Where to Find Line 31 on Form 1040 and Why It Matters

Tax forms can be confusing, especially when trying to pinpoint specific lines that impact overall tax liability. Line 31 on Form 1040 is one such line, and understanding how it is calculated can help avoid errors and ensure accuracy.

Why This Line Matters

Line 31 directly affects adjusted gross income (AGI), which serves as the foundation for many tax calculations. AGI determines eligibility for deductions, credits, and tax brackets. A higher AGI can reduce benefits like the Child Tax Credit or education-related deductions, while a lower AGI may increase eligibility for income-based tax advantages.

AGI also impacts the taxability of Social Security benefits and phaseouts for itemized deductions. For example, single filers with an AGI above $200,000 ($250,000 for married couples filing jointly) may owe the 3.8% Net Investment Income Tax (NIIT) on certain investment earnings. Medical expense deductions only apply to costs exceeding 7.5% of AGI, meaning a higher AGI reduces the portion of medical expenses that can be deducted.

Many states use federal AGI as the starting point for calculating state taxable income, meaning changes to this line can affect state tax liability. AGI is also used to determine eligibility for financial aid, healthcare subsidies, and other income-based programs, making accuracy on this line important beyond tax filing.

Locating It on Your Return

Line 31 appears in the section of Form 1040 that deals with adjustments to income. It reflects deductions subtracted from total income before arriving at AGI. This line is not filled out directly; instead, it pulls figures from other parts of the return, often referencing additional schedules or worksheets.

If you have self-employment income, retirement contributions, or educator expenses, these amounts may flow into this line. Tax software and professional preparers typically calculate it automatically, but reviewing the numbers yourself can help catch errors. If the amount seems incorrect, checking the supporting schedules or worksheets can clarify where the number comes from.

Schedules That May Impact the Amount

Line 31 is influenced by additional schedules that detail specific types of income and deductions. These schedules provide a breakdown of earnings from self-employment, capital gains, rental properties, and other sources that require adjustments before arriving at AGI.

Schedule C

Schedule C, Profit or Loss from Business, is used by sole proprietors and single-member LLCs to report business income and expenses. The net profit or loss from this schedule flows into Line 31 through self-employment tax adjustments and deductible business expenses.

One key factor affecting this line is the deduction for one-half of self-employment tax. Self-employed individuals must pay both the employer and employee portions of Social Security and Medicare taxes, totaling 15.3%. However, the IRS allows a deduction for 50% of this tax as an adjustment to income. For example, if a taxpayer has $50,000 in net self-employment income, the self-employment tax would be approximately $7,650, and half of that—$3,825—would be deducted on Line 31.

Contributions to a self-employed retirement plan, such as a SEP IRA or SIMPLE IRA, also reduce taxable income. If a business owner contributes $10,000 to a SEP IRA, this amount lowers AGI, affecting tax liability and eligibility for certain deductions. Ensuring that all allowable business expenses and deductions are properly accounted for on Schedule C can significantly impact the final amount reported on Line 31.

Schedule D

Schedule D, Capital Gains and Losses, reports profits and losses from the sale of investments such as stocks, bonds, and real estate. While capital gains themselves do not directly impact Line 31, certain adjustments related to investment income can influence the final figure.

One such adjustment is the capital loss deduction. If a taxpayer has more capital losses than gains, they can deduct up to $3,000 ($1,500 if married filing separately) from ordinary income each year. For example, if an investor sells stocks at a $5,000 loss but only has $2,000 in capital gains, they can deduct the remaining $3,000 against other income, lowering their taxable income.

Qualified dividends and long-term capital gains are taxed at preferential rates (0%, 15%, or 20%) rather than ordinary income tax rates. While these amounts do not directly adjust AGI, they can influence tax calculations that stem from Line 31, such as the Net Investment Income Tax (NIIT) if AGI exceeds $200,000 for single filers or $250,000 for married couples filing jointly.

Schedule E

Schedule E, Supplemental Income and Loss, reports income from rental properties, royalties, partnerships, S corporations, and estates or trusts. The net income or loss from these activities can significantly impact the amount reported on Line 31.

For rental property owners, deductible expenses such as mortgage interest, property taxes, depreciation, and maintenance costs reduce taxable rental income. If rental expenses exceed rental income, the resulting loss may be deductible, subject to passive activity loss limitations. Generally, taxpayers with an AGI below $100,000 can deduct up to $25,000 in rental losses against other income, but this deduction phases out between $100,000 and $150,000 of AGI.

For those involved in partnerships or S corporations, income or losses reported on Schedule K-1 flow through to the individual’s tax return and impact AGI. If a taxpayer receives a K-1 showing a $10,000 loss from a partnership, this amount reduces AGI, affecting tax liability and eligibility for deductions. However, passive activity rules may limit the ability to deduct these losses unless the taxpayer materially participates in the business.

Reconciling Discrepancies

Discrepancies on Line 31 can arise from misreported income, computational errors, or overlooked deductions. A common issue stems from differences between IRS records and taxpayer-reported amounts, often triggered by mismatches in third-party reporting documents such as Form 1099-NEC for independent contractors or Form 1099-INT for interest income. If the IRS receives a higher income figure from a payer than what is reported on the return, it may issue a CP2000 notice proposing an adjustment, potentially increasing tax liability.

Errors can also occur when taxpayers misclassify income, particularly in cases involving foreign earnings or cryptocurrency transactions. Foreign income subject to the Foreign Earned Income Exclusion must be properly accounted for on Form 2555, while cryptocurrency transactions require accurate cost basis tracking to avoid misstatements. The IRS has increased scrutiny on digital asset reporting, with Form 1040 now including a direct question on virtual currency transactions, making accurate reconciliation essential to avoid penalties.

Adjustments That Can Affect This Line

Several adjustments can influence the amount reported on Line 31, often reducing taxable income. These adjustments stem from deductions the IRS allows before arriving at AGI, impacting eligibility for tax credits and other benefits.

Contributions to tax-advantaged retirement accounts, such as a traditional IRA, can lower AGI if the taxpayer meets income limits. For 2024, individuals can deduct up to $7,000 ($8,000 if age 50 or older) in IRA contributions, provided they are not covered by an employer-sponsored retirement plan or fall within the phaseout range.

Health Savings Account (HSA) contributions are deductible even if the taxpayer does not itemize deductions. For 2024, individuals can contribute up to $4,150 ($8,300 for family coverage), with an additional $1,000 catch-up contribution for those 55 and older. These contributions lower AGI and provide tax-free withdrawals for qualified medical expenses.

The student loan interest deduction allows up to $2,500 in interest payments to be deducted, provided the taxpayer’s modified AGI does not exceed $90,000 ($185,000 for joint filers).

Possible Effects on Total Tax or Refund

The amount on Line 31 directly influences tax liability or refund by shaping AGI, which determines taxable income and eligibility for various deductions and credits. A lower AGI can increase eligibility for tax benefits, while a higher AGI may result in phaseouts or additional taxes.

For instance, the Earned Income Tax Credit (EITC) has strict income limits based on filing status and number of dependents. If AGI exceeds these thresholds, the credit amount decreases or is eliminated. Similarly, the Premium Tax Credit (PTC), which helps offset health insurance costs, is calculated based on AGI. A higher AGI reduces the subsidy, potentially increasing out-of-pocket healthcare expenses.