Deductions that Can Lower Your 2009 Taxable Income

In addition to deductions that can lower the amount of tax that you owe are deductions that can lower your taxable income. On federal tax form 1040, after you have added the total of all your income sources you will find the section for Adjusted Gross Income. This is the section for listing the deductions that you can take to lower the amount of income that you are taxed on.

Itemized deductions are different than these types of deductions and are used when your itemized deductions would be greater than the standard deduction allowed for your tax filing status. Itemizing can be better when you have large medical, business or other expenses. Adjustments to gross income deductions are taken before you reach the standard deduction section of form 1040.

Educator expenses:

Line 23 of the 2009 federal 1040 form is for qualified educator expenses. To be considered a qualifying educator you must have worked for at least 900 hours during the tax year in grades K through 12. Deductions do not apply for home schooling. You may deduct up to $250 dollars for your expenses as an educator. If you are married filing jointly each qualified spouse may deduct up to $250. Instructions are found on page 29 of the IRS 2009 tax guide.

Special business expenses:

Line 24 2009 is different from the 2008 1040 form. Business expenses for National Guard members and reservists, that were required to travel more than 100 miles from their home, plus performing artists and government officials may take qualified deductions on this line. You must attach form 2106 or 2106-EZ for this deduction and complete instructions can be found on those forms.

Health Savings deductions:

If you made contributions to your health savings account that were not employer contributions or rollovers you may be able to take this deduction to lower you total income. Follow the instructions on form 8889 and attach it to your return to take advantage of this deduction.

Moving expenses:

Line 26 of the 2009 1040 form is for moving expenses. You must attach form 3903 with your return. You may take moving expenses if your move was related to a job or business change. Your new work place must be a minimum of 50 miles further from your previous home than your former work place was from your former home. In general almost all costs related to your move will be deductible except for meals while you are traveling. Follow the instructions for this form carefully to be sure you obtain the greatest reduction possible.

Self-employment deductions.

Lines 27, 28 and 29 are for taking certain self-employment deductions. You may deduct one half of your self-employment tax. You must figure this deduction on, and attach, Schedule SE. You may also take a deduction for SEP, SIMPLE and other qualified plans.

Detailed instruction for this are found in publication 560 or for members of the clergy, publication 517.

You may also be able to deduct the costs of your health insurance if you are self-employed or in a S corporation. The insurance plan must be established under your business but you can take the deduction for insurance costs for yourself, spouse and dependents. This is not the same deduction as the one that can be taken for medical expenses and a worksheet is needed to figure out the total amount you can deduct from your income.

Early withdrawal penalties:

If you receive a Form 1099-INT or Form 1099-OID, you may deduct any penalties paid for early withdrawal of your savings from your total income.

Alimony:

Alimony payments that are made by a court order or court agreement are deductible. You must provide the recipients social security number in section B of line 31. The alimony paid is taxable to the recipient. Only amounts that are included in a divorce decree can be deducted.

IRA deductions:

Page 31 of the IRS instructions for tax year 2009 provides a detailed description for taking IRA deductions. General rules are that you must have had earned income during the tax year not just earnings from investments or other unearned income. You must be under the age of 70 and one half at the end of 2009 to take traditional IRA deductions. You can not take deductions for contributions to a Roth IRA but you may be able to take the Saver's Credit for Roth contributions.

Student loan interest and tuition deductions:

Lines 33 and 34 are for taking qualified deductions for student loan interest and tuition and fees deductions. To take interest deductions you must meet certain income requirements and must be the responsible party for the student loan. Just making payments on someone else's loan will not qualify you for the interest paid deduction. The rules and worksheets for these deductions are extensive but worth looking into. These deductions are different than credits that you can take for qualified education expenses like the Lifetime Learning credit.

Domestic Production:

You may be able to deduct up to six percent of your qualified production activities income. Some of the qualifying activities include construction of real property in the United States and engineering or architectural services for this construction. Also included are other items manufactured or produced in the United States and the U.S. production of electricity, potable water or natural gas. Form 8903 provides details and instructions for these deductions.

Be sure to be completely familiar with all the deductions that are available for the tax year 2009. Deductions to your gross income will lower the amount of tax you are required to pay and if you can then take tax credits you may end up pleasantly surprised when you complete your 2009 tax return.

References:

http://www.irs.gov/pub/irs-pdf/i1040gi.pdf