IRS Tax Schedules Explained

What Are Tax Schedules?

Think of tax schedules as supporting worksheets for your Form 1040. While Form 1040 is the main document where everything comes together, schedules are where you show the details and calculations behind certain numbers.

Not everyone needs every schedule. The schedules you file depend entirely on your financial situation that year. If you only have W-2 income and take the standard deduction, you might not need any schedules at all!

📋 Key Point

Schedule numbers don't indicate order of importance—they indicate different types of information. Schedule 1 isn't more important than Schedule C; they just cover different things.

Schedules 1, 2, 3

Flow-through schedules that feed totals into specific Form 1040 lines

Schedule A

Itemized deductions (instead of standard deduction)

Schedule B

Interest and dividend income over $1,500

Schedule C

Self-employment income (sole proprietors, freelancers)

Schedule D

Capital gains and losses from investments

Schedule E

Rental income and pass-through entities (S-Corps, partnerships)

Schedule SE

Self-employment tax calculation

Schedule 1

Additional Income and Adjustments to Income

Form 1040, Lines 8 and 10

Schedule 1 is the catch-all for income that doesn't have its own line on Form 1040, plus "above-the-line" deductions that reduce your AGI.

👤 Who Needs Schedule 1?

Received alimony (from divorces finalized before 2019)
Had unemployment compensation
Have business income or loss from Schedule C
Had rental income or loss from Schedule E
Paid student loan interest
Made contributions to a traditional IRA
Contributed to an HSA (Health Savings Account)
Paid alimony (from divorces finalized before 2019)
Are self-employed and paid health insurance premiums
Made educator expenses (teachers)

Part I: Additional Income

This section captures income sources that don't fit on the main Form 1040:

Line	Description	Common Sources
1	Taxable refunds, credits, or offsets of state/local taxes	State tax refund (if you itemized last year)
2a	Alimony received	Divorce agreements before 2019
3	Business income or (loss)	Schedule C net profit/loss
4	Other gains or (losses)	Form 4797 (business property)
5	Rental real estate, royalties, partnerships, S corps	Schedule E totals
6	Farm income or (loss)	Schedule F
7	Unemployment compensation	Form 1099-G
8	Other income	Gambling winnings, jury duty pay, etc.
10	Total additional income	→ Goes to Form 1040, Line 8

Part II: Adjustments to Income

These are deductions you can take before calculating your AGI—often called "above-the-line" deductions because they reduce your income regardless of whether you itemize:

Line	Description	Maximum (2025)
11	Educator expenses	$300 per teacher
12	Certain business expenses of reservists, etc.	Actual expenses
13	Health Savings Account (HSA) deduction	$4,150 (self) / $8,300 (family)
14	Moving expenses (military only)	Actual expenses
15	Deductible part of self-employment tax	50% of SE tax
16	Self-employed SEP, SIMPLE, qualified plans	Contribution limits apply
17	Self-employed health insurance deduction	100% of premiums
18	Penalty on early withdrawal of savings	Actual penalty
19a	Alimony paid (pre-2019 divorces)	Actual payments
20	IRA deduction	$7,000 ($8,000 if 50+)
21	Student loan interest deduction	$2,500
26	Total adjustments	→ Goes to Form 1040, Line 10

💡 Pro Tip

Adjustments to income are valuable because they reduce your AGI, which can help you qualify for other deductions and credits that have AGI limits.

Schedule 2

Additional Taxes

Form 1040, Lines 17 and 23

Schedule 2 reports taxes beyond the basic income tax—including self-employment tax, household employment tax, and tax on retirement account distributions.

👤 Who Needs Schedule 2?

