How to Read Your Tax Return (Form 1040)

Fewer than 50% of people review their tax return.

Not because they don’t care, but because they don’t understand what they’re looking at.

Your 1040 tells a lot more than you think (if you know how to read it).

Here’s a simple breakdown of what every section means and what insights you can make from it:

1. Filing Status and Personal Information (Top Section)

This section includes:

• Your name, Social Security number, and address
• Filing status (Single, Married Filing Jointly, etc.)
• Dependents – including their names, SSNs, and relationship to you

Filing status affects your tax rates and eligibility for certain credits. Dependents can qualify you for tax benefits.

There are not a ton of insights to grab from this section.

Just ensure:

• Filing status is correct (married or not)
• The right amount of kids are listed (oftentimes people don’t tell their tax team and miss a new baby being added)
• And make sure all personal info is correct so no issues come up

2. Income Section (Lines 1–9)

This summarizes the different types of income you received throughout the year:

• Line 1: Wages, salaries, tips (from your W-2): ensure this matches your w2s and that you have gotten all the right info in.
• Line 2 and 3: Interest and dividends: ensure you have all interest added in. So often I see people forget to send those statements in and interest is not on their return. Taxes add up quickly here for high earners. The other thing you can see here is how tax efficient your investing is. If you have a ton of nonqualified dividends, you may be holding REITS or other investments in the wrong accounts.
• Line 4: IRA distributions, pensions, and annuities: This is a really important one. For high earners, you do backdoor Roth IRA contributions. You need to check this line and make sure that 4b does not have a taxable amount listed. We see backdoor Roth IRA contributions listed as taxable all the time. Then also ensure you have Form 8606 done.
• Line 5: Social Security benefits
• Line 7: Capital gains: make sure all gains from investments, business sales, etc are listed here.
• Line 8: Other income (business income, rental income, etc.): For my business owners out there, this is a really important one. You can actually see what you made from your business and other activities.
• Line 9: Total income: This is your total income before adjustments, QBID, itemized deductions/standard deduction, etc. It is great to know what you truly made.

3. Adjustments to Income (Line 10)

This includes deductions like:

• Student loan interest
• Contributions to traditional IRAs
• Educator expenses
• HSA contributions

The result is your Adjusted Gross Income (AGI) (Line 11), a key figure used to determine eligibility for credits and deductions.

And then others like Roth IRA eligibility are calculated from your Modified Adjusted Gross income.

You need to be aware of both to ensure you can contribute to various accounts or what credits/deductions you are phased out of.

4. Standard or Itemized Deduction (Line 12)

You either:

• Take the standard deduction (a fixed amount based on filing status: $29,200 in 2024 if MFJ, $14,600 if Single), or
• Itemize deductions (mortgage interest, state/local taxes, charitable contributions, etc.)

You should definitely know which you are taking.

If you take the standard, that means you did not have enough deductions from charity, state and local taxes, and mortgage interest to ‘beat’ the standard deduction. This means you do not benefit tax wise from those.

This could mean it makes sense to lump charitable donations, use a DAF, etc so you can take the standard some years and itemize in others.

Page 2 of Form 1040: Deductions, Taxes, Credits and Balance Info

5. Tax and Credits (Lines 16–20)

This section calculates your actual tax owed based on:

• Your taxable income (Line 15)
• Any nonrefundable credits (e.g., education credit, child tax credit)
• Additional taxes like self-employment tax

Line 24: Total tax owed after credits.

Make sure you take a look at this and understand what your tax liability is.

I would also encourage you to go calculate your effective tax rate (taxes/income made).

Remember, you may be in the 37% bracket, but not all income is taxed at 37%. Your effective rate is most important to know.

6. Payments (Lines 25–33)

This includes:

• Federal tax withheld from your paycheck (shown on W-2s and 1099s)
• Estimated tax payments you made during the year
• Refundable credits (e.g., earned income credit, additional child tax credit)

This section is really important. It tells you what you paid in so you can compare it to what you owe.

If you paid in way too little, you probably have penalties (which you can go see on line 38).

Not paying penalties is low hanging fruit for most people.

7. Refund or Amount You Owe

• Line 34: If your total payments are more than your tax owed, you get a refund.
• Line 37: If your total payments are less than your tax owed, you owe the IRS.

You’ll also see bank account info here if you choose direct deposit.

For many business owners, or those who pay quarterly tax payments, it often makes sense to apply the overpayment to Q1. This is why I hate the idea that “you are giving the government an interest free loan” for high earners. It is not that deep, overpay some, apply to Q1, reduce what you pay in Q1, and move on.

8. Signature Section

Both you and your preparer (if applicable) must sign and date the return. If someone helped you file it, their info appears here too.

Final Thoughts

Even if you rely on a tax preparer, reviewing your Form 1040 can help you:

• Spot errors or missed deductions
• Understand how your income and deductions affect your tax bill
• Plan better for the future

Even though a tax preparer files it, it is still you signing it and saying it is all correct. You would be the one in trouble if something is wrong, not them. So review it and learn from it!

And if you have an advisor, they should be reviewing every return of yours for mistakes and planning opportunities.