Per Diem Rates from the U.S. General Services Administration
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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").
What is Income?
Form 1040 includes three categories of income:
- Total Income (also called gross income)
- Adjusted Gross Income (AGI)
- Taxable Income
Total Income
Webster's dictionary has a simple definition of income: A gain, usually measured in money that derives from labor, business, or property.
The Internal Revenue Code (IRC) also has a definition of income that's not quite as simple.
IRC Section 61(a) defines Gross Income (GI) this way:
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
- Gross income from business
- Gains from dealings in property
- Interest
- Rents
- Royalties
- Dividends
- Alimony and separate maintenance payments
- Annuities
- Income from life insurance and endowment contracts
- Pensions
- Income from discharge of indebtedness
- Distributive share of partnership gross income
- Income in respect of a decedent
- Income from an interest in an estate or trust
There are Items Specifically Included in Gross Income listed in subchapter B, Part II, Sections 71 through 90 of the Code, such as unemployment compensation and prizes and awards. Even income received illegally is taxable.
Not all income is treated the same. Certain types of income are exempt from federal income tax, such as interest on municipal bonds. Other types of income may be partially taxable, such as Social security, depending on the taxpayer's overall income.
Adjusted Gross Income (AGI)
Adjusted gross income is a term found on Form 1040. It's an important number because it's used to limit certain deductions. For example, you can only deduct the portion of medical expenses that exceed 7.5% of AGI. Note that for state income tax purposes the 7.5% of AGI limitation may not apply. For example, in Arizona you can deduct 100% of medical expenses regardless of your AGI. Check with your state.
Above-the-Line Deductions
There are deductions that are used to arrive at AGI. These deductions are referred to as above-the-line deductions because they serve to reduce total income (gross income) to arrive at AGI. You don't have to itemize to claim above-the-line deductions.
Below-the-Line Deductions
Deductions that reduce AGI are referred to as below-the-line deductions and are used to arrive at taxable income. For example, the standard deduction, itemized deductions and the Qualified business income deduction are below-the-line deductions; they are subtracted from AGI.
Taxable Income
Once total income and adjusted gross income have been determined, the next category of income is, Taxable Income. As the term implies, this is the basis for figuring your tax liability before applying any tax credits, such as the Earned Income Credit.