How does one figure income from sources other than employment such as capital gains? Does it still have to be itemized?
No. You can have income from other sources other than employment including 1099 income and capital gains and not have to itemize.
Capital gains and losses are reported on Schedule D and the net result is reported on your 1040 on line 13 and is included in the amount that makes up your adjusted gross income.
At that point you can decide whether to itemize or take the standard deduction.