2/19/2013 1:45 PM ET|
Cut your taxes without itemizing
If you qualify, there are more than a dozen income 'adjustments' available to you without the inconvenience of filing a Schedule A.
What do teachers, divorcees and people paying off student loans have in common? They can cut taxes, without itemizing.
These filers, along with other taxpayers who fit into special categories, might be able to claim at least one of the dozen-plus deductions found directly on Form 1040 without hassling with Schedule A.
Taxpayers who file Form 1040A can claim a few of these tax deductions on that shorter form, too.
Adjustments, not deductions
Officially, these breaks are identified as adjustments to your income. But they are popularly referred to as above-the-line deductions because you subtract them on Page 1 of your Form 1040 or Form 1040A, just above each form's last line where you enter your adjusted gross income, or AGI.
Taking these deductions will reduce your AGI, which in most cases, directly cuts your overall tax bill because figuring your AGI is the first step in arriving at your final taxable income amount. The less taxable income, the less you'll owe the Internal Revenue Service.
While these deductions mean that Form 1040 filers don't have to hassle with Schedule A, a few above-the-line tax breaks do require you to fill out another IRS form or work sheet. Still, that's a relatively small time commitment to shave dollars off your tax bill.
Listed below, in the order in which they appear on lines 23 through 36 of Form 1040, are the current above-the-line deductions.
1. Educator expenses: With the educators' expenses deduction, teachers and other public and private school system employees can subtract up to $250 spent on classroom supplies.
In past tax years, this deduction appeared on line 23. But because of the late passage of the "fiscal cliff" tax bill, officially titled the American Taxpayer Relief Act of 2012, the Internal Revenue Service created Form 1040 with line 23 "reserved." The form's instructions will provide details of what above-the-line deduction to claim here.
2. Certain business expenses: Unreimbursed business expenses also appear on Schedule A as a miscellaneous deduction. But some taxpayers can claim work-related costs directly on line 24 without worrying about a percentage threshold. You do, however, have to fill out Form 2106 or 2106-EZ.
The taxpayers who qualify for this adjustment are military reservists, performing artists and government officials paid on a fee basis. Although this collection sounds more like the cast of an avant-garde foreign language film than related taxpayers, lawmakers have deemed that anyone who falls into one of these categories deserves special tax treatment. If you are in one of these three fields, check the Form 2106 instruction book for filing details.
3. Health savings account deduction: A health savings account, or HSA, is a medical coverage plan that works much like an individual retirement account. Eligible participants put money into an HSA where it grows tax-free and withdrawals can be made to pay medical, dental and vision-care costs not covered under a corresponding high-deductible health care policy.
4. Moving expenses: If you relocated for job reasons, some of your expenses can be deducted on line 26. You will, however, also have to fill out Form 3903.
5. Self-employment tax: If you're self-employed, you have to pay Social Security and Medicare taxes -- the amount collected from you as an employee and as an employer. But you get to deduct half of those payments on line 27.
6. Self-employed retirement plans: If you have a self-employment pension plan, such as a Keogh or a Simplified Employee Pension plan, you can deduct any contribution amounts on line 28.
7. Self-employed health insurance: As an entrepreneur, you now can deduct 100% of health insurance premiums you paid for yourself, your spouse and dependents. Don't forget to count what you paid toward long-term care policies. You get a partial break here, too. Enter the amount on line 29.
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Another that reduces your gross wages from the beginning...contribute to your 401(k). Double bonus for that contribution or contributions to an IRA...check out form 8880 - if you qualify, there's a very powerful little credit for doing so. So, not only are you reducing your taxable income, you could reduce or wipe out your tax balance while planning for your retirement.
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