Federal Tax Adjustment Information & Tips

Federal Tax Adjustment Information & Tips

Federal Adjustment Information - OnLine Taxes at olt.com



Federal Tax Adjustment Information & Tips

Income adjustments available on your 2018 Form 1040

  • Educator expenses
  • Certain business expenses of reservists, performing artists, and fee-basis government officials - Form 2106.
  • Health savings account deduction - Form 8889.
  • Moving expenses for members of the Armed Forces - Form 3903.
  • Deductible part of self-employment tax - Schedule SE.
  • Self-employed SEP, SIMPLE, and qualified plans.
  • Self-employed health insurance deduction.
  • Penalty on early withdrawal of savings.
  • Alimony paid. - must include Recipient's SSN
  • IRA deduction.
  • Student loan interest deduction.
  • Domestic production activities deduction - Form 8903 (Only for fiscal-year pass-through entities that have a domestic production activities deduction generated in a tax year beginning before December 31, 2017).

Adjustments FAQ
  1. I am a teacher. I bought some books and other learning tools for my classroom. Are any of these expenses deductible?
  2. I made contributions to an IRA throughout the year. Are any of these contributions deductible?
  3. Is the interest I paid on my student loans deductible?
  4. I am paying for my own college. Can I take any type of deduction for my college tuition that I've paid this year?
  5. I moved so I could take a new job. Can I claim moving expenses on my return?
  6. I've read that if you are self-employed, you can deduct some of the self-employment taxes paid. What are the rules regarding this?
  7. What are the rules regarding the Self-Employed Health Insurance Deduction?
  8. I'm divorced. According to our divorce agreement, I'm required to pay my ex-wife alimony. Are these alimony payments deductible on my taxes?
  9. Page 1 on Form 1040 says business expenses for certain individuals. What exactly is this adjustment for, and who qualifies for it?
  10. What is a Health Savings Account? What are the benefits of opening a Health Savings Account? Can any contributions be deducted?


