Tax-filing basics

You’ll be more comfortable filling out a tax form if you know some key terms. Your gross income is all your taxable income, including money you earn for work you do, your dividend and interest income, and capital gains, which are the profits for selling assets you own for more than they cost you to buy. If you earned money from a business or rental property, that’s also considered income. You can find a complete list of what counts as income and what doesn’t in IRS Publication 17.

Your adjusted gross income (AGI) is your gross income minus adjustments you deduct for certain specific expenses. Among the adjustments you may be able to take are contributions to a traditional IRA (individual retirement account), interest you paid on a student loan, alimony you paid, moving expenses and certain expenses you had if you were self- employed.

What makes this part of the process complicated is that you have to figure out whether you’re entitled to take the adjustments that reduce your gross income or not. For example, if you’re single, you can deduct your full contribution to a traditional IRA for 2006 only if your modified adjusted gross income (MAGI) is less than $50,000 or if you don’t qualify for an employer-sponsored retirement plan.