Finding Above The Line Tax Reductions for your return in 2009
When it comes to federal internet taxes, your goal should be to pay just what’s necessary, nothing more. Since your tax liability is determined by your income, the surest way to lower the taxes you pay 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 breaks that are adjustments to your income. They’re identified as above-the-line because they are subtracted on the first page of the tax return just above the bottom line. These deductions limit your adjustable gross income and ultimately reduce your tax liability.
The list below are a few 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 professional purposes.
• Self-employment. Half the amount of taxes that are paid to Social Security and Medicare.
• Self-employed retirement plans.
• Self-employed health insurance. The total amount 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 funding alimony, you can deduct these payments from your income. You must include your ex-spouse’s social security number; or 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.
You can obtain many of these above-the-line tax deductions by using the long form, 1040. If you prefer to use the short from, 1040A, you may still take a few of these deductions. Early account withdrawal penalties, IRA contributions, student loan interest and jury pay are the above-the-line-tax deductions that are allowed on the 1040A tax return. Consult with your personal tax consultant for more details.
