Scope & Assumptions

Form 1040U.S. Individual Income Tax Return

Included

• All income lines fed by the lab's documents: wages, interest, dividends, IRA and pension distributions, Social Security, capital gains and Schedule 1 income
• Tax from the IRS Tax Table under $100,000 and the Tax Computation Worksheet above it, or the capital gain worksheet when there are qualified dividends or net capital gain
• Credits and payments on lines 19–33, with the refund or amount owed

Not Included

• Lines 1b–1i (household wages, unreported tips, Medicaid waiver payments, dependent care and adoption benefits, Form 8919 wages, combat pay)
• Line 30 refundable adoption credit and line 38 estimated tax penalty (Form 2210)
• Kiddie tax (Form 8615), lump-sum distributions (Form 4972) and state returns

Assumed

• Every line is rounded to whole dollars
• The taxpayer lived in the U.S. all year and had no digital asset transactions
• Dependents have SSNs and meet the relationship, residency and support tests

Schedule 1Additional Income and Adjustments to Income

Included

• Line 3 business income, line 5 Schedule E income, line 7 unemployment
• Adjustments: educator expenses, HSA, deductible half of SE tax, early withdrawal penalty, IRA deduction and student loan interest

Not Included

• State tax refunds, alimony, Form 4797 gains, farm income, net operating losses and other income on lines 8a–8z
• Self-employed health insurance, SEP/SIMPLE contributions, Archer MSA and other adjustments on lines 24a–24z

Assumed

• HSA contributions entered are personal contributions, not made through payroll
• IRA contributions are to a traditional IRA for 2025
• The IRA deduction phase-out uses modified AGI before taxable Social Security (the Pub. 590-A interaction is simplified)

Schedule 2Additional Taxes

Included

• Alternative minimum tax (Form 6251)
• Self-employment tax, the 10% additional tax on early distributions (Form 5329), Additional Medicare Tax (Form 8959) and net investment income tax (Form 8960)

Not Included

• Repayment of excess advance premium tax credit (the premium tax credit is not calculated)
• Household employment taxes, uncollected Social Security and Medicare tax, recapture taxes and section 965 installments

Assumed

• Early distributions with code 1 have no exception to the 10% tax

Schedule 3Additional Credits and Payments

Included

• Foreign tax credit, child and dependent care credit, education credits and the saver's credit

Not Included

• Energy, clean vehicle, general business, adoption and elderly credits
• Premium tax credit (Form 8962), extension payments, excess Social Security withholding and fuel tax credit

Assumed

• Nonrefundable credits are applied in Schedule 3 order, then the child tax credit, each limited by the tax left

Schedule 1-AAdditional Deductions (new for 2025)

Included

• No tax on tips (up to $25,000), qualified overtime (up to $12,500; $25,000 joint), new-car loan interest (up to $10,000) and the $6,000 senior deduction, each with its phase-out

Not Included

• Add-backs for Puerto Rico and foreign income exclusions (lines 2a–2d are zero)

Assumed

• Tips are qualified tips in a listed occupation; the overtime amount is only the premium part
• The vehicle is new, assembled in the U.S., for personal use and secured by the loan
• Married filing separately cannot claim tips, overtime or the senior deduction

Schedule AItemized Deductions

Included

• Medical expenses above 7.5% of AGI
• State and local income, real estate and personal property taxes with the $40,000 SALT limit and its reduction above $500,000
• Mortgage interest from Form 1098 and cash and noncash gifts to charity (60% and 30% of AGI limits)

Not Included

• The sales tax election, other taxes, investment interest (Form 4952), casualty losses, charity carryovers and other itemized deductions

Assumed

• Mortgage debt is within the $750,000 acquisition-debt limit and points are on the 1098
• Gifts go to public charities; Form 8283 for noncash gifts is not shown
• The lab uses whichever is larger, itemized or standard (a taxpayer may elect otherwise)

Schedule BInterest and Ordinary Dividends

Included

• Interest from 1099-INT boxes 1 and 3 and K-1s
• Ordinary dividends from 1099-DIV and K-1s

Not Included

• Part III foreign account questions (FBAR), the savings bond exclusion (Form 8815), nominee and accrued interest adjustments, and original issue discount

Schedule CProfit or Loss From Business

Included

• One business per return: 1099-NEC income plus other income, expense totals, and the home office by the simplified method ($5 per square foot, up to 300)

Not Included

• Cost of goods sold and inventory, depreciation and section 179, the regular home office method (Form 8829)
• At-risk, hobby-loss and excess business loss limits

Assumed

• Cash method of accounting
• Meals are entered at the deductible 50%

Schedule DCapital Gains and Losses (with Form 8949)

Included

• Short- and long-term sales from 1099-B, with Form 8949 boxes A, B, D and E and wash sale adjustments
• Long-term gains from K-1s and capital gain distributions
• The $3,000 capital loss limit ($1,500 married filing separately)

Not Included

• Capital loss carryovers from earlier years (the carryover to next year is noted but not tracked)
• Collectibles (28%) and unrecaptured section 1250 gain, Form 4797, installment sales and Form 1099-DA

Assumed

• Each 1099-B slip is a summary of one category of sales

Schedule ESupplemental Income and Loss

Included

• One residential rental property, with the Form 8582 limit applied to a loss
• Partnership and S corporation K-1 income, passive and nonpassive

Not Included

• Royalties, more than one property, vacation-home (personal use) rules and Part III estate and trust business income
• At-risk and basis limits and section 179 from K-1s

