This component of your overall financial life is just what the name implies: your total income combined from all sources, including your wages, interest on your savings, pensions, annuities, disability income, trust funds, dividends from stock ownership, part-time work, sideline business, etc. Most of us do not have too many of these listed factors to worry about, as most or all of our income is derived from wages or self-employment.

It is obvious that this is the pot of money with which we start each month, and where we get the money to pay taxes, expenses and maybe some left over for savings. Some people have some savings taken out of their wages before they get paid each month, instead of trying to have the discipline to control spending enough to have some money left over after expenses each month. This is the subject of a different article.

The tax treatment (and deductions from income) of various forms of income is a vital issue for a person to study and know. This factor will be discussed in greater depth in another article under Taxes. For the moment it is important to know that various sources of income are taxed differently, and that some planning can have a dramatic effect on how much one keeps after taxes are taken out or paid later.

The entire front page of the IRS Form 1040, shown below, the personal income tax form, is devoted to listing the various sources of income and various possible adjustments (plus and minus) which finally yield the amount of income that will be taxed. Mastery of this section and the taxation issues that lie behind it is extremely vital.

(Content continues below Form 1040)

If you are an employee of someone else, Line 7 will be the most important line for you, where you report your salary or wages. Your employer tells you at the end of the year, on a special form W-2, how much your gross income was, the taxes he took out to send to the IRS, and your net income. You don't have much control over these figures, except to change the amount of withheld taxes, based on the number of exemptions you declare.

Line 12 is the important one for self-employed people reporting their business activities (financial) on a Schedule C, which is part of the Form 1040. On the Schedule C, the business owner deducts legitimate business expenses from the total income of the business to arrive at the net income reported on this line. The owner has a great deal of control over what he declares as business expenses, which has a direct bearing on what is left over for him, or net income.

It is worthy of note here that a business owner is taxed differently than a wage earner. The self-employed person pays his half of the social security and Medicare taxes, plus the half that an employer would pay for him.

This section is not intended to be a primer or a tutorial on completing this tax form. It is intended simply to point out that there are many sources of income which must be reported on Lines 7 through 21, and many deductions from this income on Lines 22 through 35, before arriving at an Adjusted Gross Income on Line 37.

It cannot be over-emphasized that a clear understanding of legally minimizing taxes will have a significant impact on a person's entire working life and the money that he will retain for retirement. There are many resources available for a taxpayer to study these subjects and to maintain control over his own retained income.