Understanding 1040 Tax Form

Exemptions

Next on the 1040 tax form is the exemptions section. Exemptions further reduce the amount of a taxpayer's income that is taxed. In this section, the taxpayer figures out how many exemptions he or she can claim. This number is then used later on (page 2 of tax form 1040) to figure out how much tax credits are allowed.

On page 2, the taxpayer subtracts a certain dollar amount for each exemption he or she is eligible to claim. Anyone can take a personal exemption for himself or herself and also one for his or her spouse if married filing jointly. Certain tests must be met for claiming exemptions for dependents. If the correct social security numbers of anyone you claim exemption for are not provided on your tax return (on 1040 form), the IRS will disallow the exemptions claim.

Income

All income in the form of:

• money
• goods
• services
• property received

must be reported on the 1040 tax form. If the income is exempt from taxation then in most cases it is not reported such as child support. All income are added to give total income. Total income is sometimes called gross income.

Adjusted Gross Income (AGI)

Adjusted gross income is total or gross income adjusted by various items that the IRS allows taxpayers to deduct from the total or gross income.

Tax and Credits

Starting on page 2 on the 1040 form is Tax and Credits section. A taxpayer's taxable income or the amount of income on which his or her income tax is computed is calculated by subtracting the standard deduction or itemized deductions and exemptions from his or her adjusted gross income (AGI).

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