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Dependency, Filing Status, and Income Documents
Lesson 4 of 7
Reporting Income and Key Concepts
- Income that the taxpayer receives during the year will be reported on Form 1040, lines 1-9, and on the Schedule 1 lines 1-9
- On line 9 of Form 1040, all sources of income reported on these line numbers will be added up to provide the taxpayers “Total Income.”
- •Note how certain income line numbers have a “line a,” and “line b”
- Line a represents the total amount of income the taxpayer received from a particular source
- Line b represents the taxable income the taxpayer received from a source
- One key exception to this format is line 3, which denotes a distinction between qualified dividends for ordinary dividends. Qualified dividends are simply ordinary dividends that qualify to be taxed at a lower rate.
Taxable vs Un-Taxable Income
- Not all income that the taxpayer receives during the year is taxable.
- Some sources of income may be partially taxable, or only taxable in certain situations.
- The Pub 4012, page D-1 has the most comprehensive list for reference.
- You can also use the list on Part III of the Intake and Interview Form for reference
Common Types of Un-Taxable Income
- Supplemental Security Income (SSI)
- Child Support received
- Federal income tax refunds
- Insurance Proceeds
- Veterans Benefits
Earned vs. Unearned Income
- Earned Income is income that you work for:
- Income from wages, salaries, or tips
- Long-term disability received prior to minimum retirement age
- Net earnings from self-employment
- Unearned Income is income that works for you
- Interest and Dividends
- Social Security Benefits
- Retirement income
- There are certain situations in which a taxpayer’s retirement will be considered earned income. For example, if the taxpayers is injured and unable to work due and is below the retirement age for their job, they may take money out of their work retirement account to help pay for expenses. This is considered “earned income,” as the taxpayer would be earning income if they were not injured.