Owe Alternative Minimum Tax (AMT)
Need to repay excess Premium Tax Credit
Are self-employed (self-employment tax)
Have household employees (nanny tax)
Made early withdrawals from retirement accounts
Owe additional tax on IRAs or retirement plans
Have Additional Medicare Tax on wages over $200,000
Owe Net Investment Income Tax (NIIT)

Part I: Tax

Line	Description	Notes
1	Alternative Minimum Tax (AMT)	Form 6251—affects high-income taxpayers
2	Excess advance Premium Tax Credit repayment	Form 8962—if marketplace insurance subsidies were too high
3	Total	→ Goes to Form 1040, Line 17

Part II: Other Taxes

Line	Description	Rate/Notes
4	Self-employment tax	From Schedule SE (15.3% of net earnings)
5	Social Security/Medicare on unreported tip income	Form 4137
6	Uncollected SS/Medicare on wages	Form 8919
7	Total additional Social Security/Medicare tax	Add lines 5 and 6
8	Additional tax on IRAs/retirement plans	10% early withdrawal penalty + others
9	Household employment taxes	Schedule H (nanny, housekeeper, etc.)
10	Repayment of first-time homebuyer credit	2008-2010 credit repayment
11	Additional Medicare Tax	0.9% on wages over $200K (single) / $250K (MFJ)
12	Net Investment Income Tax (NIIT)	3.8% on investment income over AGI threshold
21	Total other taxes	→ Goes to Form 1040, Line 23

⚠️ Important

The 10% early withdrawal penalty on retirement accounts (Line 8) only applies if you're under 59½ and don't qualify for an exception. Common exceptions include disability, first home purchase (IRA only, up to $10,000), and qualified higher education expenses.

Schedule 3

Additional Credits and Payments

Form 1040, Lines 20 and 31

Schedule 3 is home to credits and payments that don't have dedicated lines on Form 1040—including education credits, foreign tax credit, and estimated tax payments.

👤 Who Needs Schedule 3?

Claiming foreign tax credit
Claiming education credits (American Opportunity, Lifetime Learning)
Claiming residential energy credits
Claiming general business credits
Made estimated tax payments
Applied prior year refund to this year
Have excess Social Security withholding from multiple employers

Part I: Nonrefundable Credits

These credits can reduce your tax to zero but won't generate a refund by themselves:

Line	Credit	Maximum/Notes
1	Foreign tax credit	Taxes paid to foreign governments (Form 1116)
2	Child and dependent care credit	Up to $3,000 (one) / $6,000 (two+) in expenses
3	Education credits	AOTC: $2,500 / LLC: $2,000
4	Retirement savings contribution credit	"Saver's Credit" up to $1,000 ($2,000 MFJ)
5	Residential energy credits	Solar panels, energy improvements
6	Other nonrefundable credits	Various specialized credits
8	Total nonrefundable credits	→ Goes to Form 1040, Line 20

Part II: Other Payments and Refundable Credits

Line	Description	Notes
9	Net premium tax credit	Marketplace health insurance subsidy
10	Amount paid with extension request	Form 4868 payment
11	Excess Social Security tax withheld	Multiple employers withheld too much
12	Credit for tax on undistributed capital gains	Form 2439
13	Credits from Form 8885, 2439, etc.	Various other credits
15	Total other payments/refundable credits	→ Goes to Form 1040, Line 31

💡 Education Credits

American Opportunity Credit (AOTC): Up to $2,500 per student for first 4 years of college. 40% ($1,000) is refundable!
Lifetime Learning Credit (LLC): Up to $2,000 per return for any post-secondary education. Not refundable.

Schedule A

Itemized Deductions

Form 1040, Line 12

Schedule A is where you list individual deductions when they exceed the standard deduction. You must choose one or the other—you can't claim both.

👤 Who Should Itemize?

Paid significant mortgage interest
Paid high state/local income or property taxes
Made large charitable donations
Had major medical expenses (over 7.5% of AGI)
Had significant casualty/theft losses in a federally declared disaster
Your total itemized deductions exceed the standard deduction

The Basic Question

Itemized Deductions > Standard Deduction?

