Income

• You must report all of your income, from whatever source, to the IRS. This includes income earned from abroad, even if you do not live in the United States. You do not have to report gifts or inherited property, except for gifts from your employer or "gifts" that were given in compensation for a service you performed. Not all of your income will be taxed -- generous exclusions are available, for example, for foreign-earned income.
  
  

Adjusted Gross Income

• Your adjusted gross income (AGI) is what is left of your income after you exclude the deductions you are able to claim before arriving at your AGI. These include self-employment expenses, charitable contributions, alimony payments, student loan interest and half of your self-employment tax. You are also entitled to a deduction for each dependent you support, including yourself. You may claim these deductions even if you don't itemize your deductions.
  
  

Itemizing Vs. the Standard Deduction

• If you choose not to itemize your deductions, you may take a standard deduction. If you are single, or married filing separately, your standard deduction is $5,700 (for the 2010 tax year). If you are married and filing jointly, or a widow(er), it is $11,400. If you qualify as a head of household, it is $8,400. Your itemizable deductions include items such as medical expenses, dental expenses, tuition and interest on a mortgage. You can find a complete list in Schedule A of Form 1040. If your standard deduction is greater than the total of your itemized deductions, take the standard deduction and don't itemize your deductions.
  
  

Self-Employment

• If you are self-employed and earn at least $400 during the tax year, your business income will be treated as your personal income and you will have to file estimated taxes quarterly using Form 1040-ES. You will have to pay a self-employment tax of 13.3 percent of your total income on your first $106,800 in income (plus 2.9 percent of any income over $106,800). You will be able to deduct many business expenses using Schedule C of Form 1040. You will have to file an annual tax return using Form 1040.