When it comes to federal income taxes, your goal needs to be to pay only what’s owed, nothing more. Since your tax liability is calculated by your income, the best way to lower the taxes you owe is to minimize your income. Of course, you want 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 basically like tax deductions that are adjustments to your income. They’re identified as 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 in the end decrease your tax liability.
The list below are a few above-the-line tax deductions that are discussed in our Domain Tax Guide which you can consider if you are eligible.
• Moving expenses, if you moved for job 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 cost 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 obtain most 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 utilize 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.