GroundSkill
Map intake facts to the income, adjustments, deductions, and credits at issue
A return starts with reportable receipts, then subtracts qualifying exclusions and adjustments before adjusted gross income. After that come one deduction method and any credits the taxpayer can claim. This lesson follows those rules through a 2025 return.
U.S. citizens and residents generally report worldwide income, even without a U.S. Form W-2 or 1099. Wages, bank interest, dividends, business income, and rent keep their character when earned abroad. Report tax-exempt interest separately rather than making it disappear. A gift or inheritance received is generally not income; later interest, rent, or dividends produced by the property generally is income. First identify each receipt, then apply any exclusion that the law or a treaty permits.
Sam earned $52,000 of wages abroad and $900 of foreign bank interest, and received a $10,000 cash gift. Ana records the wages and interest as income even though no U.S. payer issued a slip. The gift itself is generally excluded from income; any later interest it earns is reportable.
Form 1040 Instructions Page 23
Generally, you must report all income except income that is exempt from tax by law.View on the source
Form 1040 Instructions Page 23
You must report unearned income, such as interest, dividends, and pensions, from sources outside the United States unless exempt by law or a tax treaty. You must also report earned income, such as wages and tips, from sources outside the United States.View on the source
Form 1040 Instructions Page 88
Use Schedule 1 to report income or adjustments to income that can’t be entered directly on Form 1040, 1040-SR, or 1040-NR.View on the source
Publication 525 Page 33 — Gifts and inheritances
Gifts and inheritances. In most cases, property you receive as a gift, bequest, or inheritance isn’t included in your income.View on the source
A U.S. citizen worked abroad all year, earning wages from a foreign employer and interest from a foreign bank. No exclusion determination has been made yet. Which of the following is correct regarding the intake receipts?
An exclusion is not an adjustment. Foreign earned income that qualifies for the exclusion is computed on Form 2555; its line 45 amount goes in parentheses on Schedule 1, line 8d, in the other-income section. It reduces total income before adjusted gross income (AGI) but does not belong in Schedule 1 Part II.
Part II holds adjustments to income. A deductible contribution to a traditional IRA goes on Schedule 1 line 20. Eligible health-savings-account contributions and alimony paid under a qualifying pre-2019 agreement have their own adjustment lines. Keep the account records and agreement with the return. These deductions are tested under their own limits; do not treat every retirement-plan contribution as an IRA deduction.
Jo qualifies for the foreign earned income exclusion and computes it on Form 2555. Ana carries the line 45 amount in parentheses to Schedule 1 line 8d. Jo also made a deductible $4,000 traditional IRA contribution, which Ana places on Schedule 1 line 20. The two amounts reduce income through different parts of Schedule 1.
Form 1040 Instructions Page 88
Adjustments to income are entered on Schedule 1, Part II. The amount on line 26 is entered on Form 1040, 1040-SR, or 1040-NR, line 10.View on the source
Form 1040 Instructions Page 95 — Line 20 IRA Deduction
If you made contributions to a traditional IRA for 2025, you may be able to take an IRA deduction.View on the source
Form 1040 Instructions Page 93 — Line 13 HSA Deduction
You may be able to take this deduction if contributions (other than employer contributions, rollovers, and qualified HSA funding distributions from an IRA) were made to your HSA for 2025. See Form 8889.View on the source
Form 1040 Instructions Page 95 — Lines 19a Alimony Paid
If you made payments to or for your spouse or former spouse under a divorce or separation agreement entered into on or before December 31, 2018, you may be able to take this deduction.View on the source
Form 1040 Instructions Page 91 — Line 8d
Enter the amount of your foreign earned income and housing exclusion from Form 2555, line 45. Enter the amount in the preprinted parentheses (as a negative number).View on the source
A taxpayer qualifies for and claims the foreign earned income exclusion, computed on Form 2555, line 45. Which of the following is correct regarding carrying that fact to the return?
For 2025, the basic standard deduction is $15,750 for single or married filing separately, $31,500 for married filing jointly or qualifying surviving spouse, and $23,625 for head of household. If eligible, each age-65-or-older or blindness box adds $2,000 for an unmarried taxpayer who is not a qualifying surviving spouse, or $1,600 for a married taxpayer or qualifying surviving spouse. Blindness is the relevant fact, not a vague vision status. A dependent may need a different calculation.
Compare the allowed standard deduction with substantiated itemized deductions, including eligible mortgage interest, taxes, and gifts to charity. Take one method, not both. A married taxpayer filing separately cannot use the standard deduction if the spouse itemizes, even when the taxpayer’s own itemized amount is smaller.
Lee is single, 67, not blind, and cannot be claimed as a dependent. The 2025 standard deduction is $15,750 plus $2,000 for age, or $17,750. Lee has $4,000 of supported itemized deductions, so the standard deduction is larger. If Lee filed separately and a spouse itemized, that standard deduction would not be available.
Publication 17 Page 94
The standard deduction for taxpayers who don't itemize their deductions on Schedule A (Form 1040) has increased. The amount of your standard deduction depends on your filing status and other factors.View on the source
Publication 17 Page 94
If you are age 65 or older on the last day of the year and don't itemize deductions, you are entitled to a higher standard deduction.View on the source
Publication 17 Page 95
If you are blind on the last day of the year and you don't itemize deductions, you are entitled to a higher standard deduction.View on the source
Publication 501 Page 25
Single or Married filing separately $15,750 Married filing jointly or Qualifying surviving spouse 31,500 Head of household 23,625View on the source
Publication 501 Page 26
If born before January 2, 1961, or blind, multiply $2,000 ($1,600 if married) by the number in the box above.View on the source
Publication 501 Page 24
If you are married filing a separate return and your spouse itemizes deducCAUTION tions, or if you are a dual-status alien, you can’t take the standard deductionView on the source
Nina and her spouse file jointly for 2025, are both under 65 and not blind, and cannot be claimed as dependents. They have $20,000 of supported itemized deductions. What deduction method gives the larger amount?
Credits have separate eligibility tests after income and deductions are determined. Education expenses may call for an education-credit check; care expenses paid so a taxpayer can work may call for a child and dependent care credit check. Foreign income tax paid may call for a foreign tax credit check on Schedule 3; merely owning a foreign account does not. The earned income credit is for certain people who work and is barred for 2025 when investment income exceeds $11,950, even if the person has wages. Keep records for each claimed credit and apply its own tests.
Pat has wages, $12,000 of investment income, a tuition statement, child-care costs needed for work, and foreign income tax paid. Ana checks education, care, and foreign tax credits against their rules. The investment income is above the 2025 earned income credit limit, so Pat cannot claim that credit even though Pat worked.
Form 1040 Instructions Page 114 — Instructions for Schedule 3, Line 1
If you paid income tax to a foreign country or U.S. territory, you may be able to take this credit.View on the source
Form 1040 Instructions Page 40
The EIC is a credit for certain people who work.View on the source
Form 1040 Instructions Page 40
Is your investment income more than $11,950?View on the source
A U.S. taxpayer owns a foreign bank account but paid no foreign income tax. Which statement about the foreign tax credit is correct?
The course asks you questions like these as you learn, brings back the ones you miss, and ends with full-length practice exams.
See the course Or take the free 12-question checkGroundSkill is independently produced and is not affiliated with or endorsed by the IRS. Sources last checked 2026-09-14. Exam preparation, not tax advice.