Assumed

• Rental depreciation is straight line over 27.5 years for a full year (building placed in service before 2025; the first-year mid-month convention is not applied)
• The building cost entered excludes land

Schedule SESelf-Employment Tax

Included

• Schedule C profit and K-1 box 14 code A, coordinated with W-2 Social Security wages for the $176,100 wage base

Not Included

• Farm income, the optional methods, church employee income and Conservation Reserve payments

Assumed

• One person on the return has self-employment income (the business owner)

Schedule 8812Credits for Qualifying Children and Other Dependents

Included

• $2,200 per qualifying child, $500 per other dependent, the phase-out, and the refundable additional child tax credit (including Part II-B for three or more children)

Assumed

• Children have SSNs and meet the age, relationship, residency and support tests
• Credit Limit Worksheet A uses the Schedule 3 credits on lines 1–4

Form 8995Qualified Business Income Deduction — Simplified

Included

• QBI from Schedule C (less the deductible part of SE tax) and from K-1s, the 20% component and the income limit

Not Included

• REIT dividends and publicly traded partnership income, QBI loss carryforwards, aggregation and cooperative rules

Assumed

• Rentals are not treated as a trade or business for QBI

Form 8995-AQualified Business Income Deduction

Included

• Per-business W-2 wage and property (UBIA) limits, the phase-in range, and the specified service business phase-out

Not Included

• REIT/PTP income, loss carryforwards, aggregation and patron reductions

Assumed

• K-1 QBI, W-2 wages and UBIA are taken from box 20 code Z or box 17 code V as entered

Form 8863Education Credits

Included

• American opportunity credit per student (up to $2,500, 40% refundable) and lifetime learning credit (20% of up to $10,000), with phase-outs

Not Included

• The four-year limit, half-time enrolment and conviction tests (assumed met)

Assumed

• Qualified expenses are 1098-T box 1 minus scholarships in box 5
• Married filing separately is not eligible; someone claimed as a dependent gets no refundable part

Form 2441Child and Dependent Care Expenses

Included

• The $3,000 / $6,000 expense limits, the earned income limit, the 35%–20% rate table and the tax limit

Not Included

• Dependent care benefits (W-2 box 10), prior-year expenses and deemed income for a student or disabled spouse

Assumed

• Qualifying persons are children under 13 who lived with the taxpayer more than half the year
• Married filing separately is not eligible

Form 8880Credit for Qualified Retirement Savings Contributions

Included

• IRA and W-2 box 12 elective deferrals, reduced by retirement distributions, up to $2,000 each, at 50%, 20% or 10%

Assumed

• Distributions in the testing period are the 2025 1099-Rs only
• The age, student and dependent tests come from the taxpayer settings

Form 8959Additional Medicare Tax

Included

• Additional Medicare Tax on Medicare wages and self-employment income, and the withholding reconciliation

Not Included

• RRTA compensation and unreported tips

Form 8960Net Investment Income Tax

Included

• Interest, dividends, net capital gain and passive rental and K-1 income; nonpassive trade or business income is removed

Not Included

• Investment expense deductions, state tax allocation, CFC/PFIC and disposition adjustments

Assumed

• Modified AGI equals AGI

Form 6251Alternative Minimum Tax — Individuals

Included

• Line 1a add-back of the senior deduction, the SALT or standard deduction add-back, incentive stock options, the exemption phase-out, the 26% / 28% rates and Part III capital gain rates

Not Included

• Other adjustments and preferences (private activity bonds, depreciation, NOLs, passive differences) and the AMT credit carryforward (Form 8801)

Assumed

• The AMT foreign tax credit equals the regular foreign tax credit

Form 1116Foreign Tax Credit (passive category, simplified)

Included

• Passive category foreign tax from 1099-DIV and 1099-INT, and the $300 / $600 election to skip Form 1116 when it applies

Not Included

• Qualified dividend and capital gain rate adjustments, carryovers and carrybacks, other categories and the high-tax kickout

Assumed

• Deductions are apportioned by the ratio of foreign to total gross income
• Unused foreign tax carries over but is not tracked

Form 8582Passive Activity Loss Limitations

Included

• The $25,000 special allowance for rental real estate with active participation, reduced by 50% of MAGI over $100,000, and passive income offsetting the loss

Not Included

• Limits on passive K-1 losses (they are not limited in this lab), prior-year unallowed losses and real estate professional status

Assumed

• Married filing separately gets no special allowance
• MAGI is simplified to AGI before the rental loss

SS WorksheetSocial Security Benefits Worksheet

Included

• The standard Social Security Benefits Worksheet (lines 1–18)

Not Included

• The lump-sum election and railroad retirement benefits

Assumed

• Married filing separately is treated as living with the spouse (base amount $0)

EIC WorksheetEarned Income Credit Worksheet

Included

• The EIC Table method (middle of each $50 row) on earned income and AGI, with the investment income limit of $11,950

Not Included

• The separated-spouse rule for married filing separately, disallowance periods and the combat pay election

Assumed

• Qualifying children are under 19, or under 24 and full-time students, and lived with the taxpayer more than half the year
• Valid SSNs and U.S. residency

QD & CG WorksheetQualified Dividends and Capital Gain Tax Worksheet

Included

• The 0%, 15% and 20% rates on qualified dividends and net capital gain, using the Tax Table for amounts under $100,000

Not Included

• The Schedule D Tax Worksheet for 28% and unrecaptured section 1250 gain, and the Form 4952 election