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3.   Adjustments to Income

You may be able to subtract amounts from your total income (Form 1040, line 22 or Form 1040A, line 15) or total effectively connected income (Form 1040NR, line 23) to get your adjusted gross income (Form 1040, line 37; Form 1040A, line 21; or Form 1040NR, line 36). Some adjustments to income follow.

  • Contributions to your individual retirement arrangement (IRA) (Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32), explained later.

  • Certain moving expenses (Form 1040, line 26 or Form 1040NR, line 26) if you changed job locations or started a new job in 2016. See Pub. 521, Moving Expenses, or see Form 3903, Moving Expenses, and its instructions.

  • Some health insurance costs (Form 1040, line 29 or Form 1040NR, line 29) if you were self-employed and had a net profit for the year, or if you received wages in 2016 from an S corporation in which you were a more-than-2% shareholder. For more details, see Pub. 535, Business Expenses.

  • Payments to your self-employed SEP, SIMPLE, or qualified plan (Form 1040, line 28 or Form 1040NR, line 28). For more information, including limits on how much you can deduct, see Pub. 560, Retirement Plans for Small Business.

  • Penalties paid on early withdrawal of savings (Form 1040, line 30 or Form 1040NR, line 30). Form 1099-INT, Interest Income, or Form 1099-OID, Original Issue Discount, will show the amount of any penalty you were charged.

  • Alimony payments (Form 1040, line 31a). For more information, see Pub. 504, Divorced or Separated Individuals.

There are other items you can claim as adjustments to income. These adjustments are discussed in your tax return instructions.

Individual Retirement Arrangement (IRA) Contributions and Deductions

This section explains the tax treatment of amounts you pay into traditional IRAs. A traditional IRA is any IRA that isn't a Roth or SIMPLE IRA. Roth and SIMPLE IRAs are defined earlier in the IRA discussion under Retirement Plan Distributions . For more detailed information, see Pub. 590-A and Pub. 590-B.

Contributions.   An IRA is a personal savings plan that offers you tax advantages to set aside money for your retirement. Two advantages of a traditional IRA are:
  • You may be able to deduct some or all of your contributions to it, depending on your circumstances, and

  • Generally, amounts in your IRA, including earnings and gains, aren't taxed until distributed.

Although interest earned from your traditional IRA generally isn't taxed in the year earned, it isn't tax-exempt interest. Don't report this interest on your tax return as tax-exempt interest.

General limit.   The most that can be contributed for 2016 to your traditional IRA is the smaller of the following amounts.
  • Your taxable compensation for the year, or

  • $5,500 ($6,500 if you were age 50 or older by the end of 2016).

Contributions to Kay Bailey Hutchison Spousal IRAs.   In the case of a married couple filing a joint return for 2016, up to $5,500 ($6,500 for each spouse age 50 or older by the end of 2016) can be contributed to IRAs on behalf of each spouse, even if one spouse has little or no compensation.

For more information on the general limit and the Kay Bailey Hutchison Spousal IRA limit, see How Much Can Be Contributed? in Pub. 590-A.

Deductible contribution.   Generally, you can deduct the lesser of the contributions to your traditional IRA for the year or the general limit (or Kay Bailey Hutchison Spousal IRA limit, if applicable) just explained. However, if you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. Your deduction may be reduced or eliminated, depending on your filing status and the amount of your income. For more information, see Limit if Covered by Employer Plan in Pub. 590-A.

Nondeductible contribution.   The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. You must file Form 8606, to report nondeductible contributions even if you don't have to file a tax return for the year.

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