Put Money Away In An IRA
Once you've accounted for all your income, Form 1040 asks you to figure your adjusted gross Income. AGI is nothing more than a total of your income from various sources minus certain "adjustments" (also called "above-the-line" deductions) allowed by law. The accompanying worksheet lists adjustments that are deductible in computing AGI. is nothing more than a total of your
income from various sources minus certain "adjustments" (also called"above-the-line" deductions) allowed by law. The accompanying worksheet lists adjustments that are deductible in computing AGI.
Minimizing AGI gives you a variety of tax advantages, so be sure you don't overlook any adjustments you are entitled to use. These above-the line deductions generally are more valuable than itemized deductions of the same amount because they reduce your AGI and help preserve other tax breaks that are subject to AGI limits. They are available to nonitemizers as well as taxpayers who itemize their deductions.
Put Money Away In An Ira
Your contributions to a traditional IRA may reduce your AGI and your income tax. In 2012, contributions up to $5,000 - $6,000 if you're age 50 or older will be fully deductible if you (and your spouse) are not considered active participants in certain employer-sponsored retirement plans. You (or your spouse) must have earned income equal to or greater than your IRA contribution amount. There are income restrictions on deductible contributions. If you (or
your spouse) do participate in a plan at work. To contribute to your traditional IRA, you must be under age 70-1/2, and you (or your spouse) must earn compensation.
With a Roth IRA, contributions aren't tax deductible, but qualified distributions will be tax free when certain requirements are met. As with a traditional IRA, you (or your spouse) must have earned compensation to contribute to a Roth IRA Contributions to Roth IRAs are phased out as modified AGI exceeds certain thresholds.
For 2012, the phase out ranges are: $173,000 to $183,000 for married couples filing jointly, $110,000 to $125,000 for heads of household and single filers, and $0 to $10,000 for married persons filing separately.
Set Up And Contribute To A Self·Employed Plan
If you're self-employed full -time or in a sideline business, contributions to a retirement plan for yourself and any eligible employees are generally tax deductible (subject to tax law limits). Plan investment earnings are tax
deferred, and benefits are not taxed until distributed. Here Are Several Retirement Savings Options:
You generally may establish a SIMPLE IRA anytime between January 1 and October 1 to contribute for the year.
Simplified Employee Pension (SEP).
You generally have until the due date of your (or your firm's) income-tax return (including extensions) to set up a SEP plan for 2012.
Solo 401 (k). This plan must be set up by the end of your business's tax year. In addition to a 401(k) deferral, you also can make a tax-deductible profit sharing contribution. (Limits apply.)
Keogh plan. A Keogh plan must be in place before the end of the year to be effective for 2012. Then, you'll have until the tax filing deadline (plus any filing extensions) to contribute. The maximum contribution varies depending on the type of Keogh plan established.
See page 15 for more information about tax-favored retirement plans.
|Your Estimated Income (from page )||$|
|Traditional IRA contributions||$|
|Student loan interest||$|
|Health savings account contributions||$|
|Self-employment tax deduction||$|
|Self-employed health insurance costs||$|
|Self-employed SEP, SIMPLE, and qualified retirement plan contributions||$|
|Penalty on early withdrawal of savings||$|
|Adjusted Gross Income (AGI): | S
(Total income minus total adjustments)
*This list is not all -inclusive, and various requirements and limitations apply.