I am a teacher. I bought some books and other learning tools for my classroom. Are any of these expenses deductible?
If you are an educator, you may be able to deduct up to $250 of expenses you paid for purchases of books and classroom supplies, even if you do not itemize your deductions. These out-of-pocket expenses may lower your tax bill.
Eligible Expenses - The deduction is available if you are an eligible educator in a public or private elementary or secondary school. To be eligible, you must work at least 900 hours during a school year as a teacher, instructor, counselor, principal, or aide.
Qualifying Expenses - You may subtract up to $250 of qualified expenses when figuring your adjusted gross income. Qualified expenses are expenses not reimbursed by your employer that you paid for books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you used in the classroom. For courses in health and physical education, expenses for supplies are qualified expenses only if they are related to athletics.
To be deductible, the qualified expenses must be more than the following amounts for the tax year:
  • The interest on qualified U.S. savings bonds that you excluded from income because you paid qualified higher education expenses.
  • Any distribution from a qualified tuition program that you excluded from income.
  • Any tax-free withdrawals from your Coverdell Education Savings Account.
You must reduce your qualified expenses by the following amounts:
  • Excludable U.S. series EE and I savings bond interest from Form 8815.
  • Nontaxable qualified tuition program earnings or distributions.
  • Any nontaxable distributions of Coverdell education savings account earnings.
  • Any reimbursements you received for these expenses that were not reported to you in box 1 of your Form W-2.
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I made contributions to an IRA throughout the year. Are any of these contributions deductible?
For 2018, your total contributions to all of your traditional and Roth IRAs cannot be more than $5,500 or compensation received for rendering personal services. For taxpayers age 50 or older, the limit increases to the lesser of $6,500 or compensation.
Compensation includes:
  • Wages, salary, bonuses, etc
  • Self-employment income
  • Partnership income (non-passive only)
  • Certain alimony or separate maintenance payments that are taxable income
Compensation does NOT include:
  • Income from investments, such as interest or dividends
  • Pensions or annuities
  • Social Security benefits
  • Deferred compensation
  • Passive partnership income
  • S corporation income from Schedule K-1
  • Any amount excluded from income such as the foreign earned income exclusion
Generally, you can deduct the lesser of either what you contributed to your Traditional IRA, or the general limit regarding how much can be contributed. You can figure your deduction using the worksheets in the instructions for Form 1040.
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Is the interest I paid on my student loans deductible?
You may be able to deduct up to $2,500 for interest you pay on a qualified student loan. And, if your student loan is canceled, you may not have to include any amount in income. The deduction is claimed as an adjustment to income, so you do not need to itemize your deductions.
A qualified student loan is a loan you took out solely to pay qualified higher education expenses. The expenses must have been:
  1. For you, your spouse, or a person who was your dependent when you took out the loan.
  2. Paid or incurred within a reasonable time before or after you took out the loan, and
  3. For education furnished during an academic period when the recipient was an eligible student.
Qualified higher education expenses are the costs of attending an eligible educational institution, including graduate school. The costs of attendance are determined by the eligible educational institution and include tuition and fees, an allowance for room and board, and an allowance for books, supplies, transportation and miscellaneous expenses. The student must have been enrolled in a degree, certificate, or other program leading to a recognized educational credential at an eligible education institution and must have carried at least one half of a normal full-time work load for the course of study being pursued.
  1. Non-taxable employer provided educational assistance.
  2. Non-taxable distributions from a Coverdell educational savings account.
  3. Non-taxable distributions from a qualified tuition program.
  4. U.S. Savings Bond interest that is non-taxable because it is used to pay qualified higher education expenses.
  5. The non-taxable part of scholarships and fellowships.
  6. Veterans educational assistance.
  7. Any other non-taxable payments (other than gifts, bequests, or inheritances) received for educational expenses.
You cannot claim the deduction if:
  1. Another taxpayer claims an exemption for you as a dependent.
  2. Your filing status is married filing separately, or
  3. You are not legally obligated to make payments on the loan.
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I am paying for my own college. Can I take any type of deduction for my college tuition that I've paid this year?
The Tuition and Fees deduction expired as of December 31, 2017 and has not been extended as of date. You may still qualify for an education credit. You may be able to deduct up to $4,000 for qualified tuition and related expenses that you pay for yourself, your spouse, or a dependent. Expenses that qualify are tuition and fees required for enrollment or attendance at an accredited college, university, vocational school, or other post-secondary educational institution that is eligible to participate in a student aid program administered by the Department of Education. Qualified expenses may include fees for books, supplies, and equipment only if the fees must be paid to the school for the student's enrollment or attendance. In addition, qualified expenses may include student activity fees if the fee must be paid to the school for the student's enrollment or attendance.
You do not have to itemize to take this deduction because it is treated as an adjustment to your income. You can claim qualified tuition and fees as either an adjustment to income, or as the American Opportunity or Lifetime Learning credit. You cannot do both.
You cannot claim a deduction or credit based on expenses paid with tax-free scholarships, fellowships, grants, or education savings account funds such as a Coverdell education savings account, tax-free savings bond interest or employer provided education assistance. The same rule applies to expenses you pay with a tax-exempt distribution from a qualified tuition plan, except that you can deduct qualified expenses you pay only with that part of the distribution that is a return of your contribution to the plan. Also, you cannot deduct qualified education expenses you deduct anywhere else on your return.
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I moved so I could take a new job, can I claim moving expenses on my return?
As of December 31, 2017, moving expenses are deductible only if you are a member of the Armed Forces on active duty and, due to a military order, you move because of a permanent change of station.
You can deduct the reasonable expenses of moving and/or storing your household goods and personal effects. You can also deduct the expenses of traveling to your new home, including your lodging expenses. You cannot, however, deduct meals.
Moving expenses are figured on IRS Form 3903 and deducted as an adjustment to income on Form 1040, Schedule 1. You cannot deduct any moving expenses that were reimbursed by your employer.
For additional information, refer to the IRS Form 3903 Instructions and IRS Publication 521, Moving Expenses.
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I've read that if you are self-employed, you can deduct some of the self-employment taxes paid. What are the rules regarding this?
If you have net earnings from self-employment of $400 or more, you are required to file Schedule SE along with your Form 1040. Line 6 of Schedule SE is a deduction for one-half of self-employment tax. Once half of your self-employment tax is figured, it can be reported on Line 27 of Schedule 1.
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What are the rules regarding the Self-Employed Health Insurance Deduction?
Up to 100% of health insurance premiums paid on behalf of the sole proprietor, spouse and dependents may be deducted on line 29 on Schedule 1 as an adjustment to income. The deduction is limited to the net profit from Schedule C minus the deductions for one-half of Self Employment tax, Keogh, SEP, and SIMPLE contributions. Do not include any amount deducted on line 29 of Schedule 1 in figuring the medical expense deduction on Schedule A (Form 1040). The deduction is not allowed for any month that the self-employed individual or the spouse is eligible to participate in a subsidized health plan maintained by an employer. The rules apply to self-employed persons, general partners (or limited partners receiving guaranteed payments), and S corporation employees who are more-than-2% shareholders.
Qualified long-term care insurance contracts will generally be treated as accident and health insurance contracts for purposes of the Self-Employed Health Care Deduction.
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I'm divorced. According to our divorce agreement, I'm required to pay my ex-wife alimony. Are these alimony payments deductible on my taxes?
Payments that qualify as alimony are deductible by the payer spouse and are taxable to the payee spouse. All references to alimony under a divorce decree also apply to separate maintenance payments under a separation agreement.
To qualify as alimony:
  1. Payments must be in case (includes checks and money orders). Cash payments to a third party under the divorce or separation are considered as alimony if they otherwise qualify.
  2. 2. Payments must be required by a decree that was originated or modified before December 31, 2018. Divorce or separation decrees/agreements that require alimony or maintenance payments to be made that originated or were modified after December 31, 2018, will not be deductible by the payee or included in taxable income for the recipient.
  3. Instrument may not designate the payment as not alimony. See Option to Treat Payments as "Not Alimony."
  4. Spouses may not be members of the same household (if separated under a decree of divorce or separate maintenance).
  5. Payment may not be treated as child support.
  6. Payer's liability to make payments must cease upon death of the recipient.
  7. Parties may not file a joint return.
Payments that do not qualify as alimony are as follows:
  1. Child support.
  2. Non-cash property settlements.
  3. Payments that are the spouse's part of community property income.
  4. Payments for use of property.
  5. Payments to keep up the payer's property.
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Line 24 on Schedule 1 says business expenses for certain individuals. What exactly is this adjustment for, and who qualifies for it?
Government officials paid on a fee basis, qualified performing artists, and Armed Forces reservists can claim business expenses as an adjustment to income. Disabled employees can deduct impairment related expenses as other itemized deductions on Form 2106 not subject to the 2% AGI limitation.
Individuals who are employed by a state or local government and paid in whole or in part on a fee basis are considered to be government fee basis officials.
National guard members and Armed Forces reservists who must travel more than 100 miles away from home and stay overnight to fulfill their training and service commitments can claim an above-the-line deduction for the cost of transportation, meals (subject to the 50% disallowance rule) and lodging. The deductible amounts are limited to general federal government per diem amounts for the applicable locale.