If YES → Itemize | If NO → Take Standard Deduction

2025 Standard Deduction Amounts

Single

$15,000

Married Filing Jointly

$30,000

Head of Household

$22,500

Age 65+ / Blind

+$1,550 (MFJ) / +$1,950 (Single)

Itemized Deduction Categories

Medical and Dental Expenses (Lines 1-4)

You can only deduct medical expenses that exceed 7.5% of your AGI.

Example Calculation

AGI: $80,000
7.5% of AGI: $6,000
Total medical expenses: $9,000
Deductible amount: $3,000 ($9,000 - $6,000)

Deductible medical expenses include:

Insurance premiums (not pre-tax employer plans)
Doctor, dentist, hospital bills
Prescription medications
Medical equipment and supplies
Miles driven for medical purposes (70¢/mile for 2025)

State and Local Taxes (SALT) - Lines 5-7

$10,000 maximum deduction ($5,000 if Married Filing Separately)

State and local income taxes OR sales taxes (choose one)
Real estate (property) taxes
Personal property taxes (like vehicle registration based on value)

⚠️ SALT Cap

The $10,000 limit applies to the TOTAL of income/sales taxes + property taxes. This cap significantly limits the benefit of itemizing for taxpayers in high-tax states.

Home Mortgage Interest (Lines 8-10)

Interest on mortgage for primary and second home
Mortgage acquisition debt up to $750,000 (or $1M if loan originated before 12/16/2017)
Points paid on home purchase (can often deduct in full year paid)
Mortgage insurance premiums (if AGI under $109,000)

Charitable Contributions (Lines 11-14)

Cash donations: Generally limited to 60% of AGI
Non-cash donations: Fair market value of items donated
Requirements: Receipt for donations $250+; written acknowledgment for $250+ cash

💡 Bunching Strategy

If you're close to the standard deduction amount, consider "bunching" deductions—timing large charitable donations or paying property taxes early to exceed the standard deduction in one year.

Casualty and Theft Losses (Line 15)

Only deductible if caused by a federally declared disaster. Personal casualty losses (like a car accident) are no longer deductible unless in a disaster zone.

Other Itemized Deductions (Line 16)

Gambling losses (only up to gambling winnings)
Impairment-related work expenses
Federal estate tax on income in respect of a decedent

🚫 No Longer Deductible

These deductions were eliminated or suspended through 2025:
• Miscellaneous itemized deductions (tax prep fees, unreimbursed employee expenses)
• Home equity loan interest (unless used for home improvement)
• Moving expenses (except active military)

Schedule B

Interest and Ordinary Dividends

Form 1040, Lines 2b and 3b

Schedule B details your interest and dividend income when the totals exceed $1,500, or if you have certain foreign accounts or were a grantor of a trust.

👤 Who Needs Schedule B?

Received over $1,500 in taxable interest
Received over $1,500 in ordinary dividends
Received interest from a seller-financed mortgage
Have any foreign accounts or received distributions from foreign trusts
Received a nominee distribution

Part I: Interest

List each payer and amount of interest received:

Source Document	Box	Type
Form 1099-INT	Box 1	Interest income from banks, CDs, bonds
Form 1099-OID	Box 1	Original issue discount
Form 1099-INT	Box 8	Tax-exempt interest (report separately)

Tax-Exempt Interest

Municipal bond interest is generally tax-free federally but still must be reported on Line 2a of Form 1040. Some muni bonds may be subject to AMT.

Part II: Ordinary Dividends

List each payer and amount of dividends received:

Source Document	Box	Type
Form 1099-DIV	Box 1a	Ordinary dividends (total)
Form 1099-DIV	Box 1b	Qualified dividends (subset—taxed at capital gains rates)

Part III: Foreign Accounts and Trusts

Answer questions about:

Financial interest in or signature authority over foreign financial accounts
Distributions from, or being a grantor of, a foreign trust

🚨 FBAR Requirement

If your foreign accounts exceeded $10,000 in aggregate at any time during the year, you must file FinCEN Form 114 (FBAR) separately from your tax return. Deadline is April 15 with automatic extension to October 15.

