What’s Considered Income On Your Return?

Your reportable income is one of the largest factors in determining how much you will pay in taxes. You may be surprised by what constitutes income and what some of the available deductions may be.

Reportable income to IRS

The IRS broadly defines what is or is not reportable income. To accurately report income, you'll need to consider more than just the wages from your job. Did you earn interest on your savings account? Rent out your lakeside cabin? You may have to report these and much more to the IRS.

The rules governing what to report as income are very detailed, and for every IRS rule, there is usually more than one exception. If you have any questions about what you should report, we strongly urge you to consult a tax advisor. For more details, refer to IRS Publication 17, Your Income Tax.

Here are the most common types of reportable income to the IRS:

  • Wages, salaries, and other job-related earnings – Including advance commissions, backpay, bonuses and awards, cash gifts from your employer, fringe benefits, unemployment compensation and childcare services;
  • Tips – Including both cash and non-cash tips;
  • Interest income – Any interest you receive that is credited to your account and can be withdrawn, including bank accounts, time deposits, loans you make to others, and savings bonds;
  • Dividends and other corporate distributions – Including dividend income, capital gain and mutual fund distributions;
  • Rental income and expenses – For the use or occupation of property;
  • Retirement plans, pensions, and annuities; and
  • Social security and equivalent retirement benefits.

From standard to itemized deductions, learn what common deductions may help you reduce the amount of taxes you owe or even place you into a lower tax bracket.

Most common tax deductions

Did you donate a used car to charity this year? Contribute to your IRA? You might be able to take these as tax deductions.

Deductions can help you to reduce the amount of money you pay taxes on, and may even place you in a lower tax bracket. Each type of deduction may be subject to specific restrictions and instructions. Every tax filer must choose between taking the standard deduction or itemizing deductions. Use whichever approach gives you the highest deductions and the lowest taxes.

You may claim what the IRS calls the “standard deduction” unless:

  • You choose to itemize your deductions.
  • Your spouse files separately and itemizes deductions.
  • You are filing a partial-year return because you are changing accounting periods.
  • You are a nonresident alien or a dual-status alien.

Even if you don’t itemize your deductions, there are deductions you may be able to take, such as student loan interest and IRA contributions.

Common income tax deductions

Common deductions and qualifications
Guidelines

Contributions to retirement accounts

You contributed to an individual retirement account (IRA) or other tax-advantaged account.


If you participate in a 401(k) plan (other than a Roth 401(k) account), your employer deducts your contributions from your compensation. Contributions to a Traditional IRA may be tax-deductible, depending upon factors such as your adjusted gross income. If you are self-employed, contributions to a SEP or SIMPLE plan may be tax-deductible. The IRA contribution limit for 2013 and 2014 is $5,500 or $6,500 age 50 or over.

Student loan interest

You paid interest on a qualified student loan.

You may be able to deduct up to $2,500 a year. You cannot claim the deduction if another taxpayer claims an exemption for you as a dependent, your filing status is Married Filing Separately, or if you are not legally obligated to make payments on the loan. Also, the deduction doesn’t apply for people above a certain income level.

Capital losses

You realized a net loss on a sale or exchange of stock or other capital assets

You can use capital losses to offset unlimited capital gains and up to $3,000 of net loss to offset other income. First use your capital loss to offset your capital gains. If your losses exceed your gains, you may deduct up to $3000 of loss against ordinary income. Unused capital losses may be carried forward to the next tax year

Home mortgage deduction or equity financing

You paid mortgage interest during the year, or paid interest on a home equity account.



We recommend reading our article on homeowner taxes for more information.

State or local taxes

This deduction is allowed only if you itemize. Taxes allowed as a deduction include state and local income taxes, some real estate taxes, and some personal property taxes among others. Taxpayers can claim a deduction for sales tax if they do not claim a deduction for state and local income tax

Medical expenses

You paid more than a certain percent of your adjusted gross income in medical expenses

If you itemize, you may claim a deduction on certain medical expenses you paid for yourself, your spouse, or your dependents. Eligible expenses may include:

  • medical and dental expenses;
  • insurance premiums not paid for by pre-tax income or by someone else; and 
  • some medical-related travel expenses.

Self-employed individuals may deduct health insurance premiums. Medical expenses you pay for others (such as a parent) may be deductible if you pay the expenses according to certain rules.

Charitable contributions

You contributed cash or property to a qualified organization

If you itemize, you may generally deduct cash or property contributions to qualified organizations if you maintain proper documentation. There are different guidelines for cash versus property contributions. If you benefit from the contribution, you may be required to adjust the amount you seek to deduct by the fair market value of the benefit you received.

The Alternative Minimum Tax (AMT) can have a significant impact on how much you owe. Find out what it is and if you might have to pay it.

The Alternative Minimum Tax

The alternative minimum tax (AMT) is intended to make it harder for someone with a high level of income to use deductions, credits and exclusions to the extent that he or she ends up paying less tax than typical taxpayers with more modest income.

People who may fall into this category are required to recalculate their tax according to a different, or alternative, set of rules that determine the minimum amount of tax they have to pay. When the tax determined according to these rules is greater than your regular income tax, you have to pay additional tax to bring your total up to the minimum tax calculation.

The rules for AMT reduce or eliminate many of the deductions, credits and exclusions that are used in calculating regular income tax. For most people, the most important items disallowed under these rules are personal exemptions and the itemized deduction for state and local taxes. As a result, the people most likely to pay AMT are those with a large number of dependents and those who claim a large itemized deduction for state and local tax.

AMT can be triggered by a number of other items, including some large long-term capital gains. You’re also likely to pay AMT if you exercise an incentive stock option (ISO) for a large profit, unless you also sell the stock within the same year.

Some other items, though less important to most people, can trigger AMT for certain individuals. For example, if you use a home equity loan for a purpose other than buying, constructing or substantially improving your home, you may be able to deduct the interest (within limits) in calculating your regular income tax but not in the AMT calculation. Similarly, some municipal bonds, known as “private activity bonds,” pay interest that is tax-exempt for regular income tax, but taxable under the AMT.

A special deduction called the AMT exemption amount is intended to protect people with relatively modest income from having to pay this tax. After many years of making ad hoc changes to this figure, Congress passed a law providing that this figure will be automatically adjusted for inflation in future years.