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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 Federal Income Tax.

Here are the most common types of taxable income:

  • Wages, salaries, self-employment income, 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 – Interest you receive, including bank accounts, time deposits, loans you make to others, and savings bonds;
  • Dividends and other corporate distributions – Including dividend income, capital gain distributions, and other distributions from corporations or mutual funds;
  • Rental income and expenses – For the use or occupation of property;
  • Distributions from retirement plans, pensions, and annuities;
  • Gains from the sale of investments, real estate, and other assets; and
  • Social Security and equivalent retirement benefits, for recipients with income above certain thresholds.

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

Deductions can help you to reduce the amount of income 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.

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/subtractions you may be able to take, such as student loan interest and IRA contributions.

Common income tax deductions

Common deductions and qualifications

Contributions to retirement accounts

You contributed to an individual retirement account (IRA) or qualified employer sponsored retirement plan (QRP), such as a 401(k).


If you participate in a qualified retirement plan, (other than a designated Roth account such as a 401(k) Roth account), your employer deducts your contributions from your compensation. Contributions to a Traditional IRA may be tax-deductible, depending upon factors such as your modified adjusted gross income and, if you are married and if you or your spouse are covered by a qualified employer-sponsored retirement plan. If you are self-employed, contributions to a SEP or SIMPLE IRA may be tax-deductible. The retirement section of our website offers an informational page linking to tax-related retirement articles from basic questions to discussions of special circumstances.

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 you are a dependent of another taxpayer, 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, if overall losses exceed capital gains, up to $3,000 of ordinary income ($1,500 if married filing separately). 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.

Note that the itemized deduction for interest paid on home equity financing is repealed for years 2018 through 2025. For tax deduction purposes, home equity debt is defined as a loan used for something other than to buy, build, or improve your primary or one secondary home.

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. Additional limitations apply for years 2018 through 2025.

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. Medical expenses you pay for other qualifying relatives (such as a dependent parent) may be deductible if certain requirements are met. 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 without itemizing deductions.

Charitable contributions

You contributed cash or property to a qualified organization

For 2020 and 2021 only, a deduction of up to $300 was allowed for cash contributions to qualified organizations even if you didn't itemize.  In 2021, the limit increased to $600 for joint filers only. If you itemize, you may generally deduct cash or property contributions to qualified organizations without regard to this limitation if you maintain proper documentation. There are different guidelines for deducting cash versus property contributions. If you benefit from the contribution, you may be required to reduce 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 (AMT)

All taxpayers are required to annually 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 years through 2017, 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 were those with a large number of dependents and those who claim a large itemized deduction for state and local tax. For years 2018 through 2025, the deduction for personal exemptions is eliminated and the itemized deduction for state and local taxes is limited, reducing the number of taxpayers subject to AMT.

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, some municipal bonds, known as “private activity bonds,” pay interest that is tax-exempt for regular income tax but taxable under the AMT.