8. Penalty on early withdrawal of savings: On line 30, the IRS gives you a break when someone else slaps your hand. If you cashed in a certificate of deposit and paid an early withdrawal penalty, you'll find the amount on the 1099-INT or 1099-OID that the account manager sent you. The IRS lets you subtract that charge from your income.
9. Alimony paid: Divorced filers get a chance to recoup alimony payments on line 31. Be sure to include the Social Security number of your ex-spouse, so the IRS can make sure he or she reports the payments as income. Without the recipient's tax ID number on your return, the deduction could be disallowed.
10. IRA deduction: If you contribute to a traditional IRA, you might be able to deduct at least a portion of your contribution from your income. Precisely how much you can claim on line 32 of Form 1040 depends not only on your contribution amount, but also on your adjusted gross income and whether you or your spouse participate in a company-sponsored retirement plan. It requires some calculation, but run the numbers. This above-the-line deduction could help lower your taxable income.
11. Student loan interest: Up to $2,500 of the interest you paid on a qualified student loan can be subtracted on line 33. The loan can be for you, your spouse or a dependent. Note that there are income limits and married taxpayers who file separate returns cannot claim this adjustment.
12. Tuition and fees: The higher-education tuition and fees adjustment could reduce your taxable income by as much as $4,000. You'll need to complete Form 8917 and then enter the amount of tuition and fees deduction calculated directly in the last section of Form 1040.
The late enactment of the American Taxpayer Relief Act of 2012 also affected this above-the-line deduction. It previously was claimed on line 34, but the IRS was forced to create the form with this line reserved. It is expected that the student loan interest claim will go here. The 1040 instructions will provide details.
13. Domestic production activities: This above-the-line deduction was created to encourage "made in U.S.A." manufacturing efforts. U.S.-based businesses that manufacture products domestically instead of sending the work overseas might be able to deduct up to 9% of the money earned or 50% of the wages paid in connection with the production effort, whichever is less. This tax break applies not only to such expected occupations as construction or farming, but also to some creators of software, films or recordings.
You'll need Form 8903 to figure the exact credit that goes on line 35 of your Form 1040.
We're out of designated adjustment lines as we reach the bottom of Page 1, so that's the end of the tax breaks that don't have to be itemized, right? Wrong.
Some specialty adjustments
Although line 36 simply instructs you to total your entries on all the previous adjustment lines, taxpayers who take a closer look at Form 1040 instructions will find even more possible ways to whittle away some of their taxable incomes.
Sure, several of these adjustments, such as reforestation amortization or repayment of specific supplemental unemployment benefits or court costs for certain unlawful discrimination cases, are for relatively limited tax situations. But a couple of the adjustments affect quite a few taxpayers.
Line 36 is where you enter any pay you got for jury duty but turned over to your boss because you got your regular pay while at the courthouse.
Contributions to special medical savings accounts offered by some small businesses also are accounted for here. You'll need to fill out Form 8853 to determine the amount to enter on this catchall line.
So take a moment to check out all these other possible above-the-line deductions. Details are in the Form 1040 instruction book. If you're one of the select group of taxpayers to whom these apply, claim the amount and add the special notation spelled out in the instructions to line 36. The extra adjustments could really pay off.
Now it's time to add all these specially annotated line 36 amounts to the deductions claimed on the preceding 13 income adjustment lines. This final number goes on line 37. Once entered there, it's subtracted from the total income amount you entered on line 22. The result: your adjusted gross income.
A few deductions also on 1040A
What if you don't want to or need to use the long Form 1040? You still get a chance to reduce your income if you file Form 1040A instead.
Four of these above-the-line adjustments -- educator expenses, IRA contributions, student loan interest and tuition and fees -- also can be deducted on lines 16 through 19 of that slightly shorter tax return.
Just as Form 1040 had two lines reserved because of the late passage of the American Taxpayer Relief Act of 2012, so does Form 1040A . Lines 16 and 19 are reserved for the educator expenses and the tuition and fees above-the-line deductions. Check the Form 1040A for details of which deduction to enter on those lines.
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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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