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Finding Above The Line Tax Reductions for your return in 2010
February 18, 2010
When it comes to federal income taxes, your goal needs to be to pay only what is owed, nothing more. Because your tax liability is calculated by your net income, the surest way to lower the taxes you pay is to minimize your income. Of course, you must do this without illegally reducing your income. You can do this by taking appropriate above-the-line tax deductions.
Above-the-line-tax deductions are more like tax deductions that are adjustments to your income. They’re called above-the-line because they are claimed on the first page of the tax return just above the bottom line. These deductions limit your adjustable gross income and in the end decrease your tax liability.
The items below are some above-the-line tax deductions that are discussed in our Domain Tax Guide which you can take if you are eligible.
• Moving expenses, if you moved for job purposes.
• Self-employment. Half the total of taxes that are paid to Social Security and Medicare.
• Self-employed retirement plans.
• Self-employed health insurance. The total cost you pay in health insurance fees not only for yourself, but for your spouse and dependents as well. Even contributions towards long-term care policies are deductible.
• Penalties paid for early withdrawal of savings. The account manager of such an account should send you a 1099-INT or 1099-OID form including the early withdrawal penalty.
• Alimony payments. If you are divorced and paying alimony, you can deduct these payments from your income. You must provide your ex-spouse’s social security number; or the deduction might be disallowed.
• IRA deductions for amounts contributed to traditional IRAs for individuals who are self-employed.
• Student loan interest. Up to $2,500 in student loan interest paid can be deducted for single filers making $65,000 or less or joint filers making $135,000 or less.
• Jury duty pay if it was turned over to your employer.
You can obtain many of these above-the-line tax deductions by utilizing the long form, 1040. If you would rather use the short from, 1040A, you can still utilize some of these deductions. Early account withdrawal penalties, IRA contributions, student loan interest and jury pay are a few of the above-the-line-tax deductions that may be claimed on the 1040A tax return. Consult with your personal tax consultant for more details or check out this Domain Tax Guide Review.