Total positive income (TPI) is an IRS term that describes your taxable income on your tax return. The IRS computer systems use your TPI to calculate a score that indicates whether you should be audited. While this seems scary, you can’t avoid the TPI system used by the IRS. However, you can lower your audit risk by filing all schedules required by your return and reporting all income you’re required to include.
The most common TPI category is wages. Wages include your income from W-2 employment, but do not include income you or your spouse earn as a subcontractor or other self-employment. You are a W-2 employee if your employer withholds Social Security and Medicare taxes from your paycheck. You can also double check your employment status based on the type of tax document you receive at the end of the year. If you get a W-2, you're an employee; if you get a 1099-MISC, you're self-employed.
Interest and Dividends
Interest and dividend income typically comes from investments you make. However, interest income can also come from sources you may not expect -- such as certain gifts you receive. If you receive a gift for opening a bank account, the value of the cash or gift you receive is considered interest income. You'll know you received this type of income if the bank sends you a 1099-INT at the end of the year. You must report the value of your gift on your tax return. Dividends you receive include money you earn on more traditional investments, such as stocks or partial ownerships in corporations. You'll know you received dividend income if you get a 1099-DIV at the end of the year.
Self-employment income from a sole proprietorship or single-member LLC you operate is included in TPI calculations, but the amount included in TPI is your net profit, or income after your expenses are deducted from gross receipts. You’ll report income from this type of activity on Schedule C with your tax return. Income you receive as a subcontractor on Form 1099-MISC, is also treated as self-employment income. Farm operation activities are also considered self-employment, except your activity is reported on Schedule F instead of Schedule C.
TPI losses are calculated in two ways -- through normal deductions from your adjusted gross income (AGI) and through net losses from your self-employment income. The IRS allows each taxpayer to claim a standard deduction or itemized deduction as a subtraction from gross wages and other types of income. If you earn less than the amount of your deductions, then you have negative income. This is reported as a zero for TPI purposes. Net losses from self-employment income are first subtracted from positive TPI you have from other sources. If the result from the offset of losses is positive, you have some total positive income. If the result is negative, you have zero TPI.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.