Schedule C

Profit or Loss From Business

Sole Proprietor / Single-Member LLC

Schedule C is where self-employed individuals, freelancers, gig workers, and sole proprietors report their business income and expenses. The net profit flows to both Schedule 1 (for income tax) and Schedule SE (for self-employment tax).

👤 Who Files Schedule C?

Sole proprietors (unincorporated businesses)
Single-member LLCs (not electing corporate treatment)
Freelancers and independent contractors
Gig economy workers (Uber, DoorDash, Etsy sellers, etc.)
Anyone with self-employment income reported on 1099-NEC

The Schedule C Formula

Gross Income − Cost of Goods Sold − Expenses = Net Profit (or Loss)

Part I: Income

Line	Description	Source
1	Gross receipts or sales	1099-NEC, 1099-K, invoices, sales records
2	Returns and allowances	Refunds given to customers
4	Cost of goods sold	From Part III (if you sell products)
5	Gross profit	Line 1 − Line 2 − Line 4
7	Gross income	Line 5 + Line 6 (other income)

Part II: Expenses

Deductible business expenses reduce your taxable profit:

Line 8: Advertising

Website ads, business cards, marketing materials, online ads

Line 9: Car and Truck

70¢/mile (2025) OR actual expenses. Keep a mileage log!

Line 10: Commissions and Fees

PayPal fees, referral fees, platform fees

Line 11: Contract Labor

Payments to subcontractors (issue 1099-NEC if $600+)

Line 13: Depreciation

Equipment, computers, vehicles, furniture (Form 4562)

Line 14: Employee Benefits

Health insurance, retirement for employees (not yourself)

Line 15: Insurance

Business liability, professional, property insurance

Line 16a: Interest - Mortgage

Business property mortgage interest

Line 16b: Interest - Other

Business credit cards, equipment loans

Line 17: Legal/Professional

Attorney fees, accountant fees, consulting

Line 18: Office Expense

Supplies, postage, small equipment under $2,500

Line 20a/b: Rent - Vehicles/Equipment

Leased vehicles, equipment rental

Line 20b: Rent - Other

Office space, storage units, coworking

Line 22: Supplies

Materials used in business (not resold)

Line 24a: Travel

Airfare, hotels, meals (50%), car rental for business

Line 25: Utilities

Phone, internet (business portion)

Line 27a: Other Expenses

Software subscriptions, bank fees, education, dues

Line 30: Home Office

Simplified: $5/sq ft (max 300 sq ft = $1,500)

Where Does Schedule C Go?

Schedule C Line	Goes To	Purpose
Line 31 (Net Profit)	Schedule 1, Line 3	Added to income for income tax
Line 31 (Net Profit)	Schedule SE, Line 2	Basis for self-employment tax

💡 Record Keeping Tips

• Keep all receipts (digital is fine)
• Maintain a mileage log if you claim vehicle expenses
• Separate business and personal bank accounts
• Track income and expenses throughout the year
• Keep records for at least 3-7 years

⚠️ Common Audit Triggers

• Large losses year after year (hobby loss rules)
• 100% business use of vehicle
• Expenses that seem high relative to income
• Home office deduction without proper documentation

Schedule D

Capital Gains and Losses

Form 1040, Line 7

Schedule D reports gains and losses from selling capital assets—stocks, bonds, real estate, and other investments. The holding period determines whether gains are taxed at ordinary or preferential rates.

👤 Who Needs Schedule D?

Sold stocks, bonds, or mutual funds
Sold real estate (other than your primary home under exclusion)
Sold cryptocurrency
Received capital gain distributions from mutual funds
Have capital loss carryovers from prior years

Capital Gain/Loss Formula

Sales Price − Cost Basis − Selling Expenses = Capital Gain or (Loss)

Short-Term vs. Long-Term

Short-Term (≤ 1 year)

Held one year or less. Taxed at your ordinary income tax rate (10%-37%).

