Identifying Above The Line Tax Reductions for your venture in 2010
When it comes to federal income taxes, your goal should be to pay only what’s necessary, nothing more. Since your tax liability is calculated by your income, the surest way to reduce the taxes you owe is to reduce your income. Of course, you need to do this without technically reducing your income. You can do this by taking legal 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 subtracted on the front 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 Internet Tax Guide which you should take if you are eligible.
• Moving expenses, if you relocated 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 amount you fund 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 became divorced and funding alimony, you can deduct these payments from your income. You must include your ex-spouse’s social security number; otherwise 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 get most 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 take 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 are allowed on the 1040A tax return. Consult with your personal tax consultant for more details or check out this Domain Tax Guide Review.
