Final answer:
A taxpayer should include all sources of income such as wages, interest, and dividends when calculating federal gross income. Adjusted gross income is factored before applying standard deductions and exemptions to arrive at the taxable income. It is crucial to account for every source of income and fully understand possible deductions, exemptions, and tax credits.
Step-by-step explanation:
When figuring their federal gross income, a taxpayer should include all income received from various sources such as wages, interest income, and unemployment compensation. In addition to these, other sources of income such as dividends on stocks may also need to be included if you're not filing the simplified 1040EZ form. The adjusted gross income is your total gross income with certain adjustments made before applying the standard deduction and exemptions. The basic equation to determine the taxable income is:
taxable income = adjusted gross income - (deductions + exemptions).
It's essential to consider all sources of income, deductions, and exemptions to accurately calculate the amount of tax owed, which is based on taxable income and falls under different tax rates for different income levels. There are also various tax credits and the alternative minimum tax to consider in some cases.