What must taxpayers include when calculating their annual tax obligations?

When calculating their annual tax obligations, taxpayers must include both earned income and capital gains in their taxable income. Earned income refers to the money received from working, such as wages, salaries, and tips. Capital gains, on the other hand, arise from the sale of investments or assets that have increased in value since their purchase.

These two components are critical because they contribute to the overall income that is subject to taxation. Including both earned income and capital gains ensures that taxpayers report a complete picture of their financial activities over the year, allowing for an accurate calculation of their tax liabilities.

Other options highlight components that should not be solely used for calculating tax obligations. While earned income is essential, it does not encompass the entirety of a taxpayer's financial activities. Investment losses, while they can affect taxable income due to capital gains taxation rules, do not represent actual income earned or gain realized. Tax credits reduce the final tax liability but are not part of the income calculation itself. Therefore, it is imperative to consider both earned income and capital gains when determining taxable income.