Fill in US Tax Deductions and Credits

Many people have little trouble with the first page of the IRS 1040 return, but when it comes to the deductions and credits, they have many more questions. Deductions are adjustments to your taxable income. There are two different kinds of credits, refundable and non-refundable. Refundable credits, as the name implies, increase your refund. Non-refundable credits don't increase your refund, but they reduce your tax liability. On the second half of the 1040A, or the back portion of the 1040 tax form there is a list of refundable, and non-refundable tax credits. These are a good way to adjust your tax liability, and in doing so, reducing your taxes. You might even increase your refund.

Steps

  1. Insert your gross income on the first line after the dependent exemption section. Everything after this line, before the adjusted gross income, are adjustments.
  2. Enter the taxable Interest, and Unemployment on lines 2 and 3 of the 1040EZ;
    • Fill in the educator expenses for teachers, IRA deductions, Student loan interest deduction, Tuition and Fees deduction on lines 16 through 19 of the 1040A; and
    • Fill in the Educator expenses, Certain business expenses, Health Savings Accounts, Moving expenses, One half of self employment tax, Self-employed qualified plans, Self-employed health insurance deduction, Penalty on early withdrawal of savings, Alimony paid, IRA Deductions, Student Loan Interest Deductions, Tuition And Fees Deductions, and Domestic production activities deduction on lines 23 through 35 of the 1040 return.
  3. Total these figures, and subtract according to the form. This is your Adjusted Gross Income.
  4. Enter your itemized deductions from Schedule A if you file Itemized Deductions or the standard deduction (by looking at the figures in the far-left column of the 1040) and subtract from the AGI.
  5. Multiply the exemption dollar amount by the number of exemptions claimed on the dependent total section of the first page. Enter that in the next line. This is your Dependent Exemption Deduction. Since this is subtracted from the Adjusted Gross Income, it will reduce your taxable income.
  6. Fill in the refundable credits: Credit for child and dependent care expenses (Form 2441), Credit for elderly or the disabled, Education credits (Form 8863), Residential energy credits (Form 5695) (1040), Foreign tax credit (Form 1116) (1040), Child Tax Credit (Form 8901), Retirement Savings Credit (Form 8880), and Other credits. These are figured in when you figure your total tax.
  7. Fill in the non-refundable credits: Estimated tax payments, Earned income credit, Nontaxable combat pay, Excess social security and railroad tax withheld, Additional child tax credit (Form 8812). These are used to reduce increase the refund.

Tips

  • The line-by-line figuring is described in the articles highlighted at the beginning of the Adjustments section.
  • The intention of this article is not to confuse; therefore, line numbers are not used, because they are so different one form to the other.
  • Dollar figures are not used because they change from year to year. For current year figures, see the IRS Pub 17 at http://www.irs.gov/pub/irs-pdf/p17.pdf.
  • Some of these will not apply, depending on your needs or your return. Fill them out as needed, as they apply.

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