Long-Term (> 1 year)

Held more than one year. Taxed at preferential rates: 0%, 15%, or 20%.

2025 Long-Term Capital Gains Tax Rates

Rate	Single	Married Filing Jointly
0%	Up to $47,025	Up to $94,050
15%	$47,026 - $518,900	$94,051 - $583,750
20%	Over $518,900	Over $583,750

Part I: Short-Term Gains and Losses

Report transactions from Form 8949 or directly if reported to IRS:

Line	Description
1a	Short-term from 1099-B (basis reported to IRS)
2	Short-term from Form 8949, Part I
4	Short-term gain from Form 6252 (installment sales)
5	Net short-term gain/loss from partnerships, S corps
6	Short-term capital loss carryover from prior year
7	Net short-term capital gain or (loss)

Part II: Long-Term Gains and Losses

Line	Description
8a	Long-term from 1099-B (basis reported to IRS)
9	Long-term from Form 8949, Part II
11	Gain from Form 4797 (business property)
12	Net long-term gain/loss from partnerships, S corps
13	Capital gain distributions from mutual funds
14	Long-term capital loss carryover from prior year
15	Net long-term capital gain or (loss)

Part III: Summary

Line	Description
16	Combine Lines 7 and 15 = Net capital gain or (loss)
21	Final amount → Goes to Form 1040, Line 7

💡 Capital Loss Rules

Offset gains first: Losses offset gains of the same type first (short vs. long), then offset the other type.
Excess losses: Up to $3,000 ($1,500 MFS) of net capital losses can offset ordinary income per year.
Carryforward: Unused losses carry forward indefinitely to future years.

⚠️ Wash Sale Rule

If you sell a security at a loss and buy the same or "substantially identical" security within 30 days before or after, the loss is disallowed. The disallowed loss is added to the cost basis of the new shares.

Schedule E

Supplemental Income and Loss

Rental, Royalties, Partnerships, S Corps, Estates, Trusts

Schedule E is a multi-purpose form for reporting passive income from rental properties, royalties, and your share of income from partnerships, S corporations, estates, and trusts.

👤 Who Needs Schedule E?

Own rental property
Receive royalty income (books, music, patents, oil/gas)
Are a partner in a partnership (received K-1)
Are a shareholder in an S corporation (received K-1)
Received income from an estate or trust (received K-1)

Part I: Rental Real Estate and Royalties (Lines 1-26)

Report income and expenses from up to 3 rental properties (use additional Schedule E pages for more):

Income (Lines 3-4)

Rents received: Total rent collected during the year
Royalties received: Payments for use of your property (intellectual, mineral, etc.)

Expenses (Lines 5-19)

Line 5: Advertising

Listing fees, tenant finding costs

Line 6: Auto and Travel

Trips to manage property (mileage or actual)

Line 7: Cleaning and Maintenance

Cleaning between tenants, routine maintenance

Line 8: Commissions

Property management fees, leasing agent fees

Line 9: Insurance

Landlord insurance, liability coverage

Line 10: Legal and Professional

Attorney fees, accountant fees for rental

Line 11: Management Fees

Property management company fees

Line 12: Mortgage Interest

Interest on loans for rental property

Line 14: Repairs

Fixes that don't add value (contrast with improvements)

Line 15: Supplies

Materials used for property maintenance

Line 16: Taxes

Real estate taxes, not income taxes

Line 18: Depreciation

Building value spread over 27.5 years (residential)

Depreciation for Residential Rental

(Building Cost Basis ÷ 27.5 years) = Annual Depreciation

Part II: Income or Loss From Partnerships and S Corporations (Lines 27-34)

Report your share of income from pass-through entities as shown on Schedule K-1:

K-1 Source	Form	Report On
Partnership	Schedule K-1 (Form 1065)	Schedule E, Part II, Line 28
S Corporation	Schedule K-1 (Form 1120-S)	Schedule E, Part II, Line 28

📋 K-1 Timing

Partnerships and S corporations must issue K-1s by March 15. If you're still waiting, you may need to file an extension for your personal return.

