Key Takeaways
- Form 1040 is the primary tax return for U.S. citizens and residents to report annual income and calculate tax liability
- The form flows from Gross Income to Adjusted Gross Income (AGI) to Taxable Income to Total Tax to Amount Owed/Refund
- Adjusted Gross Income (AGI) on Line 11 is a critical checkpoint used throughout the tax code for phase-outs and limitations
- Numbered schedules (1, 2, 3) report additional income, taxes, and credits, while lettered schedules (A, B, C, D, E) report specific types of income or deductions
- 2024 standard deduction amounts: $14,600 (Single), $29,200 (MFJ), $21,900 (HOH)
Form 1040 Overview & Structure
Every individual tax return starts with Form 1040. Whether you're preparing returns for a first-time filer or a complex client with multiple income sources, understanding how this form flows is fundamental to your success on the EA exam and in practice.
What Is Form 1040?
Form 1040, U.S. Individual Income Tax Return is the standard federal income tax form used by U.S. citizens and residents to report their annual income and calculate their tax liability. The IRS processes over 150 million individual returns annually, and Form 1040 is the backbone of this system.
For 2024, taxpayers use Form 1040 or, if born before January 2, 1960, may optionally use Form 1040-SR (which features larger print but identical calculations). Both forms use the same schedules and instructions.
The Tax Return Flow: Big Picture
Before diving into specific lines, understand the logical flow of a tax return. Think of it as a funnel that narrows down to your final tax liability:
| Step | What Happens | Key Line |
|---|---|---|
| 1. Gross Income | Add all taxable income sources | Lines 1-8 |
| 2. Adjustments to Income | Subtract "above-the-line" deductions | Schedule 1, Part II |
| 3. Adjusted Gross Income (AGI) | Critical checkpoint for many tax benefits | Line 11 |
| 4. Deductions | Subtract standard or itemized deductions + QBI | Lines 12-14 |
| 5. Taxable Income | The amount subject to tax rates | Line 15 |
| 6. Tax Calculation | Apply tax tables or rate schedules | Line 16 |
| 7. Credits | Reduce tax dollar-for-dollar | Lines 19-21 |
| 8. Other Taxes | Add self-employment tax, etc. | Schedule 2 |
| 9. Total Tax | Your complete tax liability | Line 24 |
| 10. Payments | Subtract withholding and estimated payments | Lines 25-33 |
| 11. Refund/Amount Owed | Final result | Lines 34-37 |
Page-by-Page Breakdown
Page 1 (Top Section)
- Taxpayer identification: Names, Social Security numbers, addresses
- Filing status checkboxes (Single, MFJ, MFS, HOH, QSS)
- Digital assets question (new requirement)
- Presidential Election Campaign Fund checkbox
Page 1 (Income Section - Lines 1-11)
- Line 1: Wages, salaries, tips (from W-2s)
- Line 2: Interest income (2a tax-exempt, 2b taxable)
- Line 3: Dividend income (3a qualified, 3b ordinary)
- Line 4: IRA distributions (4a gross, 4b taxable)
- Line 5: Pensions and annuities (5a gross, 5b taxable)
- Line 6: Social Security benefits (6a gross, 6b taxable)
- Line 7: Capital gain or loss (from Schedule D)
- Line 8: Additional income from Schedule 1
- Line 9: Total income (sum of lines 1-8)
- Line 10: Adjustments to income from Schedule 1
- Line 11: Adjusted Gross Income (AGI) - This is the most important checkpoint on the return
Page 1 (Deductions - Lines 12-15)
- Line 12: Standard deduction OR itemized deductions (from Schedule A)
- Line 13: Qualified Business Income (QBI) deduction
- Line 14: Total deductions (Line 12 + Line 13)
- Line 15: Taxable Income (Line 11 minus Line 14)
Page 2 (Tax and Credits - Lines 16-24)
- Line 16: Tax (from Tax Tables, Tax Computation Worksheet, or Schedule D)
- Lines 17-18: Additional taxes from Schedule 2
- Lines 19-21: Credits (child tax credit, other credits from Schedule 3)
- Line 22: Net tax after credits
- Line 23: Other taxes from Schedule 2, Part II
- Line 24: Total Tax
Page 2 (Payments - Lines 25-33)
- Line 25: Federal income tax withheld (from W-2s and 1099s)
- Line 26: Estimated tax payments
- Line 27: Earned Income Credit (EIC)
- Lines 28-32: Additional refundable credits
- Line 33: Total payments
Page 2 (Refund/Amount Owed - Lines 34-37)
- Line 34: Overpayment (if payments exceed tax)
- Line 35-36: Refund options (direct deposit or check)
- Line 37: Amount owed (if tax exceeds payments)
The Importance of Adjusted Gross Income (AGI)
Your AGI from Line 11 is the most important number on the tax return. It serves as the baseline for dozens of "phase-outs"—income levels where tax benefits begin to be reduced or eliminated.
