INDIVIDUAL FEDERAL INCOME TAXES
WHAT IS INCLUDED IN GROSS INCOME
EARNED INCOME
SALARIES AND WAGES:
The key to reporting salaries and wages is Form W-2 which employers must give to all employees. This Form will include not only taxable wages but also other taxable items such as taxable fringe benefits. In addition to regular wages, Form W-2 may also include the following:
- Bonuses
- Taxable fringe benefits
- Mileage allowances that exceed the IRS rate
- Expense allowances or business expense reimbursements under a non-accountable plan
- Awards or prizes not exempt under tax law
- Cost of group-term life insurance over $50,000
The total amount reported in box 1 of Form W-2 must be reported on the tax return.
BUSINESS EARNED INCOME:
If you operate a business and have no co-owners and are not incorporated, you will report your business income and expenses on Schedule C attached to your Form 1040. If you are a single member limited liability company (LLC), you will also report your income on a Schedule C.
On Schedule C, you deduct your allowable business expenses from your business income and the net profit or loss is entered on the front of Form 1040.
This procedure allows you to deduct business expenses without the need to itemize deductions on Schedule A. You would use a Schedule A to deduct nonbusiness deductions such as medical expenses, taxes and charitable contributions.
If you are a partner in a partnership or LLC or a shareholder in an S Corporation, you will receive a Schedule K-1 from that entity. The income or loss from the Schedule K-1 will be reported on a Schedule E and attached to your Form 1040.