Some tax deductions are more valuable than others. In particular, "above the line" items are preferable. The line" is your adjusted grow income (AGI), reported on the bottom of page one of your tax return.
Above-the-line deductions reduce your AGI. Reducing your AGI, in turn, affects other calculations on your tax return and may lower the tax you have to pay.
For example, medical expenses are deductible to the extend they exceed 7.5 percent of your AGI. The lower your AGI, the more medical expenses you may deduct.
Above-the-line deductions include net capital losses up to $3,000 each year, IRA contributions in some circumstances, student loan interest, moving expenses, and alimony. In addition:
* Business deductions. You or your spouse might consider setting up a small business, perhaps as a sideline. You may find that more of your expenses are tax-deductible.
* Payments to a Health Savings Account (HSA). In 2007, up to $5,650 can be contributed and deducted. Anything you don’t spend one year carries over to future years, and withdrawals for health care expenses are tax-free.