Understanding The 1040

📘 Module 2: Understanding the 1040

How to Read It. How to Fill It Out. How to Explain It.

👋 Welcome, Tax Pro Associates!

Now that you understand who files taxes and why, it’s time to learn how to actually complete the Form 1040 — the foundation of every personal income tax return.

📄 What Is Form 1040?

Form 1040 is the main IRS tax form used to report:

Income
Deductions
Credits
Tax owed or refund due

Everything flows through this form. Whether your client gets a W-2, a 1099, or runs a business — it all ends up here.

🧩 How to Fill Out Form 1040 (Step-by-Step)

✅ Step 1: Personal Information

Start at the top of the 1040 with your client’s:

Full name
Mailing address
Social Security Number (SSN)
Filing status (Single, HOH, MFJ, etc.)
Dependents (if applicable)

✅ Step 2: Enter All Income

Use this section to enter every type of income your client earned. Here's where to pull from:

Income Type	Enter From	IRS Form Used
Job wages	Box 1 of W-2	W-2
Self-employment	1099-NEC total	1099-NEC + Sch. C
Unemployment	Box 1 of 1099-G	1099-G
Social Security	Box 5 of SSA-1099	SSA-1099
Interest/Dividends	Bank/Investment Docs	1099-INT, DIV

Total all these lines to get the Total Income.

✅ Step 3: Adjusted Gross Income (AGI)

From your total income, subtract any eligible adjustments, such as:

Student loan interest
Educator expenses
HSA contributions
Self-employment health insurance

Your result is the Adjusted Gross Income (AGI) — one of the most important numbers on the return.

✅ Step 4: Tax & Credits

Calculate the client’s total tax based on their AGI, then apply eligible credits, like:

Earned Income Credit (EIC)
Child Tax Credit (CTC)
Education credits

These credits can either reduce tax owed or increase a refund.

✅ Step 5: Other Taxes

This section adds extra taxes, like:

Self-employment tax
Early withdrawal penalties
Household employee tax

✅ Step 6: Payments

List how much tax was already paid during the year:

Withholding from W-2s or 1099s
Estimated payments
Refundable credits

✅ Step 7: Refund or Amount Owed

If the client paid more than they owed, they get a refund.
If they paid less, they’ll owe a balance due.

Use this section to explain the outcome to your client clearly.

🚫 Common Mistakes to Avoid

Entering 1099-NEC income as wages
Skipping unemployment or Social Security
Forgetting adjustments before AGI
Choosing the wrong filing status
Leaving the virtual currency question blank

✅ Module 2 Activity

🧾Activity: Complete a Sample 1040

Download the blank IRS Form 1040 (latest version).
Use this scenario to complete the form:

Scenario:

Name: Jordan Brooks
Filing Status: Head of Household
W-2 wages: $31,000
1099-INT: $150
Student loan interest paid: $800
1 dependent: Ava, age 6
Withholding: $2,300

✅Complete the 1040 from start to finish based on this data. Check your AGI, credits, and refund/amount owed.

📝 Module 2 Quiz

1. Which form reports self-employment income?
A) W-2
B) 1099-INT
C) 1099-NEC
D) SSA-1099

2. What number is calculated after subtracting adjustments from total income?
A) Net Income
B) Refund Total
C) Taxable Income
D) Adjusted Gross Income (AGI)

3. True or False: Child Tax Credit is applied before calculating AGI.
A) True
B) False

4. Which of the following is NOT an above-the-line deduction?
A) Student loan interest
B) Child care expenses
C) Educator expenses
D) HSA contributions

5. If a client paid less tax than they owe, where is that shown on the 1040?
A) AGI section
B) Credit section
C) Refund section
D) Amount You Owe section

✅ Answer Key: