TAX TIP No. 33
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 your company doesn't offer a retirement plan, you might be eligible to contribute up to $4,000 for the 2007 tax year to a traditional individual retirement account and subtract that full amount from your income. The amount goes to $5,000 if you're 50 or older. Enter the deductible contribution on line 32.
Even if you have a company pension plan or 401(k), the Internal Revenue Service has increased the earnings limits -- as much as $102,999 on a joint return for a worker with a pension; $61,999 for single filers -- so that more people are able to take at least a portion of this tax break. An IRA deduction work sheet is included in the Form 1040 instructions, which will also help joint filers figure an allowable deduction where only one spouse is covered by a pension at work.
Older taxpayers, however, need to pay special attention. Since the IRS requires you to start taking minimum distributions from your IRA in the year you turn 70�, if you were that age or older at the end of the year, you cannot deduct any contributions made to a traditonal IRA.
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. You are no longer limited to deducting interest paid during the first 60 months of the loan, making longer-term college loans more tax valuable. However, this deduction is limited if you make $70,000 and are a single filer, $140,000 or more and file jointly with your spouse. Married taxpayers who file separate returns cannot claim this adjustment.
12. Tuition and fees. The higher education tuition and fees adjustment returns to tax forms this year. This tax break could reduce your taxable income by as much as $4,000. But new this year is the associated Form 8917. You'll need to complete it and then enter the amount of tuition and fees deduction calculated there on line 34.
13. Domestic production activities. This above-the-line deduction was created to encourage "made in the 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 6 percent of the money earned or 50 percent 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 is available to certain creators of software, films or recordings.
You'll need Form 8903 to figure this credit. Don't forget to also enter the eligible amount on line 35 of your Form 1040.