Understanding IRA Deductions for Taxpayer A

Can Taxpayer A, a single filing taxpayer aged 48 earning $40,000 per year and covered by a retirement plan at work, take an above line deduction on her tax return for IRA contributions?

• A. Yes, she can take a full deduction
• B. No, she cannot take any deduction
• C. Yes, but only half of the contribution limit
• D. No, but she can take a partial deduction

Answer: (A)

The correct answer states that Taxpayer A can take a full deduction for her IRA contributions. To understand why this is the case, it's important to consider the rules surrounding IRA contributions and deductions based on income thresholds, filing status, and coverage by employer-sponsored retirement plans. For the tax year in question, a single taxpayer who is covered by a retirement plan at work can deduct the full amount of their IRA contributions if their modified adjusted gross income (MAGI) is below a certain limit. As of the last data available, the limit for a single filer to receive a full deduction starts at $73,000 and phases out completely at $83,000. Since Taxpayer A has an income of $40,000, which falls well below the cutoff, she qualifies for the full deduction on her traditional IRA contributions. This full deduction allows taxpayers to lower their taxable income by the amount contributed to the IRA, which can ultimately lead to lower tax obligations. It's essential to recognize that being covered by a retirement plan at work does matter, but it does not disqualify a taxpayer from receiving a full deduction if their income is below the specified limits. The other options present scenarios that may seem plausible but do not align with the established tax rules regarding IRA

Picture this: You’re scrolling through your tax documents, thinking about how to maximize your deductions. Let’s talk about Taxpayer A—a single, hardworking individual making $40,000 a year, and covered by a retirement plan at work. When it comes to her IRA contributions, can she take an above-the-line deduction? Spoiler alert: Yes, she can take a full deduction. But wait, why is that the case? Let’s break it down.