a$.$

The tax law refers to gross$$ income, yet the term gross income is not found on Form $1040.$ Explain.

b$.$

Why is it important to understand the concept of gross income even though the term is not found on Form$1040?$

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Part $1$

a$.$ The tax law refers to gross$$ income, yet the term gross income is not found on Form $1040.$ Explain.

A$.$

Gross income is income from taxable sources. Form $1040$ combines the results of computations made on several separate schedules. For$$ example, income from a sole proprietorship is reported on Schedule$$ C$,$ where gross income from the business is reduced by related expenses. Only the net income or loss computed on Schedule C is carried to Schedule $1($and from there to Form$1040).$ This is procedurally convenient but means gross income is not shown on Form $1040.$

B$.$

Gross income is income from taxable sources. Form $1040$ combines the results of computations made on several separate schedules. For$$ example, income from a sole proprietorship is reported on Schedule D where gross income from the business is reduced by related expenses. Only the net income or loss computed on Schedule D is carried to Schedule $1($and from there to Form$1040).$ This is procedurally convenient but means gross income is not shown on Form $1040.$

C$.$

Gross income is income from taxable sources. Form $1040$ combines the results of computations made on several separate schedules. For$$ example, the gross income is reported on Schedule E where gross income is reduced by the itemized deduction. Only the net income or loss computed on Schedule E is carried to Form $1040.$ This is procedurally convenient but means gross income is not shown on Form $1040.$

D$.$

Gross income is income from taxable sources. Form $1040$ combines the results of computations made on several separate schedules. For$$ example, gross income is reported on Schedule A where gross income is reduced by the itemized deduction. Only the net income or loss computed on Schedule A is carried to Schedule $1($and from there to Form$1040).$ This is procedurally convenient but means gross income is not shown on Form $1040.$

Part $2$

b$.$ Why is it important to understand the concept of gross income even though the term is not found on Form$1040?$

A$.$

Gross income is relevant to certain tax determinations. For$$ example, gross income is necessary in order to determine the amount of the standard deduction available to the taxpayer. It may also be necessary to calculate gross income to determine the child credit.

B$.$

Gross income is relevant to certain tax determinations. For$$ example, whether an individual is required to file a tax return is based on his or her gross income. As the amount does not necessarily appear on any tax$$ return, it may also be necessary to calculate gross income to determine whether a dependent is a qualifying relative.

C$.$

Gross income is relevant to certain tax determinations. For$$ example, gross income is used to calculate the floors associated with itemized deductions. It may also be necessary to calculate gross income to determine the personal exemption.

D$.$

Gross income is relevant to certain tax determinations. For$$ example, gross income determined the tax bracket of the taxpayer. It may also be necessary to calculate gross income to determine the standard deduction.