Cut your taxes without itemizing

What do teachers, divorcees and people paying off student loans have in common? Tax breaks without itemizing.

In this tax tip:

• Adjustments, not deductions
• Some specialty adjustments
• A few also on 1040A

These filers, along with other taxpayers who fit into special categories, might be able to claim at least one of the dozen-plus deductions found directly on Form 1040. There's no need to complete Schedule A, with its percentage-of-income thresholds and deduction phaseouts.

Adjustments, not deductions
Officially, these breaks are identified as adjustments to your income. But they are popularly referred to as above-the-line deductions because you subtract them on Page 1 of your 1040, just above the page's last line -- No. 37 on the 2008 return -- where you enter your adjusted gross income, or AGI.

Taking these deductions will reduce your AGI, which in most cases directly cuts your overall tax bill because figuring your AGI is the first step in arriving at your final taxable income amount. The less taxable income, the less you'll owe the Internal Revenue Service.

While you don't have to hassle with Schedule A, a few above-the-line tax breaks do require you to fill out another IRS form or work sheet. Still, that's a relatively small time commitment to shave some dollars off your tax bill.

Listed below, in the order in which they appear on lines 23 through 36 of the 2008 Form 1040, are those and the rest of the above-the-line deductions.

1. Educator expenses. With the educators' expenses deduction, teachers and other public and private school system employees can subtract up to $250 they spent on classroom supplies. The amount is relatively small, but because it's an above-the-line deduction, there's no need to meet the 2 percent of AGI limit that would be required if these expenses were itemized on Schedule A as miscellaneous workplace deductions. So more taxpayers should be able to claim at least some of their school-related expenditures right on line 23.

2. Certain business expenses. Unreimbursed business expenses also usually appear on Schedule A as a miscellaneous deduction. But some taxpayers get to claim their work-related costs as above-the-line deductions on line 24 without worrying about a percentage threshold. You do, however, have to fill out Form 2106 or 2106-EZ.

The special taxpayers who qualify for this adjustment are military reservists, performing artists and fee-basis government officials. Although this collection sounds more like the cast of an avant-garde foreign-language film than related taxpayers, lawmakers have deemed that anyone who falls into one of these categories deserves special tax treatment.

National Guard and reserve members who traveled more than 100 miles during the tax year in connection with their service can deduct those costs here. So can performing artists who meet IRS guidelines, as can state or local government officials who were paid, in whole or in part, a fee to do their jobs. If you are in one of these three fields, tally your out-of-pocket costs on line 24. The Form 2106 instruction book has more details on claiming this tax break.

3. Health savings account deduction. A health savings account, or HSA, is a medical coverage plan that works much like an IRA. Eligible participants put money into an HSA where it grows tax free and withdrawals can be made to pay medical, dental and vision-care costs not covered under a corresponding high-deductible health care policy.

HSA holders can deduct, within IRS limits, their annual contributions; for 2008 tax purposes, that includes money contributed last year, as well as deposits to the account as late as this April 15. The maximum possible above-the-line HSA deduction on 2008 returns is $2,900 ($5,800 if the account is for family coverage; account holders age 55 or older in 2008 can add another $900). Fill out Form 8889 to determine the exact amount you can claim on line 25.

4. Moving expenses. Moving expenses. If you relocated for job reasons, some of your expenses can be deducted on line 26. You will, however, also have to fill out Form 3903.

5. Self-employment tax. If you're self-employed, you have to pay Social Security and Medicare taxes -- both the amount collected from you as an employee and you as an employer. But you get to deduct half of those payments on line 27.

6. Self-employed retirement plans. If you have a self-employment pension plan, such as a Keogh or a SEP-IRA, deduct any contribution amounts on line 28.

7. Self-employed health insurance. As an entrepreneur, you now can deduct 100 percent of health insurance premiums you paid for yourself, your spouse and dependents. Don't forget to count what you paid toward long-term care policies. You get a partial break here, too. Enter the amount on line 29.

8. Penalty on early withdrawal of savings. On line 30, the IRS gives you a break when someone else slaps your hand. If you cashed in a certificate of deposit and paid an early withdrawal penalty, you'll find the amount on the 1099-INT or 1099-OID that the account manager has sent you. The IRS lets you subtract that charge from your income.

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 $5,000 for the 2008 tax year to a traditional individual retirement account and subtract that full amount from your income. The amount goes to $6,000 if you're 50 or older. Enter the deductible contribution on line 32.

Even if you have a company pension plan or 401(k), or are eligible to participate in one, the Internal Revenue Service has increased the earnings limits -- as much as $63,000 for single filers; $105,000 for a married, joint-filing taxpayer with a pension; or $169,000 if you're married and don't have a pension plan at work but your employed spouse does -- 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 normally requires you to start taking minimum distributions from your IRA in the year you turn 70½, if you were that age or older at the end of the year, you cannot deduct any contributions made to a traditional 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 amount is reduced if you make more than $55,000 and are a single filer or $115,000 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. You'll need to complete Form 8917 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.

We're out of designated adjustment lines as we reach the bottom of Page 1, so that's the end of the nonitemizing tax breaks, right? Wrong.

Some specialty adjustments
Although line 36 simply instructs you to total your entries on all the various adjustment lines, curious taxpayers who take a closer look at the form's instructions will find even more possible ways to whittle away some of their taxable incomes.

Sure, several of these adjustments, such as reforestation amortization or repayment of specific supplemental unemployment benefits or court costs for certain unlawful discrimination cases are for relatively limited tax situations. But a couple affect quite a few taxpayers.

Line 36 is where you enter any pay you got for serving on a jury, but then turned it over to your boss because you got your regular pay while at the courthouse.

Contributions to Archer medical savings accounts also are accounted for here. This is a health care program provided by some small businesses and also used by some self-employed workers. You can deduct a portion of these medical care contributions (fill out Form 8853 to determine the amount) on this catch-all line.

So take a moment to check all out all these other possible above-the-line deductions. Details are in the Form 1040 instruction book. If you're one of the select group of taxpayers to whom these apply, claim the amount and add the special notation spelled out in the instructions to line 36. The extra adjustments could really pay off.

Now it's time to add all these specially annotated line 36 amounts to the deductions claimed on the preceding 13 income adjustment lines. This final number goes on line 37. Once entered there, it's subtracted from the total income amount you entered on line 22. The result: your adjusted gross income.

A few also on 1040A
What if you don't want to or need to use the long Form 1040? You still get a chance to reduce your income if you file Form 1040A instead.

Four of these above-the-line adjustments -- educator expenses, IRA contributions, student loan interest and tuition and fees -- also can be claimed on lines 16 through 19 of that slightly shorter tax return.

Regardless of whether you file the long 1040 or the slightly shorter 1040A, make sure you don't overlook these tax breaks at the bottom of page one on each form. If you do, you could be giving the IRS more money than you should.