Form 2106 is used to report eligible expenses for government fee basis officials, qualified performing artists, and reservists. The expenses are then entered on line 24 of Schedule 1. The amount is included in the total of adjustments to income.

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What is a Health Savings Account? What are the benefits of opening a Health Savings Account? Can any contributions be deducted?
A Health Savings Account (HSA) is a tax-exempt trust or custodial account that you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. No permission or authorization from the IRS is necessary to establish an HSA. When you set up an HSA, you will need to work with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be established through a trustee that is different from your health plan provider.
You must be an eligible individual to qualify for an HSA. To be an eligible individual and qualify for an HSA, you must meet the following requirements:
You have a high deductible health plan (HDHP), on the first day of the month. A HDHP has a higher annual deductible than typical health plans, and a maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. Out-of-pocket expenses include co-payments and other amounts, but do not include premiums.
You have no other health coverage except what is permitted under other health coverage. This includes additional insurance that provides benefits only for the following items: Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property, a specific disease or illness, a fixed amount per day (or other period) of hospitalization. You can also have coverage (whether provided through insurance or otherwise) for the following items: accidents, disability, dental care, vision care, and long-term care. Plans in which substantially all of the coverage is through the above listed items are not HDHPs
You are not enrolled in Medicare.
You cannot be claimed as a dependent on someone else's tax return. (If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an HSA contribution. This is true even if the other person does not actually claim the deduction.)
You may enjoy several benefits from having an HSA. Some of those benefits
include:
  • You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions.
  • Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
  • The contributions remain in your account from year to year until you use them.
  • The interest or other earnings on the assets in the account are tax free.
  • Distributions may be tax free if you pay qualified medical expenses.
  • An HSA is "portable" so it stays with you if you change employers or leave the work force
  • Any eligible individual can contribute to an HSA.
  • For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year.
  • For an HSA established by a self-employed (or unemployed) individual, the individual can contribute.
  • Family members or any other person may also make contributions on behalf of an eligible individual.


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