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Learn How to Avoid These 6 Common Tax Errors

Knowing how you need to file your taxes depends on your income and filing status, as well as which deductions and credits you can claim. In this free ebook, we share some common errors to avoid.

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Anatomy of a tax return (Part 5) – Other Income and Adjustments

February 06, 2023

Continuing to work our way down Page One of a Form 1040 tax return and below net capital gains we reach a line called Other Income Line 8 and Adjustments to Income Line 10.

These two simple lines on Page One of the Form 1040 can have a massive tax impact on your tax life. 

These lines pull totals from Schedule 1. 

Schedule 1 is two pages long and captures a massive amount of information from various parts of your tax return including Schedule C for self-employed, S Corporate, Partnerships, rental income and other income just to name a few.

In some of the previous articles in this series much of the income was reported on a gross basis, gross wages, interest, dividends, pension income etc.

However, for Other Income, a key aspect of minimizing your taxable income is making sure to capture every legitimate deduction you can in the business that generates that income because this income is often reported as net income (income minus deductions).

As you identify more legitimate tax deductions, your taxable income goes down and therefore your tax on that income is lower.  Over the years of your working life these savings can add up to thousands or tens of thousands of tax dollars saved through proper education of how and where you can find legitimate tax deductions.

There is another large section of Schedule 1 and that’s adjustments to income.  These might be contributions to your IRA or self-employed retirement plan, possibly premiums paid for medical insurance if you are self-employed as well as other adjustments to income.

If you’ve never looked closely at Schedule 1 I highly recommend that you do it because you might be overlooking deductions commonly available to many people.

These two lines, Other Income and Adjustments to Income, arrive at Adjusted Gross Income or “AGI”

AGI is a very important number as many other calculations and determination of benefits derive from this amount.

When you’re ready to look at tax deductions for your business and especially setting up a self-employed retirement plan so you can get tax deductions for essentially paying yourself use this link below to schedule a meeting.

The information in this and other articles is intended to be educational in nature only.  Not tax, legal or investment guidance for you specifically.  Each person’s situation is unique and you must seek appropriate professional guidance that can address your unique situation.

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