Finding Above The Line Tax Reductions for your venture in 2009
When it comes to federal income taxes, your focus should be to pay just what’s necessary, 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 want to do this without technically reducing your income. You can do this by taking appropriate above-the-line tax deductions.
Above-the-line-tax deductions are basically like tax breaks 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 last line. These deductions reduce your adjustable gross income and effectively decrease your tax liability.
The following are a few 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 employment purposes.
• Self-employment. Half the amount of taxes that are calculated to Social Security and Medicare.
• Self-employed retirement plans.
• Self-employed health insurance. The total amount you fund in health insurance premiums not only for yourself, but for your spouse and dependents as well. Even contributions towards long-term care policies are included.
• 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 include your ex-spouse’s social security number; otherwise the deduction might be disallowed.
• IRA deductions for amounts contributed to traditional IRAs for people 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.
Individuals can get many of these above-the-line tax deductions by using the long form, 1040. If you would rather use the short from, 1040A, you may still take some of these deductions. Early account withdrawal penalties, IRA contributions, student loan interest and jury pay are 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 Review of Domain Tax Guides.
