How to Get Taxable Income and Locate It on Tax Forms
Learn how taxable income is determined, adjusted, and reported on tax forms to better understand your tax obligations and financial planning.
Understanding taxable income is essential for filing taxes correctly and avoiding mistakes. It determines how much tax you owe and affects eligibility for credits and deductions. Many taxpayers struggle to pinpoint their taxable income, especially with various adjustments and deductions that impact the final number.
To make sense of this, it’s important to break down different sources of income, adjustments, and deductions before arriving at the taxable income figure. Once calculated, knowing where to find it on tax forms ensures accuracy when filing.
Income Sources
Taxable income starts with earnings, but not all income is treated the same under tax law. The most common source is wages, salaries, and tips, reported on Form W-2. Employers withhold federal income tax, Social Security, and Medicare taxes from these earnings. Self-employed individuals report their income on Schedule C and pay self-employment tax, which covers both the employer and employee portions of Social Security and Medicare.
Investment income also contributes to taxable income. Interest from savings accounts, bonds, and certificates of deposit is reported on Form 1099-INT. Dividends from stocks appear on Form 1099-DIV, with qualified dividends taxed at lower rates (0% to 20%) and ordinary dividends taxed at regular income tax rates. Capital gains from selling investments are another factor, with short-term gains taxed as ordinary income and long-term gains benefiting from lower rates.
Retirement income plays a role as well. Distributions from traditional IRAs and 401(k) plans are taxable, while Roth IRA withdrawals are tax-free if certain conditions are met. Social Security benefits may also be taxable depending on total income. If combined income—adjusted gross income plus nontaxable interest and half of Social Security benefits—exceeds $25,000 for single filers or $32,000 for joint filers, a portion of benefits becomes taxable.
Adjustments
Before arriving at taxable income, certain adjustments reduce total earnings. These “above-the-line deductions” modify adjusted gross income (AGI) and can be claimed regardless of whether the taxpayer itemizes deductions.
One key adjustment is student loan interest. Taxpayers who paid interest on qualified student loans may deduct up to $2,500 annually, provided their modified adjusted gross income (MAGI) falls below the phase-out threshold—$75,000 for single filers and $155,000 for married couples filing jointly in 2024.
Contributions to retirement accounts also serve as adjustments. Traditional IRA contributions, up to $7,000 in 2024 ($8,000 for those 50 and older), may be deductible depending on income and workplace retirement plan coverage. Self-employed individuals can deduct contributions to SEP IRAs or SIMPLE IRAs, with limits of up to 25% of net earnings or $69,000, whichever is lower.
Health Savings Accounts (HSAs) offer another tax advantage. Individuals with high-deductible health plans can contribute up to $4,150 in 2024 ($8,300 for families), with an additional $1,000 catch-up contribution for those 55 and older. These contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses.
Self-employed taxpayers can deduct health insurance premiums for themselves, spouses, and dependents, provided they are not eligible for an employer-sponsored plan. Additionally, they may deduct half of their self-employment tax, which accounts for Social Security and Medicare contributions.
Deductions
Once adjustments have been applied, deductions further reduce taxable income. The choice between taking the standard deduction or itemizing depends on which option provides the greatest benefit. For 2024, the standard deduction is $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of household.
For those whose deductible expenses exceed the standard deduction, itemizing can be more advantageous. Mortgage interest is one of the most significant itemized deductions, particularly for homeowners with substantial loan balances. Interest paid on up to $750,000 of mortgage debt is deductible for loans taken after December 15, 2017, while older loans may qualify for the previous $1 million limit. Property taxes also contribute to deductions, though the total deduction for state and local taxes (SALT), including income or sales taxes, is capped at $10,000.
Medical expenses are another category that can be itemized, though only the portion exceeding 7.5% of adjusted gross income is deductible. This includes costs such as doctor visits, prescription medications, and certain long-term care expenses. Charitable contributions also qualify, with cash donations to qualified charities deductible up to 60% of AGI. Non-cash donations, such as clothing or household items, must be valued appropriately, and donations exceeding $500 require additional documentation.
Calculating Taxable Income
Determining taxable income starts with gross income, which includes all taxable earnings such as wages, investment income, rental income, and certain business profits. Some forms of income, such as life insurance proceeds received due to the death of the insured or municipal bond interest, remain tax-exempt.
After identifying gross income, specific business and investment-related deductions come into play, particularly for those with rental properties or pass-through business income. Depreciation deductions under the Modified Accelerated Cost Recovery System (MACRS) allow property owners to recover costs over time, while Section 179 permits immediate expensing of eligible assets up to $1.22 million in 2024. Qualified Business Income (QBI) deductions provide further reductions for owners of sole proprietorships, partnerships, and S corporations, allowing a deduction of up to 20% of qualified income, subject to phase-outs based on taxable income levels.
Locating the Figure on Tax Forms
After calculating taxable income, the next step is identifying where it appears on tax documents. For those filing Form 1040, taxable income is found on line 15 for the 2023 tax year. This number is derived from adjusted gross income (line 11) after subtracting either the standard deduction or itemized deductions (line 12) and any qualified business income deduction (line 13).
Self-employed individuals using Schedule C must first determine net profit or loss, which is reported on line 31 of that form. This amount then flows to Schedule 1 and ultimately affects adjusted gross income on Form 1040. Those with pass-through income from partnerships or S corporations will see taxable income reflected on Schedule E, with figures transferring to the main tax form. Ensuring these amounts align with supporting documentation, such as K-1 forms or 1099s, helps prevent discrepancies that could trigger IRS scrutiny.