When it comes to federal business taxes, your focus needs to be to pay only what is appropriate, nothing more. Because your tax liability is determined by your net income, the surest way to lower the taxes you owe is to minimize your income. Of course, you must do this without technically 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 labeled above-the-line because they are reduced 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 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 job purposes.

• Self-employment. Half the total of taxes that are calculated to Social Security and Medicare.

• Self-employed retirement plans.

• Self-employed health insurance. The total amount 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 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 became 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.

You can obtain many 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 a few 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 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.

Categories : Lora's Posts