Part III: Income or Loss From Estates and Trusts (Lines 35-40)

Report distributions from estates and trusts as shown on Schedule K-1 (Form 1041).

Where Does Schedule E Go?

Schedule E Line	Goes To
Line 26 (Rental/Royalty total)	Schedule 1, Line 5
Line 34 (Partnership/S corp total)	Schedule 1, Line 5
Line 40 (Estate/Trust total)	Schedule 1, Line 5

⚠️ Passive Activity Loss Rules

Rental activities are generally "passive," meaning losses can only offset passive income. Exception: If you actively participate AND your AGI is under $150,000, you may deduct up to $25,000 of rental losses against other income.

Schedule SE

Self-Employment Tax

Social Security and Medicare for Self-Employed

When you're an employee, your employer pays half of Social Security and Medicare taxes. When you're self-employed, you pay both halves through self-employment (SE) tax.

👤 Who Needs Schedule SE?

Net self-employment earnings of $400 or more
Church employee income of $108.28 or more
Anyone with Schedule C profit, partnership income subject to SE tax, or farm income

Self-Employment Tax Rate (2025)

15.3% = 12.4% Social Security + 2.9% Medicare

Applies to 92.35% of net self-employment income

How Self-Employment Tax Works

Step 1: Calculate Net Earnings

Start with your net profit from Schedule C (or other SE income), then multiply by 92.35% to account for the employer-equivalent portion.

Step 2: Apply Social Security Wage Base

For 2025, Social Security tax (12.4%) only applies to the first $176,100 of combined wages and SE earnings. Medicare (2.9%) has no limit.

Step 3: Calculate the Tax

Example Calculation

Schedule C Net Profit: $80,000
× 92.35% = $73,880 (net SE earnings)

Social Security: $73,880 × 12.4% = $9,161
Medicare: $73,880 × 2.9% = $2,143

Total SE Tax: $11,304

Schedule SE Line-by-Line

Line	Description
2	Net profit from Schedule C (or Schedule K-1)
3	Combined wages and SE earnings subject to Social Security
4a	Net earnings × 92.35%
5	Self-employment tax (using tax table or formula)
6	Deductible part of SE tax (50% of Line 5)

Where Does Schedule SE Go?

Schedule SE Line	Goes To	Purpose
Line 5 (SE Tax)	Schedule 2, Line 4	Added to your total tax
Line 6 (Deduction)	Schedule 1, Line 15	Reduces your AGI

💡 The Silver Lining

You get to deduct half of your self-employment tax as an adjustment to income on Schedule 1. This reduces your AGI and helps offset the fact that you're paying both the employee and employer portions.

📋 Additional Medicare Tax

If your SE earnings plus wages exceed $200,000 (single) or $250,000 (MFJ), you owe an additional 0.9% Medicare tax on the excess. This is reported on Form 8959 and Schedule 2.

Quick Reference

Which Schedules Do You Need?

Use this quick reference to determine which schedules apply to your situation.

Decision Guide

If You Have...	You Need...
Only W-2 wages + standard deduction	Just Form 1040 (no schedules!)
Unemployment income, student loan interest, HSA contributions	Schedule 1
Self-employment income	Schedule C + Schedule SE + Schedule 1 + Schedule 2
Interest/dividends over $1,500	Schedule B
Sold stocks, crypto, or real estate	Schedule D (+ Form 8949 if needed)
Rental income	Schedule E + Schedule 1
Partnership or S corp income (K-1)	Schedule E + Schedule 1
Itemized deductions (mortgage, charity, etc.)	Schedule A
Education credits, foreign tax credit	Schedule 3
AMT or early withdrawal penalties	Schedule 2

💡 Tax Software Makes It Easy

Tax preparation software (TurboTax, H&R Block, FreeTaxUSA, etc.) automatically generates the schedules you need based on your answers. You don't need to manually decide—just answer the questions and the software handles the forms.