Discovering Above The Line Tax Reductions for your business in 2008
When it comes to federal income taxes, your focus needs to be to pay just what’s appropriate, nothing more. Because your tax liability is determined by your net income, the best way to reduce the taxes you owe is to minimize your income. Of course, you must do this without illegally reducing your income. You can do this by taking certain 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 claimed on the first page of the tax return just above the last line. These deductions minimize your adjustable gross income and effectively decrease your tax liability.
The items below are some above-the-line tax deductions that are discussed in our Internet Marketing Tax Guide which you should take if you are eligible.
• Moving expenses, if you relocated for employment 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 premiums 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; 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 utilize 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 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.