What Can I File on My Taxes? A Breakdown of Key Inclusions

Filing taxes can be a challenging task, particularly when it comes to understanding what needs to be included. With the tax code constantly evolving, staying informed about key elements is crucial for compliance and for maximizing refunds or minimizing liabilities. Accurate reporting of income sources, deductions, and credits is essential to achieving optimal financial outcomes.

Basic Income Sources

When preparing your tax return, it’s crucial to report all income sources as required by the Internal Revenue Service (IRS). The most common form is wages or salaries, reported on Form W-2. Employers withhold taxes, and the form summarizes total income earned and taxes paid. Ensuring the accuracy of W-2 information is vital to avoid discrepancies.

Other income sources, such as interest and dividends, must also be reported. Interest income, typically from savings accounts or bonds, is documented on Form 1099-INT. Dividends from stock investments are reported on Form 1099-DIV. While both are taxable, qualified dividends may benefit from lower tax rates based on your income bracket, which can significantly affect your tax liability.

Rental income from property investments is another reportable source. This income is documented on Schedule E, where you can also deduct related expenses like mortgage interest, property taxes, and maintenance. Accurate record-keeping of all transactions is essential to substantiate these deductions if audited.

Self-Employment Declarations

For self-employed individuals, understanding tax obligations is critical. Unlike traditional employees, self-employed taxpayers must independently report income and remit self-employment taxes. Income or loss from a business is reported on Schedule C (Form 1040), which accounts for gross income and allowable deductions that influence net taxable income.

Self-employment tax, covering Social Security and Medicare contributions, is 15.3% as of 2024, with the Social Security portion capped at the annual wage base limit. The employer-equivalent portion of this tax is deductible when calculating adjusted gross income.

Maintaining accurate records of income and expenses is essential for self-employed taxpayers. Deductible expenses, such as home office costs, travel, and business-related meals, must meet IRS criteria. For example, the home office deduction requires the space to be used exclusively and regularly for business purposes.

Tax Deductions

Tax deductions reduce taxable income, lowering the overall tax burden. The standard deduction for 2024 is $13,850 for single filers and $27,700 for married couples filing jointly. While the standard deduction simplifies filing, itemizing deductions can be more advantageous if eligible expenses exceed these amounts.

Itemized deductions include medical expenses exceeding 7.5% of adjusted gross income (AGI), state and local taxes (SALT) capped at $10,000, and mortgage interest on loans up to $750,000 for mortgages taken after December 15, 2017. Charitable contributions are also deductible, with limits based on adjusted gross income and the type of donation. Proper documentation, such as receipts and acknowledgment letters, is required to support these claims.

Available Tax Credits

Tax credits directly reduce taxes owed, making them a valuable tool for taxpayers. The Earned Income Tax Credit (EITC), for example, benefits low-to-moderate-income individuals and families. The credit amount depends on income, filing status, and the number of qualifying children, with a maximum credit of $7,430 for families with three or more children in 2024.

Education credits, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC), offer relief for tuition and related expenses. The AOTC provides up to $2,500 per student for the first four years of higher education, with up to $1,000 refundable. The LLC covers up to $2,000 per tax return for postsecondary education without the four-year limit, offering flexibility for nontraditional students.

Including Investment Activities

Investment activities often generate income or losses that must be reported. These include dividends, interest, capital gains, and other earnings. Proper reporting is essential, as tax treatment varies based on the nature and holding period of the investment.

Capital gains are classified as short-term or long-term, with short-term gains (assets held for one year or less) taxed at ordinary income rates. Long-term gains (assets held longer than a year) benefit from lower rates of 0%, 15%, or 20%, depending on taxable income. Investment losses can offset gains, and up to $3,000 of excess losses can be deducted against other income annually, with any remaining losses carried forward.

Mutual fund and ETF distributions, often reported on Form 1099-DIV, are taxable even if reinvested. When selling shares, calculating cost basis is necessary to determine gains or losses. Using methods like specific identification or average cost basis can help minimize taxable gains.

Reporting Cryptocurrency Transactions

Cryptocurrency transactions are subject to tax rules, as the IRS classifies digital assets as property. Every sale, trade, or exchange of cryptocurrency is a taxable event, including exchanges between cryptocurrencies.

To calculate gains or losses, determine the cost basis of the cryptocurrency sold or exchanged. For instance, if Bitcoin purchased for $10,000 is sold for $15,000, the $5,000 gain is taxable. Gains are categorized as short-term or long-term based on the holding period, with long-term gains taxed at lower rates. Cryptocurrency received as payment for goods or services must also be reported as income at its fair market value on the date received.

Cryptocurrency transactions are reported on Form 8949 and Schedule D, with each transaction detailed. Failure to report can result in significant penalties, as the IRS has increased enforcement in this area. Taxpayers should maintain detailed records of all transactions, including purchase prices, sale proceeds, and dates.

Foreign Account Disclosures

Taxpayers with financial interests in foreign accounts must comply with disclosure requirements. The Foreign Account Tax Compliance Act (FATCA) and the Bank Secrecy Act require reporting to prevent tax evasion. Foreign accounts exceeding $10,000 at any point during the year must be reported on FinCEN Form 114 (FBAR).

FATCA also mandates reporting specified foreign financial assets exceeding $50,000 for single filers ($100,000 for joint filers) on Form 8938. This includes bank accounts, investment accounts, and certain foreign-held securities. Non-compliance carries severe penalties, with FBAR fines reaching up to $10,000 for non-willful violations and higher for willful violations. FATCA penalties start at $10,000 per failure, with additional fines for continued non-compliance.

To ensure compliance, taxpayers should obtain accurate account statements and consult tax professionals familiar with international reporting rules. For example, foreign mutual funds may be classified as Passive Foreign Investment Companies (PFICs), subjecting them to complex tax rules. Understanding these requirements is essential to avoid penalties and ensure accurate reporting.