Wiley Tax Preparer: A Guide to Form 1040

CHAPTER 17

Business-Related Adjustments

Most business deductions are claimed on business schedules such as Schedule C, Profit or Loss From Business (Sole Proprietorship), and Schedule F, Profit or Loss From Farming. However, some specific business deductions are treated like personal expenses and are claimed as adjustments to gross income. For example, contributions made on behalf of a self-employed taxpayer to a Simplified Employee Pension (SEP) individual retirement account (IRA) are treated as an adjustment to gross income (see Chapter 15) while contributions to a plan for employees are treated as a business expense deductible on Schedule C.

Self-employed taxpayers can deduct a portion of the self-employment tax they pay. This deduction allows a self-employed taxpayer (who is both the employer and employee) to receive a deduction similar to the deduction allowed employers for their share of employment taxes.

A self-employed taxpayer can also deduct as an adjustment to gross income the health insurance premiums paid for self, a spouse, a dependent, or a child under age 27 as of the end of the tax year. An employer claims a deduction for health insurance premiums paid for employees on Schedule C (see Chapter 11).

The cost of a work-related move is also deductible as an adjustment to gross income. Although it is not a business deduction, it is business-related.

Finally, there are several other business-related adjustments to gross income. Some have their own lines on Form 1040, ...