to determine taxable income for individuals. It should include all taxable income received throughout the tax year. It will also include any taxes paid to the federal government. Depending on what is being filed, a taxpayer may be eligible for various deductions or credits.
Other information such as age, blindness, marital status and dependents must also be included. All of this information will be used to determine the taxable portion of income. For example, a single parent with young dependent children can file as head of household to benefit from the higher standard deduction and also the Child Tax Credit.
How Is Taxable Income Determined?
Taxable income is the amount of income that is subject to federal tax. It is gross income less above-the-line deductions (adjustments) and standard or itemized deductions. There are no longer personal exemptions available due to the Tax Cuts and Jobs Act, so they are no longer a factor in determining taxable income.
The IRS defines gross income as including wages, dividends, capital gains, business income, retirement distributions as well as other income. Adjusted gross income will never be more than the amount of gross income. Typically, adjusted gross income will usually be less than total gross income.
The amount and types of income will determine the tax rate or bracket for a taxpayer. Certain income, such as unearned income like long-term capital gains, is taxed at a different rate than earned income such as wages.
Consider also: Difference Between Assessable Income & Taxable Income
What Is Exempt or Non-Reportable Income?
Not everything needs to be reported on a 1040 tax form. Non-taxable income includes gifts, child support, most healthcare benefits and welfare payments. Life insurance distributions due to death are also not taxable. These are income types that do not need to be included on a 1040 tax form.
In 2020 and 2021, the IRS issued Economic Impact Payments to Americans that were not taxable and do not need to be included on a tax return. Social Security benefits are largely not taxable unless there is additional income above $25,000 for single filers or $32,000 for married filers. SSI is not taxable income, and neither is workers' compensation.
For the 2020 tax year, unemployment income up to $10,200 was also not taxable and could be excluded from federal taxes. Generally, scholarships and grants for school are not considered taxable income.
Interest from certain savings bonds may be exempt. Growth within an IRA is not taxable until distributions are taken. Roth IRA contributions do not have to be included on a tax return since they are not tax-deductible. However, depending on income thresholds, Roth contributions may be eligible for the Saver's Credit.
It can be confusing to know which elements of income must be included on a tax return. It is advisable to seek the assistance or guidance of a tax professional before determining whether to include or exclude income on a tax return.