AGI affects:
- IRA contribution deductibility
- Student loan interest deduction limits
- Itemized deduction limitations
- Premium Tax Credit eligibility
- Education credit phase-outs
- And many more tax provisions
Formula: AGI = Gross Income - Adjustments to Income
The adjustments (from Schedule 1, Part II) are sometimes called "above-the-line" deductions because they appear above the AGI line. Common adjustments include:
- Educator expenses (up to $300 for 2024)
- Health savings account (HSA) contributions
- Self-employment tax deduction (50%)
- Self-employed health insurance premiums
- IRA contributions (if deductible)
- Student loan interest (up to $2,500)
- Alimony paid (for divorces finalized before 2019)
2024 Standard Deduction Amounts
Most taxpayers claim the standard deduction rather than itemizing. For 2024:
| Filing Status | Standard Deduction |
|---|---|
| Single | $14,600 |
| Married Filing Jointly | $29,200 |
| Married Filing Separately | $14,600 |
| Head of Household | $21,900 |
| Qualifying Surviving Spouse | $29,200 |
Additional Standard Deduction for Age or Blindness (2024):
- Single/HOH: Add $1,950 per qualifying condition
- MFJ/MFS/QSS: Add $1,550 per qualifying individual per condition
Example: A married couple filing jointly, both age 65, receives: $29,200 + $1,550 + $1,550 = $32,300 standard deduction.
The Numbered Schedules (1, 2, 3)
These three schedules serve as "overflow" pages for the main Form 1040:
Schedule 1 - Additional Income and Adjustments to Income
| Part | Purpose | Common Items |
|---|---|---|
| Part I | Additional Income | Business income, capital gains, unemployment, alimony received, gambling winnings |
| Part II | Adjustments to Income | Student loan interest, HSA contributions, self-employment tax deduction, educator expenses |
Schedule 2 - Additional Taxes
| Part | Purpose | Common Items |
|---|---|---|
| Part I | Tax | Alternative Minimum Tax (AMT), excess advance PTC repayment |
| Part II | Other Taxes | Self-employment tax, household employment tax, additional Medicare tax, net investment income tax |
Schedule 3 - Additional Credits and Payments
| Part | Purpose | Common Items |
|---|---|---|
| Part I | Nonrefundable Credits | Foreign tax credit, education credits, residential energy credits |
| Part II | Other Payments | Excess Social Security withholding, Form 4868 payments |
The Lettered Schedules
Lettered schedules report specific types of income, deductions, or calculations:
| Schedule | Title | When Required |
|---|---|---|
| A | Itemized Deductions | Itemizing instead of standard deduction |
| B | Interest and Dividends | Interest/dividends exceed $1,500, or special situations |
| C | Profit or Loss from Business | Self-employed individuals (sole proprietors) |
| D | Capital Gains and Losses | Sold stocks, bonds, real estate, or other capital assets |
| E | Supplemental Income | Rental income, royalties, partnerships, S corps, trusts |
| F | Profit or Loss from Farming | Farmers reporting farm income |
| H | Household Employment Taxes | Paid $2,700+ to household employees in 2024 |
| R | Credit for Elderly/Disabled | Claiming this specific credit |
| SE | Self-Employment Tax | Self-employment income of $400 or more |
How Everything Connects
Think of Form 1040 as the "summary page" with schedules providing the supporting details:
- Schedule C calculates net business profit → flows to Schedule 1, Line 3 → flows to Form 1040, Line 8
- Schedule D calculates net capital gain/loss → flows directly to Form 1040, Line 7
- Schedule A calculates itemized deductions → flows to Form 1040, Line 12
- Schedule SE calculates self-employment tax → flows to Schedule 2, Line 4 → flows to Form 1040, Line 23
On the EA Exam
The EA exam tests your understanding of Form 1040 structure in several ways:
- Identifying which line or schedule reports specific income types
- Understanding the flow from gross income to taxable income
- Knowing when each schedule is required
- Calculating AGI and taxable income
- Understanding the difference between "above-the-line" and "below-the-line" deductions
Exam Tip: When a question asks about "adjustments to income," think Schedule 1, Part II and above-the-line deductions. When it asks about "itemized deductions," think Schedule A and below-the-line deductions.
On Form 1040, Adjusted Gross Income (AGI) is calculated on which line?
A taxpayer has $5,000 in self-employment income from freelance work. Which schedules will they likely need to file with Form 1040?
For tax year 2024, what is the standard deduction for a single taxpayer age 67?